Bellevue Emerging Markets Healthcare

The MSCI World Index shed about 2% of its value in USD during the month under review. The negative return can largely be blamed on the cautious management guidance given by index heavyweights Microsoft and Meta Platforms. Investors also hugged the sidelines as the toss-up race for the White House entered its final days. Health stocks were again somewhat weaker than the overall market. The MSCI World Healthcare Index closed about 5% lower month-on-month. Weak earnings announcements from healthcare insurers and a poor quarterly result from Eli Lilly dragged the entire sector down. Eli Lilly reported lower-than-expected sales because of heavy wholesaler stockpiling of its GLP-1 drugs during the preceding quarter. Demand for its weight-loss shots was still very high, though. Emerging market equities underperformed stock markets in developed countries and closed about 4% lower. After a very strong performance in September, Chinese stocks were hit by profit-taking. Healthcare stocks in the region shed just over 7% of their value on average. 

The Chinese biotech company Innovent was in the headlines towards the end of the month. It announced that its founder and chairman, together with another company manager, had acquired a stake of approximately 20% in Fortvita. All of Innovent’s foreign business operations are consolidated at Fortvita. The disclosed value of the transaction was said to be just over USD 20 mn. This news triggered considerable concern about Innovent's corporate governance practices within the international investment community. Investors also questioned the valuation of the subsidiary. Innovent shares plunged about 20% within the space of two days. Innovent’s board convened during the first weekend of November and then announced on November 4 that the transaction was being called off. It also announced excellent sales figures for the third quarter. Sales were up 40% year-on-year, driven by a booming domestic market. Innovent shares recovered somewhat on this news.

The Brazilian specialty pharmaceutical company Hypera reported its results for the third quarter. They missed consensus expectations by a mile. Excess inventory at distributors led to a sharp drop in Hypera's quarterly sales versus the same quarter of the prior year. Hypera's management also scrapped its guidance for the year as a whole and announced changes in company strategy. The changes are intended to significantly improve the company’s working capital in the medium term. Hypera is shortening the payment periods for customer invoices with the aim of reducing accounts receivable days from services and deliveries to 60 days in the medium term, compared to the current level of 126 days. Management also launched a program to buy back up to 30 mn of the company’s shares, which corresponds to about 5% of total shares. Our view of this news flow is negative overall, not least because of the lack of visibility regarding the future course of business.

Last month we increased the fund's positions in Akeso, Innovent and Summit Therapeutics and opened a new position in Microport.

Shareholdings of Cipla, Celltrion and Samsung Biologics were reduced. CSPC is no longer in the portfolio.

The fastest growing countries in the world can be found in emerging markets and they contain more than half of the world's population. Asian emerging markets are also forecast to account for more than 50% of global GDP by 2050. It is known that the economic growth model of countries shifts from manufacturing to the services sector as household incomes rise. A growing middle class fuels demand for modern medicine. Healthcare ranks increasingly high on their wish list. Billions are being invested in infrastructure, technology and research to modernize the healthcare systems in emerging market countries. This is giving a greater swath of the population access to better healthcare. Meanwhile rapid population aging is also stoking demand for healthcare. In 30 years’ time there will be 400 to 500 million people over 60 in China alone, and they will have a growing need for modern health services and medicines. Outside Asia, Brazil’s rapidly expanding private-sector healthcare market offers a range of interesting investment opportunities. The quality and long waiting times of the country’s public health system are no longer acceptable to many higher-income Brazilian households and they are increasingly embracing these new services offered by private-sector healthcare providers. Hospital chains embedded in a fully-integrated ecosystem are but one example of the beneficiaries of this structural change. The fund serves as a defensive vehicle for capturing the above-average growth potential emerging markets offer. It invests in the entire healthcare system value chain, from hospital chains, drug developers and device manufacturers to medical research specialists and digital health companies.