Bellevue Digital Health

Global equity markets (MSCI World Net Index -4.5%) were clearly pressured by all the uncertainty stemming from the Trump Administration's tariff policies and worries about their potential impact on global economic growth and inflation rates.

The defensive, all-share healthcare sector (-2.3%) performed relatively better but still closed in the red, while US tech stocks (Nasdaq 100 -8.1%) and US small-cap stocks (Russell 2000 -6.8%) gave up significantly more ground. The Bellevue Digital Health Fund (-9.4%) was unable to escape the downtrend and also closed significantly lower.

Three of the 36 stocks in the fund's portfolio made a positive contribution to performance in the month under review: Kestra Medical (+46.6%), Evolent Health (+5.3%) and Veeva Systems (+3.3%).

Kestra Medical, a company that went public in March in a transaction that we successfully participated in, has developed and launched a digital, wearable cardioverter defibrillator system (WCD) called Assure. Cardioverter defibrillator systems help protect patients at high risk of sudden cardiovascular death. WCDs are usually recommended for patients immediately after a heart attack or after diagnosis of heart failure and serve as a temporary solution until an implantable cardioverter defibrillator (ICD) is available or feasible, assuming an ICD is even needed.

In our investment case we assume that Kestra Medical’s innovative solution will enable it to capture significant market share from Zoll Medical, its only competitor, and benefit from the currently low market penetration rate (only USD 1.3 bn or 13% of potential market volume of USD 10 bn). A comparable investment case in the past was Axonics, which managed to capture nearly 50% of Medtronic's market share within a few short years, after which it was acquired by Boston Scientific in January 2024.

Evolent Health generates all its profits in the US and would therefore not be affected by US import tariffs.

Veeva, a specialist for cloud-based software solutions for highly efficient drug marketing and drug discovery processes, would be affected only indirectly by tariffs. Veeva also beat investors' sales and profit expectations for the fourth quarter by a wide margin.

Dexcom (-22.7%), Align Technology (-15.1%), Intuitive Surgical (-13.6%), Privia Health (-10.1%) and Procept BioRobotics (-9.4%) led the list of portfolio decliners (total impact approx. -4.5%).

Dexcom received a warning letter from the US Food and Drug Administration (FDA), citing issues about its manufacturing process and quality management system at two facilities. We believe most of the problems can be resolved within a relatively short time frame and believe that there is little risk that this will significantly delay regulatory approval of Dexcom's 15-day G7 sensor. Dexcom also confirmed its sales forecast for 2025.

Align’s share price came under pressure in March because a high percentage of the company’s production activities are in Mexico and because US consumer confidence weakened. Align is developing new production methods and optimizing its manufacturing network.

Nearly all the instruments used with Intuitive Surgical’s da Vinci Xi and da Vinci 5 robotic surgical systems are manufactured in Mexico, so any US import tariffs would add to the cost of these products. However, Intuitive Surgical’s pricing model could offset part of the extra tariff-related costs.

All performance data is in USD / B shares.

Looking at the fundamentals, digital health companies are on a stable, above-average growth trajectory which is expected to be sustained throughout 2025. This scenario is supported by above-average growth in surgical procedure volumes and in hospital capital expenditure.

The approval and subsequent launch of relevant new products will continue to bolster sales growth, too. Examples here are the new da Vinci 5 robotic surgical system from Intuitive Surgical; Veeva's Vault CRM Suite for highly efficient marketing of medicines; Dexcom’s two continuous blood glucose sensors Stelo and G7; Procept BioRobotics' Hydros robotic system for removal of prostate tissue in males with prostate cancer; Insulet's Omnipod 5 automated insulin delivery system; Penumbra's computer-assisted vacuum thrombectomy technology called Thunderbolt; and Globus Medical's ExcelsiusFlex, a surgical robotic navigation system.

We expect 2025 to bring some tailwind to our investment solution: In addition to innovation as the key driver of value, other factors such as attractive valuation levels (price/sales multiples are close to historical lows), an anticipated increase in M&A and IPO activity, and a general repositioning of investor assets out of stocks that have made big gains and into top-quality stocks also speak in favor of an investment in the Bellevue Digital Health (Lux) Fund.