The healthcare sector has seen a number of tailwinds emerge in the last year that paint a favourable long-long term outlook, such as advancements in artificial intelligence (AI) and in GLP-1 agonists like Ozempic.
Speaking on a recent episode of the Relative Return podcast, Pella Funds Management’s chief investment officer, Jordan Cvetanovski, outlined his optimism for healthcare, noting that it offers a number of strong opportunities.
“Where we’re focused is healthcare, we think there’s opportunities there,” Cvetanovski said, adding that the fund manager holds an almost 25 per cent allocation to the sector.
“We’ve got a large position. A fifth of the capital is invested in healthcare companies, and we’ve done really well selecting companies like Novo Nordisk. With Ozempic, it’s been a big thing in the news, but I’ve owned, in various funds, since the GFC.
“I remember when I bought [it], it was the most expensive company in Europe at 17x earnings. And people kept saying to me, ‘How can you buy this expensive business?’”
Cvetanovski said he believed in Novo Nordisk (Ozempic producer) at the time, a belief that has since been validated given the stock’s some sixtyfold growth since he first acquired it.
“Back then it was a great business that had a lot of potential, selling insulin in an end market that was growing. And I think at the time, diabetes rates in China were growing 58 per cent per annum.
“And in the US, you could imagine what’s happening there, which is how we got to the weight loss drugs eventually. So it’s a wonderful business that’s still one of our top holdings, and we still believe that it will surprise on the upside,” Cvetanovski said.
For the executive, the main reason for the optimism is not necessarily the quality of the product, but the industrial scale of production.
In its latest quarterly report in March, Pella Funds Management reported that Novo Nordisk is already generating revenue of almost $20 billion per annum from its GLP-1 medicines.
“People forget that this is an industrial operation now. It’s about how much you can make. The demand is not in question,” he said.
“Most people want this thing, it’s whether they can get their hands on it, and it’s difficult to make these large molecules work.
“It’s a complicated process, it’s a chemical process, it’s a brewing process, and [Novo Nordisk] are well ahead in that respect, so they’ll be the ones able to satisfy the market.”
Speaking at the Australian Wealth Management Summit in May, Cassandra Crowe, vice-president at T. Rowe Price, similarly said healthcare is emerging as a sector to consider as the “limited opportunities fog” clears.
She highlighted advancements in GLP-1 agonists – initially developed for Type 2 diabetes, now FDA-approved for treating obesity – hold potential wide-ranging impacts, addressing not only diabetes-related issues but also potentially aiding addiction, Alzheimer’s, and alleviating strains on the healthcare system.
“We feel the market is broadening with a wider net of opportunities that are not without risk, but are a widening set, which is exciting as we look forward,” Crowe said.
“And AI squared, artificial intelligence, artificial incretins, could shepherd in a new era. We say at T. Rowe Price, humanity always finds a way to the challenges ahead.”
Crowe explained these advancements translate into an increased opportunity to “put cash to work”.
Similarly, in a recent market outlook, Rich Wolf, equity portfolio manager at Capital Group, said he believes opportunities for innovation in healthcare are ripe, with companies actively pursuing therapies and technologies to treat, and possibly cure, major diseases and improve people’s lives.
Wolf highlighted two rapidly advancing fields, including cell therapy alongside new gene therapies, which are opening up opportunities for many pharmaceutical and biotech firms.
“Significant hurdles remain for widespread adoption of these technologies, and not all innovations will succeed. But the future of healthcare is exciting, and the potential for value creation over the next decade appears promising,” he said.
