Q: Has the pandemic resulted in increased investment in the sector?
A: The impact of the efforts across different parts of the healthcare industry during the pandemic has caused a significant increase in investment, particularly in biotechnology, diagnostics, vaccines and life science tools and services. We are seeing a big pick-up in R&D efforts and outsourcing clinical development as a result of the innovation we have seen in the fight against COVID-19. Diagnostics and vaccine development have also seen a significant increase in investment, with these two areas struggling to generate interest before the pandemic. There is evidence that investment into biotechnology has reached an extreme, with over 150 IPOs since the pandemic started, causing a period of underperformance, particularly in small caps, which will likely continue for a period. The IPO window seems to have closed towards the end of last year though we would not be surprised if this were to reopen.
Q: How has the sector performed relative to the global equity markets this year/since lockdown?
A: The pickup in inflation, which is not a positive driver of performance for healthcare, meant the sector lagged global equity markets in 2021 when compared to other areas of the market. COVID-19 has also negatively impacted manufacturers and the broader supply chain causing prices to move higher. Alongside both of these, COVID-19 has impacted the employment market with certain areas, including healthcare, struggling to fill vacancies. Once the increase in inflation starts to flatten or even decline, interest in the healthcare sector should increase again.
Q: Briefly highlight the fortunes of the biggest healthcare stocks in 2021:
Pfizer outperformed, driven by its efforts against COVID-19 both on the production of its vaccine, discovered by BioNtech, and also positive data for its anti-viral drug against coronavirus.
Johnson & Johnson significantly underperformed due to it being a defensive stock which obviously struggles in an environment more positive for cyclicals.
UnitedHealth slightly outperformed the market, driven by its continued strength in earnings despite challenging conditions, proving the strength of its business model.
Gareth Powell, CFA
Gareth joined Polar Capital in 2007 to set up the Healthcare team. Prior to Polar Capital, Gareth worked at Framlington, where he began his career in investment management in 1999. Soon afterwards, he joined the Healthcare Team in 2001 and helped launch the Framlington Biotech Fund, which he managed from 2004 until his departure.
Gareth studied biochemistry at Oxford, during which time he worked at Yamanouchi, a leading Japanese pharmaceutical company (later to become Astellas). As well as this, Gareth worked for the Oxford Business School and various academic laboratories including the Sir William Dunn School of Pathology and the Wolfson Institute for Biomedical Research.