Market review: August marks the strongest month for
the sector since January, with the MSCI World healthcare outperforming the
broad market by 2.5%. This performance was driven by a strong rebound in the
services sector following last month’s drawdown. Biopharma companies also
performed well, with large caps driven by relief on incremental clarity on
pricing (more below), and small caps reacting to increasingly dovish rate
expectations.
Some clarity on tariffs: This month, the European
Commission and the White house issued a joint trade statement between the EU
and the US. The joint statement set a ceiling of 15% for tariffs across all EU
products exported to the US. This ceiling will apply to pharmaceuticals,
regardless of the outcome of the ongoing 232 investigation. This investigation
assess the effect of imports on US national security, as was previously deemed
to be a major overhang. In addition, generics will be tariffed at the previously
implemented most-favoured nation level, which is close to zero. Switzerland
currently faces 39% tariffs on many exports since the beginning of the month.
However, pharmaceuticals currently remain exempted from these tariffs. While
there is a lot of policy volatility in the US, this gives some clarity for the
many international companies producing in the EU for the US market and sets a
potential benchmark for future negotiations. Separately, a letter was sent by
the Trump administration to pharmaceutical companies regarding drug pricing. A
lot of uncertainty remains on this matter, however the absence of details or
binding constraints triggered relief in the pharmaceutical sector.
Close of the earnings season: Second quarter
reporting is now over, with results overall quite strong of the sector.
Sales and EPS growth close to 10% and overall robust
earnings surprises continue to bolster our confidence in the sector’s healthy
fundamentals. This quarter once again saw very large swings following earnings
report for several companies. This highlights the information asymmetries and
opportunities for value creation with active management within the sector.
Performance review: The largest contributors were RadNet (+115 bps /
Reported better than expected Q2 results and raised full-year outlook), Humana
(+86 bps / No company-specific news. Rebound of services firms following last
month’s drawdown) and Natera (+80 bps / Sales came in above estimates (driven
by Signatera) and raised the 2025 sales and gross margin outlook).
The largest
detractors were Inspire (-85 bps / Despite stronger-than-expected Q2 results,
the 2025 outlook was significantly lowered as the Inspire 5 rollout proved more
complex than anticipated, and some patients may be delaying V therapy while
considering GLP-1 treatments), Tandem (-60 bps / Q2 results showed a sales beat
but an EPS miss, with shares selling off after US expectations were cut due to
rising competition) and Agilon (-31 bps / 2Q results came in below
expectations. In addition, Agilon announced a CEO transition and withdrew FY25
guidance).
ESG:
Firms in the portfolio did not report any material ESG issues in August.
