Market review:
Despite a tough market environment of the month and the quarter,
Healthcare has continued outperforming the market, led by Healthcare Services.
The outsized moves seen on stock specific news items, even if well-expected
show the pent-up nervousness from market participants (Dexcom, Alnylam,
Genmab).
This month,
Novartis and Merck each committed close to $2bn to license phase 2 assets from
Chinese companies. These recent, high-profile deals for cardiovascular and
metabolic assets are the latest in an accelerating series of deals by Western
companies to acquire assets developed in China. These deals, often for early
development candidates, highlight the breadth and depth of competence and
innovation in the laboratories of Chinese companies.
Further, Dr. Peter
Marks, head of the Center for Biologics Evaluation and Research (CBER) resigned
on the 28th of March. CBER regulates vaccines in the US. In his resignation
letter, Dr. Marks singled out efforts by RFK to undermine the confidence in vaccines.
This resignation comes after RFK announced the reduction of the healthcare
department’s staff by roughly 20’000, or 25 %. On March 31, 4 other NIH
directors were removed from their posts. While these developments are negative
for sentiment and may slow down review and approval process for new drugs, we
view the impact as limited and primarily affecting small-cap biotech stocks.
Overall, we are
encouraged by the continued outperformance of the healthcare sector, which we
believe is justified given the strong earnings rebound expected this year and
the depressed valuations.
Portfolio changes: We did not initiate a new
position and no position was exited.
Performance review: The largest attributors vs. the index were Eli Lilly (+24
bps / The stock lost 10.3% and we are underweight versus the benchmark), HCA
(+21 bps / No company specific news. The stock returned 13% in March, but
experienced large intra-month volatility driven by various policy-news (changes
in Medicaid funding), a positive broker on hospitals, and negative press on the
space (Economist)) and Novartis (+17 bps / Positive
competitor data readout. Company outperformed European peers over the month).
The largest detractors vs the
index were Dexcom (-41 bps / Dexcom received an
FDA-warning letter (non-conformities in manufacturing processes and quality
management system) following inspections at two company facilities. The letter
does not prevent Dexcom from manufacturing and selling its current products and
the company confirmed 2025 guidance. The sell-off was further exacerbated due
to overall Medtech weakness on tariff-fears), Novo Nordisk (-15 bps / Announcement
of top-line results from the Phase 3 REDEFINE 2 trial of CagriSema in
individuals with obesity and type 2 diabetes. Over 68 weeks, patients receiving
CagriSema experienced a 15.7% reduction in body weight, compared to 3.1% with
placebo. The placebo-adjusted weight loss of 12.6% fell slightly below
expectations but was comparable to the 12.3% seen with Eli Lilly’s Zepbound in
the SURMOUNT-2 trial. Despite this, Novo Nordisk remains on track to seek
regulatory approval in Q1 2026 and plans to present comprehensive data from the
REDEFINE 1 and 2 trials at a scientific conference in 2025) and Elevance (-14
bps / Not invested).
ESG: Firms in the portfolio did
not report any material ESG issues in March.
