The incoming US administration led by Joe Biden will be a “crucial” factor looming large over the healthcare industry this year, with planned reforms heralding potentially far-reaching implications for healthcare stocks and drug prices, Rhenman & Partners Asset Management said this week.
Rhenman’s flagship Healthcare Equity Long/Short hedge fund gained 17.1 per cent in its main euro-denominated IC1 share class last year, bolstered by a 4.8 per cent monthly return in December.
The strategy – which trades a range of small, medium and large pharmaceuticals, biotechnology, medical technology and service company stocks – made profits in each of those sectors last month, with medical technology and biotechnology companies bringing in the biggest gains.
In an update this week, the Stockholm-based global healthcare-focused hedge fund said once the fall-out from the coronavirus pandemic is brought under control, the Biden administration’s proposed healthcare reforms will come under closer re-examination this year.
While the Senate is now controlled by the Democrats, Rhenman believes major new healthcare reforms may prove tricky to push through with a weak majority.
“The reinstatement of the original Affordable Care Act (ACA) that Democrats now have in mind, following various amendments made by Republicans, requires budget reinforcements and tax increases,” Rhenman observed in the commentary. “The issue of lowering drug prices for Medicare will be a natural part of efforts to bolster the ACA.”
Rhenman added: “This is probably the most crucial issue that the fund will face in 2021.”
The firm said that while its long-running flagship strategy has the ability to delivery “healthy returns” this year, it cautioned that other sectors may perform better.
While large healthcare-focused companies have reached record low relative valuations, reductions in drug prices could prove beneficial for the strategy, with reforms associated with lower patient deductibles, in turn creating greater demand for expensive medicines.
Rhenman also noted how the public perception of pharmaceutical companies is “more positive than usual” due to the rapid development of vaccines and drugs for fighting Covid-19.
“Hopefully, the question of prices can finally achieve a long-term solution and the market can adjust its earnings forecasts once and for all, or, at least for a longer period of time.”
Rhenman said 2020 had proved “a terrible year for the world, but an unexpectedly good year for the stock markets.”
Outlining December’s performance, the commentary noted that the weakening US dollar dragged down returns to the tune of around 2 per cent.
The portfolio’s best contributors last month included Novocure – a US medical device company which provides novel cancer treatment technology, and whose stock soared 105 per cent in 2020 – and Alexion Pharmaceuticals, a US biotechnology firm specialising in rare diseases, which rose on the back of a takeover move by AstraZeneca.
The fund’s worst contributors were AstraZeneca, whose share price reacted negatively to the news of the Alexion acquisition, and biotech firm Mirati Therapeutics, which dipped in value in December following earlier gains.
