The slow return to post-pandemic normality has huge implications for the healthcare industry, but which growth areas or investment ideas are in best position to capitalise on this shift?
‘Many of the changes we have already seen as a result of the virus, will only serve to accelerate the many innovative themes we see playing out across all healthcare sub-sectors,’ JPM Asset Management’s Yazann Romahi told Citywire Selector.
‘The backdrop for the healthcare sector remains attractive, fronted by dramatic advancements in science and technology, ageing populations and global market demand.
‘Innovation in areas of unmet medical needs remains very strong, with scientific and technology advancements driving higher rates of success over the longer term,’ he added.
Romahi said the regulatory environment has become much more supportive for genuine innovation, even with markets which have traditionally faced financial challenges.
He added that genetic therapies is an emerging, innovative field with the ability to fundamentally change how many of the world’s most prevalent inherited genetic conditions are treated. ‘We believe genetic therapies is at a crucial inflection point as we are seeing the field move from pipeline to commercial reality.
‘In terms of the outlook for genetic therapies, we believe increasing focus of research and development efforts, along with a broadening scope of diseases being targeted and investment from big pharmaceutical companies, will help the field evolve to become an even more established part of the healthcare sector in the future.’
A longer-term shift
Over the next 10-15 years there will be a major shift into cell and gene therapies, which can be completely curative, according to Amati Global Investors’ analyst Gareth Blades.
Blades said there is strong revenue capacity within cell-based medicine, which is reflected across three of the fund house’s four strategies. These being the TB Amati UK Smaller Companies, Amati Aim VCT and Amati AIM IHT Service funds.
Speaking to Citywire Selector, Blades said Amati’s exposure to healthcare amounts to 25.7% and several stocks are within niche companies like Maxcyte, which provides cell-based medicine.
‘Rather than taking a pill every day to manage their symptoms, patients could have a single treatment to cure their disease. In some cases, there may be no other treatment options, so for these patients, cell and gene therapy will be a game changer. A lot has been made of the cost of cell and gene therapies but as the technology matures, cost will come down.’
Maxcyte is leading the way in this regard with their rapid transfection technology, known as electroporation. It is a technique in which an electrical field is applied to cell to increase their membrane’s permeability. Follow-up manipulation allows chemicals, drugs, or DNA to be transferred into the cell.
Blades said: ‘This is a very neat business model that builds a very significant revenue stack: for each successful new therapy that makes it through clinical trials and to commercial launch, companies must pay milestones and then royalties on sales.
‘So, if we consider all Maxcyte’s deals, they are entitled to some $900m worth of milestones and royalties. This does not include the annual license cost of the electroporation machine or purchase of consumables.’
Stocks to watch
Renalytyx is an AI diagnostic company on Amati’s radar, which has the KidneyIntelX platform. This allows companies to deliver kidney disease risk assessment and follow-up clinical management whenever needed.
‘Kidney disease is a progressive and chronic condition. There is currently no accurate way to identify which patients will progress to kidney failure and thus be the greatest clinical and cost burden. KidneyIntelX can significantly lower healthcare costs while improving patients’ life quality,’ said Blades.
Also at the forefront of gene therapy advancement, Blades said, is Amryt Pharma. It produces orphan drugs, which are medicines apt to cure rare health condition and are very attractive for investors, given their strong revenue capacity.
‘A rare disease in the US is a disease or condition that affects fewer than 200,000 people, while in Europe this refers to a serious health condition affecting one in 2,000. Patients are sometimes unable to conduct a normal life and once they find the right drug, one that effectively manages their condition, they are likely to stick with it,’ said Blades.
Blades said that Amryt upgraded its business in Q4 2019, by acquiring a US company and since then they have relentlessly executed. ‘Their revenue and cash generation over the last twelve months has been transformative.
‘In early 2022, pending regulatory approval in Q4 2021, Amryt is expected to release Filsuvez for the treatment of epidermolysis bullosa, a rare skin disorder for which consensus estimates sales of ~$310m by 2026.’
As orphan drugs make a real difference to people’s lives, it would be crucial to shorten clinical development timelines to increase the usual number of new drugs placed on the market within a given period and support a wider variety of patients, according to Blades.
While Amati’s exposure goes well beyond the healthcare sector, the plan is to stick to all companies with a strong intellectual property, as that is where growth potential is usually significant, Blades added.