In the healthcare sector, investors should look at both established and emerging companies.
They also need to look at private entities, says Bob Deresiewicz, partner and senior vice-president of Wellington Management Company. He co-manages the Renaissance Global Health Care Fund.
He adds these businesses are developing compelling technologies and treatments that may eventually create pricing pressure in the market.
Deresiewicz says it’s challenging to determine how much companies worth because before their drugs and programs hit the market, it’s uncertain how well they’ll sell.
However, “a lot of scientific information about programs [and drugs] is made available publicly and continuously [through] press releases, [and] more importantly, in the form of biomedical meetings and medical journals,” explains Deresiewicz.
“There’s also patent literature available,” he adds. “So, my approach to this is to really understand exactly what each company is doing.”
In particular, he finds out:
- The diseases companies are researching;
- The types of drugs they’re testing;
- The chemistry of those drugs;
- The manufacturing process for those drugs; and
- The patenting processes.
He also looks at whether businesses are “designing [clinical] trials in a way that’s likely to lead to approval.” It’s crucial that companies focus on addressing unmet needs, says Deresiewicz, since they need to be realistic about their market opportunities and consumer bases.
Smaller companies release a lot of details about their research to investors. To properly analyze this data, he adds, investment teams must look at it “in a solid, scientifically valid way” to ensure clients invest only in programs that are likely to succeed.
Problem is, “a [clinical] trial will either work or it won’t work. If it works, the stock goes up. If it doesn’t, the stock gets killed.” Due to that, healthcare is considered a risky sector.