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Post-Pandemic Health-Care picks

January 24, 2022 5 min 43 sec
Michal Marszal, CFA
CIBC Asset Management
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Text transcript

Michal Marszal, I’m the portfolio manager at CIBC Asset Management, focusing on the global healthcare sector.

I believe that the healthcare sector today still represents an attractive investment opportunity for the majority of equity investors. Although I would note that the sector is trading at relatively elevated valuations as compared to historical averages. And with a relatively consistent growth outlook as compared to prior years, that implies somewhat of a muted return expectation here going forward, as compared to the previous periods.

What I will say here from a tactical positioning perspective, Omicron will likely have a relatively small impact on the global healthcare sector. Unlike the prior COVID-19 waves of infections, which have mostly had a relatively dramatic impact on specific pharmaceutical companies, mostly exposed to COVID-19 solutions. But also the diagnostic sector, which significantly benefited from additional testing volumes that were driven by the COVID-19 infections and had a significant negative impact on discretionary medical utilization, mostly impacting providers and medical device manufacturers.

Within the global healthcare sector, we are now finding quite attractive opportunities across practically all sub sectors. Within the global pharmaceutical industry, there is already probably a diminished opportunity as it relates to direct exposure to COVID related developments. But the industry itself has very attractive companies with very attractive growth prospects. And as investors and the market have begun to price in some significant patent cliff scenarios heading throughout the remainder of this decade, certain stocks have become particularly attractive from an investment perspective in this space, which overall is reasonably attractive going forward. There’s also a plethora of assets in the global biotechnology space with the volatility that we have seen in the sector, due to anticipated increases in interest rates. We have seen a significant dislocation across the majority of the Smid cap assets in our space, and those companies represent extremely attractive investment opportunities.

The aforementioned recovery of global medical utilization is also presenting interesting, attractive opportunities in the global medical device space. And here specifically, certain assets that are fastest growing in very attractive therapeutic categories are of greatest interest, especially as valuations on the highest growth assets have come down quite substantially in the second half of 2021. And that is also true of very select assets within the life science tool space, which faces headwinds related to diminishing volumes of testing as it pertains to COVID-19. But nevertheless, still has pockets of very attractive exposures to research and development related tools and solutions, particularly in fast growing areas, such as genetic sequencing, proteomics, tissue analysis, et cetera.

And lastly, I would mention the healthcare services space, mostly U.S. centric sub sector within global healthcare. But again, very, very attractive opportunities here as we continue to see very strong fundamentals across managed care, in particular, and certain pockets of outsourcing specifically with respect to manufacturing of drugs, as well as conduct of clinical trials and research and development, more broadly.

Great examples of the types of investments, which are of particular interest today in our strategy within the global pharmaceutical space, I would mention companies such as Novartis and Sanofi. Within the global biotechnology space, especially highlighting the opportunities in the small and midcap arena, a company like Sarepta, a leader in gene therapy for very specific muscle disorders is a very good example of that. In the medical technology space, taking advantage of a broad base medical procedural utilization company like Medtronic offers investors an extremely attractive setup heading into next year with a pipeline full of very interesting, attractive growth assets. In the research space, Illumina is an example of very good exposure to the fast growing sequencing space, especially with significant discounts to its more recent valuation multiples.

In a more of a high growth area, the small and mid-capitalization type of an asset space, a company called NanoString is a very interesting company focusing on this spatial Genomics arena, a very fast and novel growing area of research and development in biomedicine. And lastly in healthcare services, managed care leaders, such as United Health, CVS are great examples of taking advantage of the very strong, long term tailwinds within that sub sector. And I would also mention a company called IQVIA, which for us represents a core holding of sorts in the outsource contract research organization space, focusing on providing customizable clinical trial servicing solutions to the global biopharmaceutical industry.