Finding Healthcare Opportunities for the Long Term

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Text transcript

Murdo MacLean, I’m a client investment manager with Walter Scott.

The question as to how investors should approach this sort of area of vaccines is obviously very topical. There are about 180 or so vaccines currently under some stage of trial for this virus, which I think really does put into very good context as to just how competitive a market that is — and clearly we’re not expecting to have a 180 vaccines at the end of all of this either. [A] great many of them will fail, obviously. So I think when you look at this vaccine or, frankly, any drug space, you shouldn’t assume that there will only be one player there. Very rarely, unless you’re talking about a sort of orphan disease, would you be likely to get one drug as a therapy. You typically get competition, which will impact the economics of a drug and you will get a great many failures, which is what the debate is around the healthcare space as to why companies should command such high prices. The reason they would put forward is that there is a high degree of risk that your drugs fail. And so a low success rate means you have to recoup all of that investment in the ones that succeed.

I think with respect to this virus and what makes it very interesting and tough, I think, for investors is that because of the global nature of this pandemic, it’s really something that was not seen before. The economics around any successful vaccine might not be the same as previous successful drugs that have been developed.

Where have we typically found really exciting companies? It’s in two areas of healthcare broadly speaking. First is obviously in traditional pharma biotech, particularly pharma, as biotech tends to be small one-drug businesses in the main. Pharmaceutical businesses tend to have broader shoulders [and] more legs […] to grow, which is something that we value. [There are] companies such as Roche, which we’ve owned for a great many years. [We] previously owned Genentech, which was acquired by Roche, another really dominant and innovative force in oncology treatment. [There’s] Novartis, another Swiss pharma business, and Novo Nordisk, which has been a perennial feature of our portfolio [and is] the Danish leader in some development and diabetes therapies. And these businesses have and continue to thrive because they’re serving the growth market. Unfortunately, a growth market: more people are getting diabetes, more people are suffering from obesity, and more people are getting forms of cancer as they age. Coupled with that, these businesses tend to attract the best and the brightest in those fields. And so there is a virtual cycle at play there, whereby their success breeds further success.

These are some of the areas in the pharma space. And the other side of that is in the medical device space. And that’s a very broad term, but it’s also [that] these are companies that don’t make drugs. They make devices or solutions for people with diseases. And that really ranges from companies like Edwards Lifesciences that developed transcatheter solutions for heart diseases — and [that was] really a game changer, replacing traditional open heart surgery, so really just advancing the standard of care. And then companies like Intuitive Surgical, the U.S. company that is the pioneer of surgical robotics; the da Vinci robot. Still operated by a skilled physician, but enabling those physicians to be that much more precise because of the nature of the design of the robot, the da Vinci [Surgical] System. And these companies really are at the vanguard of their industries. And again, as I say, leading innovation in that space.