In episode two of our fortnightly COVID-19 webinar series, healthcare sector head, Dr Nick Cameron explains how the Antipodes team examines companies within the global healthcare space.
This webinar was recorded on 9 April, 2020. To view the full webinar, including comprehensive insights into Antipodes’ portfolio, click here.
You can register for upcoming webinars in the series here.
Episode 2 Part 2 – Transcript:
Dr Nick Cameron:
Some key points for investors out there on how we think about investing in the space:
- Typically what we look for are companies that innovate, not fast followers, that are ones that provide very innovative or novel products and services. This can provide a wider moat against competition and also command greater pricing power in markets which are typically seeing very significant pressure on pricing. We’re quite unique in healthcare, in particular biotech and pharma, where patents also provide very strong protection around product revenues and some resilience longer term.
- We like companies with diversified earnings streams and that also can provide a greater margin of safety, rather than having all your eggs in one basket. It also can provide lower earnings volatility in cyclically exposed businesses and healthcare, but also, more importantly, I think in this stage of the evolution of the healthcare market – having multiple avenues or options to unlock value through other businesses within your broader business also provides optionality and potential to unlock shareholder value.
- Products and services that are less discretionary in nature is also something we look for and have generally a lower chance of being deferred or being curtailed during times of difficulty.
- Finally, we try to avoid exposures to companies or businesses that have a disproportionate exposure to government revenues and payers. Overall we think these businesses are more at risk of having funding cuts, particularly when healthcare budgets are burgeoning with the aging population and growing utilisation.
Key examples that we have in the portfolio include Merck & Co. It has a number of these factors going for them. Oncology is a very defensive and non-discretionary part of medicine. It’s vaccines business is very defensible and stable through economic cycles and also is the animal health business. Roche Holding AG, as well, is probably the premier innovator in the pharmaceutical space. It’s well diversified and margins are improving.
And then finally, I’ll probably just note, just how wide the variety of opportunities we have in healthcare is. The valuation or multiple divergence between the various subsectors is quite wide. And you can see there (refer to slide 5) that pharmaceuticals, in particular, have been languishing over quite some period and it’s no surprise that that’s where we’re finding a lot of opportunities at present.