Bellevue Asset Management : Healthcare investments - new markets yield rich returns
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Bellevue Asset Management : Healthcare investments - new markets yield rich
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Whether for generic drug companies, providers of patient care services, or
medical device manufacturers: Emerging markets are becoming an increasingly
prominent target market for the life sciences industry. Companies hailing from
these countries therefore belong in any well diversified healthcare portfolio.
Target markets for the healthcare industry are becoming increasingly globalized,
as already witnessed in other industries. In western industrialized nations,
efforts to slow the rise in public healthcare costs and health insurance
premiums are pressuring corporate sales and earnings but, in emerging markets,
business is increasing as the middle class - and with it the number of self-
paying patients - grows.
Demographic trends the driving force
According to a forecast by the United Nations, the world's population will grow
by one-third to 9.1 billion between 2010 and 2050. During that same period the
60-plus cohort is forecast to triple from 760 million to 2 billion.
Industrialized countries will be affected most by aging population. The elderly
will then account for 36.6% of the total population of this group of nations and
an even higher 42.3% in Japan. However, other Asian nations will also experience
population aging: In Singapore the senior citizen cohort is forecast to more
than triple to 35% and even in China it will grow to 29.9% in 2050. The aging of
the US population is relatively mild in comparison as an estimated 26.9% of the
US population will be older than age 60 in 2050. This is attributed to a steady
inflow of young immigrants.
The consequences of population aging are obvious. Diseases that are more
prevalent as people get older, hypertension, for example, or arthritis,
diabetes, cancer and stroke, will put a greater strain on healthcare systems.
Healthcare costs will therefore increase in emerging markets too, both for
public healthcare systems and in the private sector. According to the latest
available data, annual healthcare spending represented 17.9% of GDP in the US,
whereas in Brazil it was 9.3%, in China 5.4% and in India a mere 4.0%.
Politicians and policymakers in these countries will have to budget more funds
to healthcare to address these challenges. At the same time self-payers -
patients who pay for some or all of their medical treatment and drugs out of
their own pocket - are also growing in number with the rise of the middle class
in emerging markets. Conversely, countries such as the US are devoting their
attention to making their healthcare systems more efficient and providing
healthcare services to a greater proportion of the uninsured or untreated
population.
These trends are producing divergent growth rates in the various sub-sectors of
the healthcare industry. Biotechnology has become a veritable seedbed of new,
innovative medicines. Biotech drug sales are expected to grow an average of 15%
p.a. over the coming years as biotech companies bring more and more drugs to the
market. Meanwhile generic drug companies are benefiting from growing demand for
affordable and effective medications. Estimated earnings growth in this sub-
segment of the life sciences industry remains high at 10%. Healthcare services
for patients, physicians and hospitals represents the largest sub-segment of the
healthcare industry in terms of sales. Services may be provided in in- and out-
patient care settings, although this segment also includes new IT tools used to
collect and analyze medical data more efficiently, or healthcare IT for short.
The expected services growth rates vary from market segment to market segment,
ranging from 2% to 10% p.a.
China's problems
China is by far the largest healthcare market in the emerging market space. The
Chinese healthcare market is still fragmented and the needs of the medical care
recipients vary considerably. Domestic healthcare providers dominate the market.
This superpower in the making is confronted with three challenges on the
healthcare front. The one-child policy that was introduced in the seventies will
accelerate the demographic aging process during the decades to come. At the same
time the rural population, which currently numbers 900 million people or 70% of
the country's entire population, will become a more significant factor. People
in rural areas have less money to spend on healthcare. Generic drug
manufacturers have a dominant presence in rural markets with a penetration rate
of 90%. Meanwhile 70% of all Chinese clinics offering in-patient care are
located in densely populated urban areas. The third and final point - which must
be viewed in combination with the first two factors - is the growing need for
new IT applications for treatment purposes and data analysis.
China's healthcare IT pioneers include private-sector enterprises such as
AliHealth Cloud Hospital. Patients use its online portal to screen and find
medical specialists and hospitals. They can also rate the quality of care and
services provided and call up their own medical data. An integrated IT platform
for doctors and hospitals allows them to manage patient data, even across
different clinical points of care, and to communicate over secure online
channels. So far there is no dominant player that covers the entire value chain.
Platforms for exchanging information and data between doctors and for recruiting
medical professionals and enrolling patients for clinical trials are also
becoming more and more established.
In the health care IT space, Baidu, one of China's big Internet companies, is
building a portfolio of medical equipment products and services, for example for
exchanging data or measuring and analyzing blood pressure and blood sugar
levels. This section of the healthcare market is also being targeted by foreign
medtech companies such as Medtronic, some of which have been operating in China
for decades and have set up alliances with local companies.
The portfolios of the BB Adamant Healthcare Team
Just as the Chinese government is ramping up its spending on healthcare, so too
are governments in other emerging markets. Legislation supporting private-sector
initiatives, for example to build new hospitals or improve hospital management
or the management of facilities that care for senior citizens, is also being
passed. Japanese and South Korean companies are the leaders in the Asian medtech
market.
The BB Adamant Healthcare Team from Bellevue Asset Management takes this trend
into consideration when setting portfolio strategy and selecting investments in
emerging markets. Alibaba Health, a Chinese company, and M3, a Japanese company,
are two healthcare IT players in the fund's portfolio. In the medtech segment it
has invested in Inbody, a South Korean firm specializing in devices that measure
the body's fat and muscle used by hospitals and fitness centers. Vieworks is
another South Korean company in the portfolio. It is focused on digital x-ray
imaging systems for dentists. Many of the leaders in the robotics business are
based in Japan, such as Cyberdyne, a company that makes robotic suits that
support the physical capabilities of patients undergoing rehabilitation.
Selected investments in the pharma and biotech industries include Ono Pharma
(Japan), a developer of immunotherapies for cancer patients, and China Biologics
(China), a fully integrated plasma-based biopharmaceutical company.
Private-sector companies stand out among the local players in the Latin American
healthcare market. Currently BB Adamant Healthcare is invested in only two
companies in this region, the Brazilian generics specialist Hypermarcas and
Odontoprev, a provider of dental benefits services likewise based in Brazil.
Generally speaking, in this particular region investors are advised to consider
international healthcare companies that have leading positions in Latin
America's healthcare markets. Russia remains a lucrative market from a long-term
perspective but the current general business environment discourages investments
in this country at the present time. Since government spending on healthcare is
closely correlated with oil and gas prices and the Putin government has imposed
price controls for healthcare, the market environment in Russia will remain
difficult. Investments in eastern European generics companies such as Krka
(Slovenia) and Aegis (Hungary) are more promising.
Investment strategy of BB Adamant Healthcare
The merger with Bellevue Asset Management effective January 1, 2015 allowed
Adamant Biomedical Investments to further strengthen its international reach.
The Adamant team headed by Dr. Cyrill Zimmermann has assumed responsibility for
the healthcare investment funds and mandates offered by Bellevue, in addition to
Adamant's existing range of products. Assets under management of CHF 1.3 bn and
a research database covering 3,000 companies in the healthcare industry are
further testimony of its broad expertise.
In its portfolio strategy the team from Bellevue Asset Management utilizes a mix
of four qualitative and four quantitative criteria that has contributed to the
strong historical performance of its healthcare strategies. The first group of
criteria measures the long-term track record of a company's management team as
well as the quality of the products in the pipeline. Country-specific risks such
as government regulations are also captured in the qualitative criteria as are
operational risks, which include any weaknesses in a company's value chain,
supplier network, production footprint, logistics and sales structure, as well
as patent litigation.
Quantitative criteria include the P/E to expected earnings growth ratio based on
three-year projected earnings estimates. Projected sales growth, operating
margins and a low price/sales ratio round out the investment profile. This
valuation screening model puts BB Adamant Healthcare in a strong position to
optimally exploit the tremendous potential that the fast-growing emerging
markets offer investors.
Investments funds Bellevue Asset Management
BB Adamant Biotech (Lux)
The Fund invests worldwide in companies active in the biotechnology sector.
Experienced sector specialists focus on profitable mid- and large-cap companies
with an established product portfolio. Stock selection is based on fundamental
analysis. The selection of portfolio companies is entirely bottom-up. ISIN B-
USD: LU0415392322
BB Adamant Medtech (Lux)
The Fund invests worldwide in companies active in the medical technology sector.
Experienced sector specialists focus on profitable mid- and large-cap companies
with an established product portfolio.
ISIN B-EUR: LU0415391431
Exclusive fund manager of Lacuna - Adamant Asia Pacific Health (Lux)
The fund invests in the dynamic growth of the healthcare markets in the Asian-
Pacific rim. The portfolio companies are involved in all sectors of the
healthcare industry: Pharma, Generics, Medtech, Biotech, Services (e.g.
Hospitals) and Diagnostics. The portfolio's main focus is in Asia (India, Japan,
Singapore, China, South Korea among others) and also stretches as far as
Australia/New Zealand. ISIN P-EUR: LU0247050130
For further information:
Bellevue Asset Management AG, Seestrasse 16, 8700 Küsnacht, Switzerland, Tel.
+41 44 267 67 00
Tanja Chicherio, tch(at)bellevue.ch
b-public AG, Pfingstweidstrasse 6, 8005 Zürich, Switzerland, Tel.
+41 79 423 22 28
Thomas Egger, teg(at)b-public.ch
Bellevue Asset Management
Bellevue Asset Management is an independent and highly specialized asset
management boutique focused on managing equity portfolios for selective sector
and regional strategies, particularly in the areas of New Markets,
Swiss/European equities and healthcare stocks.
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information documents of the sub fund Lacuna-Adamant Asia Pacific Health free
of charge from Lacuna AG, Ziegetsdorfer Straße 109, Germany-93051 Regensburg,
and also from banks and financial advisers. Paying and information agent in
Austria is Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna.
Paying agent in Switzerland is Notenstein Privatbank AG, Am Bohl 17, CH-9004 St.
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Market commentary:
http://hugin.info/142988/R/1936252/697990.pdf
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[HUG#1936252]
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Datum: 09.07.2015 - 15:18 Uhr
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News-ID 405791
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