Meeting Healthcare companies – Portfolio Manager’s thoughts and insights
During the last week of June, I attended a Healthcare Summit organized by our counterparty Stifel. I had successful meetings with companies we have in our portfolios but luckily also had time for some new encounters. I also joined three roundtable discussions with the topics around diagnostics and lessons learned post-COVID. Another roundtable discussion was with company representatives and key opinion leaders in oncology that reflected on ASCO takeaways and a final one regarding outsourcing trends in the healthcare industry.
In pharma, this year’s focus has been on published or upcoming important readouts in oncology, obesity, and Alzheimer. On the Healthcare equipment side, demand and supply chain normalization has been topical issues and for Life Science companies, the focus has been lately almost solely on the timing of inventory destocking post-COVID. AI in this conference had more to do with “Adult Immunization” than “Artificial Intelligence”, but of course it also became clear what kind of possibilities the latter AI and further digitalization can have both in diagnostics as well as in drug discovery, especially in the early-stage clinical trial settings.
I think I say this in all my travel comments, but I have to say it again how much I enjoy sitting down with company management and IR and discuss strategy, current trading, and future opportunities. This is where active management gets its edge. After countless Teams-meetings I also met for the first time in person some of our holdings. One of them was Siegfried.
I started day 2 of the summit with a morning meeting with CFO Reto Suter. Siegfried is a trusted global CDMO player and one of the few outsourcing suppliers that can provide both the drug substance and the drug product development and production capabilities for pharma and biotech companies. Siegfried has been a holding in the Fondita Healthcare fund since inception in June 2018 but a Fondita holding already since 2017. With its latest acquisition of biotechnology firm DiNAMIQS, Siegfried entered the fast-growing cell & gene space. An interesting comment made by CFO Reto was that the move was triggered by biotech funding restrictions that enabled more attractive valuation multiples for an asset class that had been on the radar for some years already. The business case makes sense already today but future investments and ramp-up of the C&G business to commercial scale will be visible in a couple of years. For 2023 low to mid-single digit growth is expected for Siegfried (no BioNTech vaccine business in 2023 anymore) with a profitability margin of over 20 %.
Siegfried, as well as several other companies commented that inflation and supply chain challenges are clearly easing. Transport has normalized (both regarding capacity and price), energy prices has eased but some raw materials are still more volatile than others. Labor costs more of a mixed picture, with collective negotiations and one-time costs in some countries but more freely negotiated salary increases in others. Price negotiations to tame cost increases for healthcare companies seems to be going well thanks to strong commercial and long-term relationships.
Besides meeting Merck KGaA, Ergomed, Siegfried, Dermapharm and AstraZeneca (which all are portfolio companies) I also had interesting and informative meetings with argenx, Zealand Pharma, bioMérieux, EuroAPI and ONWARD. Further analysis from my side will now be made in a few of the names to gain deeper knowledge for future decision making.
All in all, the outlooks and prospects for healthcare companies, especially the one I met, is considerably more upbeat than is currently implied by market sentiment. This provides a number of attractive investment opportunities for the long term.I’m super excited of the ongoing innovation in the healthcare space!