Worldwide Healthcare Trust Plc - Half-year Report

The Company's Half Year Report & Accounts for the six months ended 30 September 2017 has been submitted to the UK Listing Authority, and will shortly be available for inspection on the National Storage Mechanism (NSM): www.hemscott.com/nsm.do

For further information please contact: Mark Pope, Frostrow Capital LLP 020 3008 4913.

Performance

#          Source – Morningstar.

^          Benchmark – MSCI World Health Care Index on a net total return, sterling adjusted basis. (see glossary)

+          See glossary. Leverage calculated under the Commitment Method.

Chairman’s Statement

PERFORMANCE

Against a positive backdrop and reduced market volatility, the healthcare sector produced a satisfactory return, in line with the wider market over the first six months of the Company’s financial year. I am pleased to report that both the Company’s net asset value per share and the share price outperformed the Company’s Benchmark over the period and that, following last year’s strong performance, the current financial year has begun on a similarly positive note.

As can be seen in the chart on the previous page, the Company’s net asset value total return was +7.4% over the last six months, outperforming the Company’s Benchmark, the MSCI World Health Care Index measured on a net total return, sterling adjusted basis, which returned +2.6%.

The Company’s share price did rather better, with a total return of +10.8%, and the Company’s share price is now trading consistently at a premium to the Company’s net asset value per share. The premium of the Company’s share price to the net asset value per share as at 30 September 2017 was 0.4%.

I mentioned at the year-end that sterling’s decline against other major currencies, in particular the U.S. dollar, the currency in which the majority of the Company’s holdings are denominated, had helped the Company’s performance in absolute terms. The first six months of the current financial year saw something of a recovery in sterling’s fortunes, sterling having appreciated over 7.0% against the U.S. dollar during the period. This relative dollar weakness inevitably detracted from the Company’s absolute performance.

Further information on investment performance and the outlook for the Company is given in the Review of Investments.

CAPITAL

The Board continues to monitor closely the relationship between the Company’s share price and the net asset value per share. As referred to above, I am pleased to note that due to the Company’s strong performance the Company’s shares have been trading at a small premium to the net asset value per share for some months. As a result, and also due to investor demand, a total of 1,512,500 new shares were issued during the period, at an average premium of 0.7% to the prevailing cum income net asset value per share, raising £38.4m of new funds.

PERFORMANCE FEE

I am glad to report that the outperformance generated in this half year has resulted in a performance fee becoming payable, in accordance with the provisions of the performance fee arrangements, of £2.4 million. This fee was shared between the Company’s Portfolio Manager, OrbiMed Capital LLC (“OrbiMed”) and the Alternative Investment Fund Manager, Frostrow Capital LLP (“Frostrow”) as described in note 3 to the Financial Statements. Shareholders will be aware that under new fee arrangements that became effective on 1 April 2017, Frostrow no longer receives a performance fee. However, they are entitled to receive any performance fee that crystallises during the year ending 31 March 2018 in respect of cumulative outperformance attained by 31 March 2017.

REVENUE AND DIVIDENDS

The revenue return for the period was £4.2 million, compared to £4.0 million in the same period last year; this slight increase comes as a result of a small rise in the yield from portfolio investments and despite sterling’s appreciation against the U.S. dollar in the period. The Board has declared an unchanged first interim dividend of 6.5p per share, for the year to 31 March 2018, which will be payable on 9 January 2018 to shareholders on the register of members on 24 November 2017. The associated ex-dividend date is 23 November 2017. The second interim dividend for the year to 31 March 2018 is expected to be announced in June 2018.

I remind shareholders that it remains the Company’s policy to pay out dividends to shareholders in the quantum necessary to maintain investment trust status for each financial year. These dividend payments are paid out of the Company’s net revenue for the year and, in accordance with investment trust rules, only a maximum of 15% of income arising from the shares and securities making up the investment portfolio can be retained by the Company in any financial year.

It is the Board’s continuing belief that the Company’s capital should be fully deployed rather than paid out as dividends to achieve a particular target yield.

HALF YEAR REPORT & ACCOUNTS

As I mentioned last year, in order to keep costs to a minimum we will not be providing a hard copy of this year’s Half Year Report & Accounts. This document is, and will continue to be available on the Company’s website at www.worldwidewh.com. The Company’s Annual Report & Accounts will continue to be available in hard copy, and also on the Company’s website.

OUTLOOK

Our Portfolio Manager believes that investors are now focusing more on the sector’s strong fundamentals rather than political uncertainty, with factors such as strong revenue generation, continued high levels of innovation, a more benign approval environment at the FDA and expected increased merger and acquisition activity expected to be key drivers. In addition, anticipated U.S. tax reforms and cash repatriation are also expected to be positive for the sector. However, on a cautionary note, volatility remains an issue as evidenced by the recent correction in the biotechnology sector.

Our Portfolio Manager’s focus remains on the selection of stocks with strong prospects and we reiterate our belief that the long-term investor in the healthcare sector will be well rewarded.

Sir Martin Smith

Chairman

23 November 2017

Review of Investments

MARKETS

Global equity markets for the six-month period from 1 April to 30 September 2017 advanced with admirable aplomb, reaching multiple new all-time highs throughout the period. Despite some spikes, volatility also remained relatively low. Overall, strong corporate earnings and positive economic trends supported the move higher, with little offsets as political risk in Europe eased and despite tensions between North Korea and the United States. Emerging markets also benefitted from a supportive global backdrop.

Perhaps the only sources of volatility during the period were various key global currencies, notably the euro and to a lesser extent, sterling, which blunted some of the index returns, compared to a U.S. dollar perspective.

Healthcare stocks followed a similar trend as the broader market, with solid and mostly consistent advances and the achievement of all-time highs in the six-month period. Again, solid fundamentals coupled with reduced macro concerns fueled the move higher, partially diminished by currency moves.

PERFORMANCE

We are pleased to report that the Company outperformed both the broader market and the Benchmark, with a share price total return of +10.8% and a net asset value total return of +7.4% in the six-month period. Performance of the Benchmark for the six-month period ended 30 September 2017 was +2.6%. This compares to the MSCI World Index return of +2.4% (measured in sterling terms).

Over a 12-month period, the Company has significantly outperformed its Benchmark, with a share price total return of +20.7% and a net asset value total return of +14.5% compared to the Benchmark return of +8.8%.

Sources of absolute and relative contribution were both diverse and numerous. All sub-sectors contributed to positive returns, with only one exception, generic pharmaceuticals, primarily due to the degradation of fundamentals in that sector. Otherwise the strong performance recorded for the interim period was mostly driven by allocation and stock picking in biotechnology and medical technology & device stocks. The former was driven by a large rebound in share prices after the dramatic drawdown observed in 2016 and the latter fueled by an innovation and growth cycle that had not been seen in years. Otherwise, stock returns in large capitalisation pharmaceuticals, specialty pharmaceuticals, life science & services, and managed care/services were all positive.

MAJOR CONTRIBUTORS TO PERFORMANCE

The top individual stock contributors to performance come from a variety of sub-sectors and geographies, from biotechnology, to pharmaceuticals, and medical devices, from the United States, to Denmark, and Japan.

Oncology continues to be the hottest therapeutic category for healthcare investors in 2017. Puma Biotechnology, is an emerging biotechnology company whose lead asset is an oral once-daily tyrosine kinase inhibitor called Nerlynx (neratinib), designed to treat a specific form of early stage breast cancer. The stock rose substantially during the period due to a favourable U.S. Food and Drug Administration (“FDA”) Advisory Committee vote in May 2017, that recommended approval of Nerlynx. Subsequently, the drug was approved in July 2017 and launched shortly thereafter. Prior to these events, there had been significant investor scepticism about the asset’s approvability due to its perceived modest survival benefit and significant tolerability issues. As a result, the successful commercialisation of Nerlynx by Puma has fueled merger and acquisition (“M&A”) speculation, and the share price has more than doubled during the period.

BeiGene, is a China-based biotechnology company focused on the development of oncology drugs that serve both local and global markets. The company has parlayed its expertise in cell biology and chemistry into a pipeline of four clinical-stage oncology candidates. BeiGene’s lead candidate, BGB-3111 which targets “BTK” (Bruton’s tyrosine kinase), was designed to have specificity and potency advantages over established BTK inhibitors in the treatment of various blood cancers. The company has commenced late stage clinical development to demonstrate its superiority, increasing investor enthusiasm about its blockbuster potential and buoying the share price. BeiGene’s other oncology candidates in earlier phases of development are also directed at validated oncology targets (such as “PD-1”, “PARP”, or “BRAF”) and also may have best-in-class properties. As such, the share price also moved higher in the period after the company announced a strategic collaboration with Celgene for BeiGene’s PD-1 inhibitor, representing BeiGene’s entry into the “hot” space of immuno-oncology.

A true leader in medical device innovation, Intuitive Surgical, develops robotic systems and associated instrument sets for use in a broad array of surgical procedures. Shares in the company consistently outperformed during the six-month period for a number of reasons. Robotic procedure volumes and new system placements, both leading indicators of sales performance, strongly outperformed analyst expectations in the period. Additionally, the company announced and launched a new robotic system, da Vinci X, which is designed to be more affordable and is positioned favourably against upcoming competitive robotic systems. Lastly, the company was at the early stages of a new robotic launch in China for a lung biopsy product which represents a significant market opportunity and has driven longer-term consensus estimates and valuations higher for the stock.

Japan, historically, has often been a hidden gem for innovation, and Nippon Shinyaku is a perfect example. The company developed a best-in-class treatment for a deadly lung disease known as pulmonary arterial hypertension or PAH. Uptravi (selexipag) was discovered by Shinyaku and licensed to Swiss-based leaders in PAH, Actelion, nearly 10 years ago. The drug was successfully launched by Actelion in 2016, drawing the attention of global drug giant, Johnson and Johnson, who subsequently acquired Actelion early in 2017. As a result, Shinyaku began to receive greater recognition by investors for this potential blockbuster product. Subsequently, Nippon Shinyaku has been one of the best performing Japanese pharma stocks in 2017.

The worldwide leaders in the treatment of diabetes, Novo Nordisk, came under pressure in 2016 as pricing, in particular insulin pricing, was squeezed by payers and competition alike. However, 2017 bore witness to greater pricing stability and more clarity on the next wave of innovation for the treatment of one of the most common diseases in the world. While not completely de-risked, Novo’s next generation offering, “semaglutide” is poised to be the most efficacious treatment ever developed for the treatment of Type II diabetes. Moreover, the company is developing the compound in both injectable and oral formulations. If the latter can successfully pass through clinical trials, it can surely be a mega-blockbuster product. These developments pushed Novo’s stock price higher during the six-month period.

MAJOR DETRACTORS FROM PERFORMANCE

The largest detractors from performance, similar to the top contributors, were very diverse in nature. Detractors came from many subsectors, including medical devices, generics, biosimilars, biotechnology, and hospitals. In each case, however, an unexpected negative catalyst caused the share price decline.

The medical device maker, Wright Medical, one of our major holdings, manufactures state-of-the-art joint replacements, primarily for shoulder, foot and ankle, trauma and sports medicine procedures, as well as orthobiologic products. Earlier this year, the company materially accelerated its plans to expand its sales force, leading to a brief disruption in the first quarter and subsequently a shortfall in sales relative to consensus expectations. While the second quarter showed a reacceleration in sales trends, the positive impact on the stock was overshadowed by two hurricanes that struck the high-volume regions of Florida and Texas in September, delaying procedures and leading investors to question whether management will be able to hit the guidance range for the full year. The share price fell sharply in the last month of the period as a result.

Shares of Mylan, a global generic drug manufacturer, plummeted in August in response to a second-quarter earnings miss and downwardly-revised full-year financial guidance. Similar to other companies with significant exposure to the U.S. generic drug market, Mylan’s operating performance has been stifled by a combination of increased competitive pressures on its legacy generic drug portfolio and delayed U.S. FDA approvals/launches of generics for significant branded products.

Another hot topic in healthcare investing has been biosimilars: generic versions of complex, biologic drugs. However, monetising this global opportunity has proven more difficult. Coherus Biosciences, is developing biosimilar versions of a number of branded biotechnology drugs, including the white blood cell stimulator Neulasta (pegfilgrastim) and the rheumatoid arthritis drugs Humira (adalimumab) and Enbrel (etanercept). The company had filed an application for their lead asset, a biosimilar version of Neulasta, in August 2016. However, in June 2017, the stock dropped significantly when the U.S. FDA rejected the drug, stating that the company needed to re-analyse certain patient samples with a revised immunogenicity assay. Due to the setback, the company was forced to reduce its workforce by 30%. The company also suffered a legal setback, and another share price decline, when its attempt to invalidate a patent protecting Humira was rejected by the U.S. Patent & Trademark Office in September of 2017.

Incyte is a Delaware-based biotechnology company. The company markets Jakafi (ruxolitinib) for myeloproliferative disorders (abnormal growth of blood cells) and is developing a portfolio of therapeutics for the treatment of cancers. Baricitinib, a next generation JAK inhibitor for rheumatology, was unexpectedly rejected for approval by the U.S. FDA due to rare safety concerns, despite earlier European approval, causing the stock to fall. While the stock partially recovered, investor angst rose in relation to Incyte’s first-in-class IDO inhibitorm epacadostat, a novel cancer treatment in late stage clinical development. Despite early positive data that suggested epacadostat has the potential to be a major player in cancer immunotherapy, the stock again sold-off after many investors decided to de-risk by selling the stock ahead of the next looming data update for the molecule.

HCA Healthcare, is the largest public hospital provider in the U.S. The past 12 months have proven turbulent for the company’s business and share price, starting with the lead into the U.S. Presidential election in November 2016. For the six-month period reported here, the company reported weak earnings and reduced full year 2017 guidance due to decelerating utilisation trends. In addition, the stock underperformed due to concerns that Republicans would successfully repeal President Obama’s Affordable Care Act (or “Obamacare”), which would reduce the number of American citizens with health insurance.

SECTOR DEVELOPMENTS

Whilst 2016 was marked primarily by landmark political events such as the prospective withdrawal of the United Kingdom from the European Union (commonly known as Brexit) and the unexpected election of Donald Trump as the 45th President of the United States, 2017 can thus far be characterised as a return to fundamentals for global healthcare equites; and the fundamentals are good.

Politics are never completely obviated, however, and the current situation has been quite favourable for therapeutic stocks in the six-month period, especially in the largest drug market in the world, the United States.

First, with Republicans in power, the concern over a dramatic overhaul to drug pricing rules in the U.S. has dropped considerably (despite the odd Tweet to the contrary from constantly combative President Trump). Second, President Trump has proposed his plans for significant tax reform in the U.S. Of import to the healthcare industry are twofold: (1) the substantial lowering of the U.S. corporate tax rate and (2) a “tax holiday” for the repatriation of overseas cash. If adopted, in whole or in part, it would be a windfall of earnings and cash flows for all large, U.S. domiciled healthcare companies. In particular, large capitalisation pharmaceutical and biotechnology companies, such as Pfizer or Amgen would reap significant rewards given they possess – cumulatively – hundreds of billions of U.S. dollars of cash overseas. It would be a boon to the industry and almost assuredly stimulate a M&A frenzy.

Further, whilst the new Commissioner of the U.S. FDA, Scott Gottlieb, has introduced some new plans to increase competition (with the hope to affect drug prices) in the U.S. drug market, overall, he is viewed as very aligned with the drug industry’s best interests. Dr. Gottlieb’s “Drug Competition Action Plan” will accelerate generic drug approvals (he inherited an FDA backlog of over 2,600 generic drugs seeking approval), ease generic versions of complex and biologic drugs onto the market, and seek to reduce the number of older medicines that lack generic competition by regularly highlighting the nearly 200 off-patent drugs with no generic alternatives available. This approach is appealing, utilising a market-based, lower regulation approach favoured by conservatives to deliver the drug price cost containment desired by progressives. Generic drug competition is an effective and under-appreciated tool for lowering drug prices over time that, importantly, does not stifle innovation.

Moreover, what is the FDA’s scorecard? It is not a perfect measure, but we note that as of 30 September 2017, the FDA had approved 34 novel drugs for the U.S., already eclipsing the total for all of last year and a 100% increase year-over-year. This total does not include another 12 new cancer indications granted to already approved “immuno-oncology” drugs, one of the most innovative advances in the treatment of cancer over the past three decades.

Finally, a comment on M&A, a secular theme for us and most healthcare investors, but the modest pace and subdued level of M&A activity seen in 2017 has been a source of frustration. However, we do note the August 2017 blockbuster transaction with Gilead’s U.S.$11 billion acquisition of Kite Pharmaceuticals. Kite is one of the pioneers of CAR-T immunotherapy a next generation variation of gene therapy that reprograms a patient’s own T-cells to attack malignancies. The large valuation is a compelling validation of biotechnology innovation considering Kite is still a pre-revenue company with no approved products. We believe more such transactions will occur, with a potential feeding frenzy of activity possible if a U.S. tax reform package is enacted with a repatriation provision for offshore cash balances held by U.S. companies, as discussed above.

STRATEGY REVIEW

The Company’s mandate remains unchanged: to seek innovation and growth in the healthcare industry on a global level by investing in healthcare companies that offer the greatest return potential, being mindful of risk. As productivity and innovation rise, the number of investable ideas also rises, but the scrutiny and diligence required to isolate them becomes more complex.

Biotechnology

The major biotechnology sub-sector continued its recovery during the six-month period as macro concerns about the biotechnology sector continued to abate. Heading into 2017, investors were principally concerned about two issues overhanging the biotechnology sector: 1) any policy announcement by President Trump about his plan to lower drug prices, and 2) the potential repeal of “Obamacare”, President Obama’s signature healthcare reform bill.

However, despite making public comments about high drug prices on numerous occasions since the election, President Trump has yet to announce any official plan to reduce drug prices. Moreover, investors now believe he will no longer do so and has moved on to other policy priorities.

In addition, despite controlling both the Presidency and Congress, the Republicans have failed to repeal Obamacare despite multiple attempts. The biotechnology industry is less sensitive to the fate of Obamacare, but uncertainty around the future of the healthcare system in the United States had caused many investors to avoid the healthcare sector altogether. As the prospects for a near-term repeal of Obamacare have dimmed, the cloud of uncertainty surrounding healthcare has lifted somewhat. With these macro overhangs dissipating, sentiment on the biotechnology sector has improved and investors have begun to realise the attractive valuation of major biotechnology relative to other sectors.

Meanwhile, the regulatory environment for the biotechnology and pharmaceutical sectors has remained extremely favourable, with drug approvals occurring in a timely manner despite less-than-perfect data sets. Initial product launches from select large capitisation biotechnology companies have exceeded expectations, including Biogen’s launch of Spinraza (nusinersen), a novel treatment for spinal muscular atrophy, and Regeneron Pharmaceutical’s launch of Dupixent (dupilumab), a novel antibody for atopic dermatitis. Moreover, these drugs have launched with significant price tags, costing hundreds of thousands of dollars and tens of thousands of dollars, respectively.

We would also highlight that this year has been important for the development of new treatment modalities from small capitalisation biotechnology stocks. Spark Therapeutics’ voretigene neparvovec is poised to be the first gene therapy approved by the FDA. Alnylam Pharmaceuticals recently reported positive phase III data for patisiran for hereditary ATTR amyloidosis. This is the first successful pivotal trial of an RNA-interference based therapy, which is a novel class of drugs to downregulate expression of genes. Advances with new therapeutic platforms such as gene therapy, RNA-interference, and CAR-T will expand the capabilities of the industry to target diseases that were previously not addressable by conventional drug therapies.

Whilst M&A activity has been relatively quiet, this is likely due to uncertainty about the specifics of President Trump’s corporate tax reform plan. We would expect activity to reaccelerate once there is more clarity on tax reform, which is expected at the end of 2017 or perhaps early in 2018. Even so, M&A activity has not been completely absent given the “innovation engine” of emerging biotechnology stocks discussed above,

Pharmaceuticals

Pharmaceutical stocks, like their biotechnology brethren, have enjoyed a renaissance in 2017 as the political overhang has vastly diminished, allowing investors to look past the rhetoric and focus on fundamentals; in the case of large capitalisation pharmaceutical stocks, those fundamentals are arguably mixed.

Perhaps most important is that innovation in drug discovery and development appears to be at or near all-time highs, and nothing drives value and accretion like new product flow. However, we do note the inherent heterogeneity within the companies who comprise this universe. In other words, innovation is not spread equally across them all, and thus we believe stock selection is key.

Whilst “patent cliffs” are currently at a low level, looming losses of exclusivity across this sector are not de minimis. Once again, patent expirations are not spread equally across the group, hence the growth outlook can be quite variable amongst these peers. In addition, a new “cliff” is on the horizon with respect to biosimilars. A host of blockbuster antibody drugs are poised to lose patent protection over the next three to five years. However, the approval, uptake, utilisation, and interchangeability of the biosimilar product to replace the incumbent brand remains a source of investor debate and thus a source of market uncertainty.

In the U.S., whilst angst over drug pricing from a political perspective has subsided, payers and managed care players have become much more savvy with trading patient access for increased rebates and this has become a hot button topic for drug companies and investors alike. While generic drug prices continue to decline, branded drug prices continue to rise, and are even accelerating given the increased approval rate of higher priced “specialty” drugs (such as biologics across many therapeutic areas including oncology, rheumatology, immunology, dermatology, etc.). The payer’s response to this is to manage patient access to new drugs with tight controls such as step therapy, prior authorisation, restricted drug lists, high deductibles, and increased co-pays. The result can dramatically impact the uptake of a new drug launch. Of course, truly innovative new drugs with real value propositions – such as an increase in patient survival – can overcome such hurdles.

For small capitalisation pharmaceutical stocks, the performance of U.S.-focused specialty and generic pharmaceutical companies has disappointed, as companies continued to struggle with the multiple challenges facing the sector, including: reduced pricing power, heavy debt burdens, heightened competitive pressures, underperforming assets, increasingly restrictive third-party payer formularies – including reduced coverage of new product introductions – and, unsurprisingly, senior management changes.

Although valuations remain depressed for many companies in the specialty and generic pharmaceutical sector, we see opportunities in a handful of reasonably-leveraged companies with important upcoming clinical and regulatory events and differentiated new product introductions benefitting from a lesser degree of third-party payer management. We anticipate that increased M&A activity, including greater participation from private investors, could improve sentiment for this group of beleaguered stocks and drive valuation recoveries over the next 12 months.

Medical Technology and Devices

A number of factors for the medical technology and devices spaces remain favourable and thus we have a positive view on a forward-looking basis. First, organic growth rates are tracking at healthy levels whilst reported growth rates are benefitting from small and mid-size acquisitions. Undeniably, absolute valuations remain high, but relative valuations against the S&P 500 Index are now roughly in line with historical averages despite relatively superior earnings per share growth in the “MedTech” sector.

Importantly, we view current earnings growth rates as sustainable through the end of the decade, at least. Though there has been some investor consternation surrounding U.S. hurricane-related adverse impacts to sector volumes for the third quarter earnings period, we believe that these are one-time events. In our view, procedures are more likely to be delayed into the fourth quarter than cancelled outright and underlying procurement volume trends remain strong.

Lastly, U.S. tax reform remains a key catalyst for almost all MedTech companies, as does the potential delay or repeal of the medical device excise tax. Turning to stock selection, we continue to prefer (1) cardiology – where innovation remains industry leading, (2) surgical robotics – where technology advances have been and will continue to be disruptive to historical surgical paradigms, and (3) extremities implants/biologics – which remain at the very early stages of the adoption curve.

Life Sciences Tools and Services

We remain somewhat guarded for the prospects of the life science tools space. Certainly valuation continues to be demanding in both relative and absolute sense. Nevertheless, outperformance in the past six months was driven by a perceived political and regulatory shield from an unpredictable administration and healthy end markets.

Federal funding environments in bio-pharma and academic research institutions remains buoyant driven by excitement around developments in oncology. Despite healthy end markets, valuation and sub-sector rotation dynamics will play even more of a critical role in positioning as we look ahead into 2018. Major U.S. corporate tax reform and subsequent repatriation of overseas cash could catalyse material M&A, especially in bio-pharma. However, the consolidation of bio-pharma could pressure the life sciences tools sector as pharmaceutical companies rationalise their research and development (“R&D”) programmes. Coupled with this potential headwind and aforementioned valuation, we remain selective in life sciences tools.

The diagnostics industry, as has been the case for the last several years, remains an industry beholden to reimbursement policies set by both private payers and U.S. Medicare. Utilisation has seen both ups and downs during this period with “Obamacare” backed tailwinds offset by severe weather-related headwinds.

More importantly, the industry hit a major fundamental set back this year when the Protecting Access to Medicare Act enacted legislative reimbursement cuts for Medicare lab fee services that were more draconian than expected. Set to take effect from January 2018, if finalised, Medicare reimbursement for high volume lab tests could be reduced by up to 10%.

The remainder of 2017 could be quite volatile as the lab industry awaits the final ruling after a contentious public hearing period. Given the expected reimbursement cuts and potential reduction in insured lives under the new administration’s political efforts, we remain cautious on the sector until further clarity can be observed.

Healthcare Services

In healthcare services, payers have outperformed providers due to weaker than expected utilisation of healthcare. Specifically, payers such as health maintenance organisations (also known as HMOs, a type of health insurance plan that usually limits coverage to care from doctors who work for or contract with that HMO), reported strong earnings upside and raised full year 2017 guidance. In contrast, providers such as hospitals experienced decelerating volumes and reduced their financial outlooks for the year. (Severe hurricanes that plagued the southern United States in September 2017 were also disruptive, although generally viewed as one-time non-recurring impacts.)

Macroeconomic trends have also favoured payers over providers. For example, payers stand to benefit most from corporate tax reform because all of their business is conducted in the U.S. and from rising interest rates because they would generate higher income on investment portfolios. Rising interest rates is bad for levered hospitals.

Going forward we remain bullish on HMOs with a view that utilisation will remain modest, the macroeconomic environment benign, and the regulatory environment under the Trump administration favouring the private sector over Obamacare. We remain bearish on provider stocks including hospitals because they are negatively impacted by these conditions. Separately, we are bearish on Pharmacy Benefit Managers (“PBM”s) (who serve as the middlemen between insurance companies, pharmacies and manufacturers to secure lower drug costs for insurers and insurance companies) as this industry transitions from a disciplined duopoly to an increasingly competitive and more transparent market due to new entrants.

Emerging Markets

Throughout 2017, the Chinese government has continued to enact reforms to raise drug quality, improve regulatory speed and efficiency, and promote innovation. To improve overall drug quality in China, the government has been enforcing bioequivalence standards for generic drugs, forcing companies to certify the quality of their clinical trial data, and allowing more foreign high-quality drugs into the Chinese market. These reforms have led to a dramatic drop in the backlog of drugs pending review at the China Food and Drug Administration (“CFDA”), as lower-quality pharmaceutical companies with deficient data packages have pulled their applications.

E-Mail-Adresse

Bitte überprüfe deine die E-Mail-Adresse.

Benachrichtigungen von ARIVA.DE
(Mit der Bestellung akzeptierst du die Datenschutzhinweise)

-1

Vielen Dank, dass du dich für unseren Newsletter angemeldet hast. Du erhältst in Kürze eine E-Mail mit einem Aktivierungslink.

Hinweis: ARIVA.DE veröffentlicht in dieser Rubrik Analysen, Kolumnen und Nachrichten aus verschiedenen Quellen. Die ARIVA.DE AG ist nicht verantwortlich für Inhalte, die erkennbar von Dritten in den „News“-Bereich dieser Webseite eingestellt worden sind, und macht sich diese nicht zu Eigen. Diese Inhalte sind insbesondere durch eine entsprechende „von“-Kennzeichnung unterhalb der Artikelüberschrift und/oder durch den Link „Um den vollständigen Artikel zu lesen, klicken Sie bitte hier.“ erkennbar; verantwortlich für diese Inhalte ist allein der genannte Dritte.

Andere Nutzer interessierten sich auch für folgende News

02:00 - PR Newswire

Vesuvius Plc - Transaction in Own Shares

23.04.24 - PR Newswire

Fidelity Japan Trust Plc - Transaction in Own Shares