Investing in the next generation of healthcare opportunities

This article is part of
Guide to investing in the next generation of sustainable growth

He adds that, just as with the e-commerce companies of the late 1990s, “we are at the stage where we know they are going to get market share, but we do not yet know which of the companies will be the winners, so the best approach is to buy a basket of them, to invest in a thematic way.”

He says that a by-product of the recent boom in equity markets has been that many more biotech companies have listed on stock markets via initial public offerings, with the result that there is a broader range of shares in which to invest and less chance of a bubble developing. 

Ailsa Craig, who jointly runs the International Biotech Trust, says the IPO market “tends to be either a feast or a famine, and right now it is a good time to invest in IPOs. The innovation has been happening for a while, but there is certainly a greater level of awareness around what is happening now. More people know what a third-stage trial is than ever before. What we are seeing is the smaller, often more innovative companies partnering with the larger pharma companies, as the latter have the manufacturing and distribution capacity”.

She says one of the areas at the forefront of healthcare innovation right now is in terms of cells. She says it is increasingly the case that medics will be able to remove unhealthy cells from a patient and replace them with healthy cells as a way to cure an ailment. 

She adds: “All of the extra interest in biotech means that in February this year we thought it had overheated, in terms of valuations, and so we pulled some capital out. But there has been a bit of a sell-off since then, and now that area looks more attractive. We tend to go to events like trade shows to source new ideas.”

Schroeter says many of the emerging companies in the biotech area will be acquired by the bigger pharmaceutical businesses in the years ahead, providing a return for investors, but he is less keen on investing in the large pharmaceutical companies that tend to only work on a small number of products.

Martyn Hole, equity investment director at Capital Group, says the best way to invest in the emerging healthcare trends may be to own the companies that manufacture the surgical implements, as for those companies it matters little which of the new drugs work, as they expect to be able to sell the instruments to all of the companies, whether their products are successful or not." 

Matthew Tillett, who runs the Brunner Investment Trust, says large-cap pharmaceutical shares offer investors the opportunity to access more mature businesses that are also bringing new products to the market.