FCP OP MEDICAL BioHealth-Trends - medical.lu

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FCP OP MEDICAL BioHealth-Trends / Annual Report as of December 31, 2010 At the same time, the valuations of large cap biotechnology companies increasingly approached those of the large cap pharmaceutical companies. Mature product portfolios also lead to low growth rates for these companies, causing the price-earnings ratio (for the next 12 months) to decline from 19 in 2006 to a current value of approximately 13, which is also a historically low value. Part of this is due to the uncertainty surrounding the expected competition by biosimilars, as high sales antibody products such as Rituxan and Enbrel will lose their patents in the USA or Europe starting in 2012/13 (Lazard, 6 January 2011). MorganStanley (17 June 2010) estimates the overall sales volume of biotechnology products with expired patent protection over the next five years (until 2015/16) to be approximately USD 62 billion. The negative impression about large cap biotechnology companies is also reflected in the breakdown of performance according to market capitalisation for 2010. The performance of 5.1 % recorded by high cap biotechnology companies (> USD 2 billion) lagged significantly behind mid cap companies. Companies in the USD 1 to 2 billion segment rose by 28.3 %, and those in the USD 0.5 to 1 billion segment by 9.0 %. The performance of small cap shares, however, was surprisingly weaker. Growth was 5.7 % in the segment from USD 200 to 500 million and companies with a capitalisation of less than USD 200 million even ended the year with a loss of -10.7 % (BIOCENTURY of 3 January 2011, see Table 1). This weakness was due in part to the difficult funding conditions for small companies with products in the early stages of clinical development. 4 Market capitalisation Performance in % > USD 2,000m +5.1 USD 1,000-1,999m +28.3 USD 500-999m +9.0 USD 200-499m +5.7 < USD 200m -10.7 Table 1: 2010 performances of biotechnology securities according to market capitalisation (all data in USD) In general, however, the funding situation in the biotechnology sector showed improvement. While USD 24.3 billion was raised by a variety of funding measures in 2009, funding in the biotechnology sector reached a volume of USD 36.2 billion in 2010 (Biocentury, 3 January 2011). The medical technology sector fell by -4 % in 2010, making it the healthcare segment with the poorest performance. The leading medical technology companies are also feeling the disadvantage of having a mature product portfolio with a lack of product innovation. The resulting competitive pressures lead to more difficult price negotiations that, combined with tight hospital budgets, resulted in price reductions. The affected products include high margin implants, such as defibrillators, stents, orthopaedic implants and dental implants. The medical technology sector was also adversely affected by the reduced demand for medical and hospital services due to high unemployment and increased health insurance co-payments and excesses. The medical technology sector has now lost the average 15 per cent premium over the S&P 500 that it enjoyed over the last 10 years and is currently trading at an 8 per cent discount (Morgan Stanley, 3 January 2011). The structural change that the large caps (which, after all, make up approximately 75 % of the market capitalisation, Goldmann Sachs, 14 December 2010) are undergoing is a burden on the healthcare sector. After two years of healthcare sector underperformance in comparison with the S&P 500, this sub-segment now has a price-earnings ratio of 11 (for the next 12 months), which is a 16 % valuation discount relative to the S&P 500 (price-earnings ratio of 13 for the next 12 months) (Leerink Swann, 5 January 2011). The industry transformation process mentioned above also led to lively M&A activity in part aimed at rejuvenating existing product portfolios and pipelines by acquiring smaller companies with innovative products. Fund strategy and investment performance Its strategic focus on small and mid cap securities clearly distinguishes FCP OP MEDICAL BioHealth-Trends from most other funds in the healthcare and biotechnology sectors, which primarily focus on large cap stocks. 140 135 130 125 120 115 110 105 100 95 90 01/10 02/10 03/10 04/10 05/10 06/10 07/10 08/10 09/10 10/10 11/10 12/10 FCP OP Medical Biohe@lth-Trends EUR Nasdaq Biotechnology Index EUR Amex Pharmaceuticals Index EUR S&P 500 EUR Figure 1: Comparison of FCP OP MEDICAL BioHealth Trends with Nasdaq Biotechnology Index, AMEX Pharmaceutical Index and S&P 500 Index (all data in EUR) from 1/1/2010 to 30/12/2010, as at 30/12/2010 Source: Datastream (price indices in EUR), Oppenheim Asset Management Services S.à r.l. (Fund: performance calculated using the BVI method). Index performance calculations and exchange rate conversions performed using closing prices and exchange rates on the preceding day. Since the Fund invests primarily in North America, the time difference is taken into account. The Fund’s Unit Class EUR recorded an increase in value of 20.9 %* over the reporting period (see Fig. 1), which represented an underperformance of -5.8 % compared to the Nasdaq Biotechnology Index (NBI in EUR), which rose 26.7 %. The underperformance of the Fund can be explained by the difficult situation in the medical technology segment
120 110 100 90 80 70 60 50 40 30 FCP OP MEDICAL BioHealth-Trends / Annual Report as of December 31, 2010 (which is not represented at all in the NBI) and for biotechnology companies with a market capitalisation of less than USD 500 million (which make up only 8 % of the market capitalisation of the NBI). In contrast, the Fund's performance was 13.3 % higher than the DRG pharmaceuticals index (+7.6 % in EUR), and only a slight -1.8 % lower than the broad market S&P 500 (+22.7 %) (all data in EUR). FCP OP MEDICAL BioHealth-Trends is available in both a currency hedged and a non-currency hedged unit class. The currency hedged Unit Class EUR H rose by 13.3 %* over the reporting period. A key factor that distinguishes the investment strategy used by FCP OP MEDICAL BioHealth-Trends is its stock picking method, which does not depend on any indices. The Fund's investment strategy remained unchanged during the reporting period in terms of its primary focus on young companies with innovative products whose future development should bring corresponding increases in value. Since the inception of the Unit Class EUR on 30 October 2000, the Fund has maintained a considerable lead over related healthcare indices and broad market indices (see Fig. 2). For example vs.: • Nasdaq Biotechnologieindex NBI (in EUR): +63.3 % • AMEX Pharmaindex DRG (in EUR): +69.0 % • S&P 500 Index (in EUR): + 57.1 % • MSCI World Index (in EUR): +50.2 % 20 10/00 10/01 10/02 10/03 10/04 10/05 10/06 10/07 10/08 10/09 10/10 FCP OP MEDICAL BioHe@lth-Trends Anteilklasse EUR MSCI World Index (in EUR) S&P 500 Index (in EUR) Amex Pharma-Index (in EUR) NASDAQ Biotech- Index (in EUR) Figure 2: Comparison of FCP OP MEDICAL BioHealth Trends with Nasdaq Biotechnology Index, AMEX Pharmaceutical Index and S&P 500 Index (all data in EUR) since the inception of the Fund (from 30/10/2000 to 30/12/2010), as at 30/12/2010 Source: Datastream (price indices in EUR), Oppenheim Asset Management Services S.à r.l. (Fund: performance calculated using the BVI method). Index performance calculations and exchange rate conversions performed using closing prices and exchange rates on the preceding day. Since the Fund invests primarily in North America, the time difference is taken into account. FCP OP MEDICAL BioHealth-Trends (Unit Class EUR) held 1st place in a 10-year peer group comparison of 15 funds in the biotechnology segment, and 2nd place in a 3-year peer group comparison of 19 funds (Micropal list as at 30 December 2010). Compared to the biotechnology fund category (in which the average performance of all funds is calculated), FCP OP MEDICAL BioHealth-Trends achieved outperformances for rolling annual returns over a variety of periods, as shown in the table below from Morningstar. Rolling returns FCP OP MEDICAL Biotechnology (%) BioHealth-Trends fund category 1-year (2010) 20.88 17.62 3-year p.a. 11.37 3.54 5-year p.a. 2.23 0.16 Since inception p.a. 1.44 -5.17 Table 2: Rolling annual returns; source: Morningstar Factsheet, 30/12/2010 Cumulative returns show a similar picture, as can be seen in the following table: Cumulative return FCP OP MEDICAL Biotechnology (%) BioHealth-Trends fund category 3-year 38.12 11.01 5-year 11.68 0.80 10-year 43.24 -31.68 Since inception 15.64 Table 3: Cumulative returns; source: Morningstar Factsheet, 30/12/2010 This means that FCP OP MEDICAL BioHealth-Trends provided a 10-year cumulative return that was 74.92 % higher than the average of all funds in the biotechnology fund category. FCP OP MEDICAL BioHealth-Trends received a number of awards during the reporting year. In January 2010, for example, the renowned financial newspaper €uro awarded 1st place to Unit Class EUR of the Fund and 2nd place to the currency hedged Unit Class EUR H for their 2009 performance in the biotechnology equity fund category. In June 2010, STANDARD & POOR’S awarded the Fund its "Long Term Fund Management Rating" for consistently good management performance. The Fund has received an “AA” rating for the sixth time in a row. The portfolio held 86 stock positions at the end of the reporting period, compared to 79 at the beginning. The lively portfolio activity throughout the year is shown by the fact that the Fund invested in a total of 122 stock positions during that time. Purchases and sales were made based on news reports, achievement of target prices or due to takeovers. 5
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