FCP OP MEDICAL BioHe@lth-Trends - medical.lu

Development of the Capital Markets in the Period under Review
for which analysts are estimating at anything up to USD 50 billion
(source: Wallstreet Journal Online, 24.10.2005). The companies
attempted to compensate for poor sales figures by not only
introducing cost-cutting programmes, but also by attempting to
bolster product pipelines through licensing deals and M&A
measures, including Pfizer's acquisition of the biotech company
Vicuron. Finally, the aforementioned product withdrawals also led
to stricter risk assessment by the licensing authority the FDA.
Apart from additional warning signs among drugs already
marketed, licence applications increasingly saw additional requests
for data or indication restrictions.
In the Speciality Pharma sector, companies with a broad range of
generic products in the pipeline were best positioned to benefit
from the large number of patent expirations. Winners included
companies who were able to launch generic products with 6-month
exclusivity, such as Barr Laboratories, Endo Pharmaceuticals and
Ivax. Older generic products, on the other hand, have seen price
competition intensify as Indian manufacturers of generic products
increasingly make their presence felt on the markets. This, in turn,
has intensified consolidation pressure within the sector, notably in
the takeover of Hexal by Sandoz and Teva’s acquisition of Ivax.
The success of the Medtech sector continues to be based on the
timely introduction and expansion into the market of products to
treat arteriosclerosis (drug eluting stents), cardiac dysrhythmias
and heart failure (implantable defibrillators) and arthrosis and joint
wear and tear (artificial hip and knee joints). One segment that is
becoming increasingly important is that of equipment for
neurostimulation. These devices are currently used in indications
such as Parkinson's disease, epilepsy and pain. Now, for the first
time, the FDA has approved a device for use in treating severe
depression – the VNS System from Cyberonics. The sector has also
been boosted by takeovers, including Johnson&Johnson paying
USD 26 billion (6 times sales) to acquire Guidant, and Siemens
taking over CTI Molecular Imaging, one of the foremost
manufacturers of Positron Emission Tomography (PET) equipment
(for the early diagnosis of specific illnesses). The Medtech sector
suffered individual setbacks as a consequence of product
withdrawals (e.g. at Boston Scientific) and new rules governing
acquisitions in hospitals (gain sharing) designed to achieve more
favourable discounts from manufacturers.
E-health sector companies are profiting from the constant pressure
on costs in health care, the increasing success of image-based
diagnostics procedures such as computer or nuclear magnetic
resonance tomography, and safety-related discussions in respect of
medication errors. Particularly impressive results have been
achieved by manufacturers of electronic health records and
complete hospital information systems, picture archiving and
communications systems used in the administration of digital
image findings, and suppliers of special software systems for
health insurance companies. At the same time, the growth
expectations for this sector resulted in takeovers – including
Cedara Software (image processing) and IDX Systems (hospital
information systems). The healthcare service sector continued to
perform well. Drug procurement companies and health insurance
companies profited from falling costs as a consequence of the
increased use of generic products and efficiency gains through the
use of the latest information technology. In terms of purchasing
power, the hand of the health insurance companies is being further
strengthened as the trend towards consolidation continues, for
example with the merger of United Health and Pacific Care.
6
Investment performance
Over the financial year from 1st October 2004 to 30th September
2005, FCP OP MEDICAL BioHe@lth-Trends stock rose from
EUR 94.66 per share to EUR 118.11 (+24.8%*). This is 13.2%
better than the biotech index NBI (in €), 0.2% better than the BTK
(biotech index for higher-capitalised profitable biotech
companies), and 18.3% better than the Amex Pharma index DRG
(in €) (see Fig. 3).
130
120
110
100
90
80
01.10.2004
01.11.2004
01.12.2004
01.01.2005
01.02.2005
01.03.2005
01.04.2005
01.05.2005
01.06.2005
01.07.2005
01.08.2005
01.09.2005
MedicalBioHe@lth-Trends NBI DRG BTK
Fig. 3: Price performance of FCP OP MEDICAL
BioHe@lth-Trends in the financial year 04/05 as a %
compared with the DRG, BTK and NBI index (in €);
start of the financial year = 100
With Small and Mid Cap stocks, in particular, a positive company
performance (licences, results of clinical trials, partnerships etc.)
can have a far higher than average impact on that company’s share
price. This is also illustrated by the following six companies with
the sharpest price increases in the fund during the period under
review:
BSD Medical Positive clinical results +193%
Hologic Growth and expansion of
profitability +177%
Transkaryotic Therapies Takeover +147%
Trizetto Growth and profitability +145%
Lifecore Biomedical Growth and expansion of
profitability +143%
Cubist Growth and aspired-to
indication expansion +107%
Tab. 1: Companies with the biggest price increases during the
period under review
The fund continued to profit from the ongoing concentration
process in the still relatively heavily fragmented health care sector
(see Tab.). The markups on the stock market listing paid at the time
of the takeovers prior to announcement of the deals were as much
as 85%, illustrating that the Small and Mid Cap sector has an
attractive valuation level.