Worldwide Healthcare benefits from big pharma, medtech and emerging biotech perfomance

Worldwide Healthcare (WWH) has published its annual results for the year ended 31 March 2024, during which it provided NAV and share price total returns of 12.0% and 8.6% respectively, which compare to a return from its MSCI World Health Care benchmark of 10.9% (all in sterling terms). The difference between the performance of the NAV and share price reflect a widening of the discount from 9.3% at 31 March 2023 to 12.1% at 31 March 2024. Principal contributors to the outperformance of WWH’s NAV were big pharma, medtech and emerging biotech stocks. A key part of WWH’s manager’s strategy is to be overweight the Emerging Biotech sector, reflecting what it sees as the high levels of innovation and growth found in these companies as well as their potential to be acquisition targets by larger pharmaceutical companies seeking growth opportunities.

Discount and share repurchases

WWH’s chair, Doug McCutcheon, comments that, since the beginning of 2022, and for a variety of reasons, share price discounts across the investment company sector in the UK have widened. It is WWH’s board policy to buy back shares if its share price discount to the net asset value per share exceeds 6% on an ongoing basis, but McCutcheon says that shareholders should note that it remains possible for the discount to be greater than 6% for extended periods of time, particularly when sentiment towards the company, the sector and to investment trusts generally remains poor. He also notes that, in such an environment, buybacks may prove unable to prevent the discount from widening, adding however that they enhance the net asset value per share for remaining shareholders and go some way to dampening discount volatility, which can adversely affect investors’ risk adjusted returns.

Over the year, WWH repurchased 80,265,298 shares for treasury at a cost of £253m and at an average discount of 10.5%. In addition to increasing WWH’s net asset value per share, during the period under review this activity made WWH the most active acquirer of its own shares both in its sector and across the investment trust sector as a whole. The shares repurchased during the year under review equated to 12.8% of its share capital at the beginning of the year. The total number of shares shown to have been repurchased during the year has been adjusted to reflect the share split of each of the company’s shares of 25p each into 10 shares of 2.5p each which took effect from 27 July 2023. McCutcheon says that, from the beginning of the new financial year to 5 June 2024, a further 10,677,869 shares have been bought back for treasury, at a cost of £36.5m and at an average discount of 10.1%. In a change to WWH’s previous stated policy, all shares held in treasury at the date of the WWH’s forthcoming AGM will not be cancelled and will continue to be held in treasury for re-issue at a premium to the net asset value per share.

Revenue income and dividends

WWH is focused on capital growth and pays dividends at least to the extent required to maintain its investment trust status. Therefore, the level of dividends declared can go down as well as up. An unchanged interim dividend of 0.7p per share for the year ended 31 March 2024, was paid on 11 January 2024 to shareholders on the register on 24 November 2023.

WWH says that its net revenue for the year as a whole decreased to £16.1m from £19.7m. This was due largely to a decrease in exposure to higher yielding stocks in the portfolio as well as a reduction in the size of the portfolio due to shares bought back by the company during the year. As a result, the revenue return per share was 2.7p (2023: 3.0p per share). Reflecting this, WWH’s board is proposing a slightly reduced final dividend for the year of 2.1p per share (2023:2.4p per share). Together with the interim dividend already paid, this makes a total dividend for the year of 2.8p per share (2023: 3.1p per share). Based on the closing mid-market share price of 353.5p on 5 June 2024, the total dividend payment for the year represents a current yield of 0.8%. The final dividend will be payable, subject to shareholder approval, on 24 July 2024, to shareholders on the register of members on 14 June 2024. The associated ex-dividend date will be 13 June 2024.

Board developments

Humphrey van der Klugt will retire at the conclusion of the company’s Annual General Meeting on Wednesday, 10 July 2024. Humphrey has served on the board since 2016 and was the chair of the Audit & Risk Committee from 2016 to 2023. The board is in the process of recruiting a new director to join the board later in the year and it will keep shareholders informed of developments.

Continuation vote due

WWH offers shareholders a continuation vote every five years, with the next one scheduled for the AGM in July this year. WWH’s board says that, “in the light of the Company’s long-term track record of outperformance, the positive outlook for the healthcare sector globally and the Company’s unique ability to provide shareholders with access to a broad range of healthcare investment opportunities worldwide, the Board unanimously recommends that shareholders vote in favour of the resolution allowing the Company to continue as an investment trust for a further five years”.

Investment manager’s comments on markets

“Global equity markets continued their rollercoaster ways in the financial year, with a volatile first half followed by a steep climb higher in the second half. One constant throughout the year has been the macroeconomic and political factors driving returns, trumping industry specific fundamentals.

“The first half of the year was characterised mostly by investor fear and uncertainty, with rising interest rates, geopolitical conflicts, and persistent inflation providing the backdrop for the debate around a recession. Broad market returns during this period were flat to down, exacerbated by a precipitous market sell-off in October where “higher for longer” was the rally cry for investors to sell. Healthcare stocks eschewed their traditional defensive characteristics and lagged the market by over 5% (source: MSCI) during this period.

“But the second half of the year saw a dramatic reversal of market performance as investors expressed enthusiasm over easing inflation data and the U.S. Federal Reserve’s indication of a potential end to its two-year interest rate hiking cycle. That momentum continued unabated into the financial year end where the MSCI World Index and the S&P 500 closed on all-time highs whilst the FTSE All-Share Index closed on a 52-week high. Healthcare stocks also rose, but again trailed the broad market by 6%.

“The net of it was a difficult year for healthcare stocks. The MSCI World Index bucked the early tumult of the year to post an impressive total return of +22.4% (sterling). Whilst the MSCI World Healthcare Index also rebounded during the year, the total return of +10.9% (sterling) was the worst relative performance versus the broad market in over 20 years.

“Despite the difficult backdrop for healthcare, the Company was able to produce a strong double-digit return that exceeded the Benchmark by over 1%, driven primarily by stock picking across Big Pharma, Emerging Biotech, and Medtech.”

Investment manager’s comments on asset allocation

“We actively manage the Company’s allocation across healthcare sub-sectors with reference to the Benchmark. In the reported financial year, we have continued our strategic overweight positioning in Biotechnology stocks, in particular Emerging Biotech. As innovation has become the real hallmark of the Company, the real cradle of innovation has been in Emerging Biotech stocks, companies that are typically without revenues but have been the technology engine behind both the majority of the industry’s pipeline and ultimately new product approvals. We ended the financial year with total Biotechnology exposure of 29.0%, 20.7% above the Benchmark, representing an increase year-over-year on both an absolute and relative basis. Within Emerging Biotech, there was a modest increase year-over-year (+1.7%) on an absolute basis and a large increase relative to the Benchmark (+3.9%) as valuations compressed in the period. Overall, the exposure is very much consistent with our long-held positioning that has typically ranged from high 20’s to low 30’s percentage on an absolute basis, which we expect to continue.

“Similarly, we have continued our strategic underweight positioning in Pharmaceutical stocks in the reported financial year. There are two main rationales for this. First is a nod to the Benchmark where Pharmaceuticals (global large capitalisation stocks, generics, and specialty) comprise approximately 45% of the weighting, the largest segment of MSCI World Healthcare Index. This fact creates the most likely candidate for funding other segments of our investment. Second, and more importantly, the underweight positioning is primarily due to our fundamental outlook for the sector. Big Pharma companies, in our view, are a collection of companies that are easily divided into the classic “Have or Have Not” designation from a variety of metrics including but certainly not limited to valuation, growth profile, management credibility, pipelines, new product launches, strength of balance sheet, capital allocation priorities, and forward-looking catalysts. Our focus on the “Haves” has enabled us to capture performance in the financial year both in absolute terms and relative to the Benchmark, despite the underweight positioning. Year-over-year, our exposure in Big Pharma companies did increase by 3.3% (absolute) and 1.3% (relative) given high conviction ideas in companies that are significant weightings in the Benchmark including Eli Lilly, Novo Nordisk, and AstraZeneca.

“In the Life Sciences Tools & Services (“Tools”) sector, we increased our exposure over the course of the year but remained underweight versus the Benchmark, reflecting the difficult macro environment for tools companies across many markets, including bioprocessing, instruments, China, and general biopharma weakness. We added one new significant position, Icon Life Sciences, a contract research organisation where market trends and opportunities have improved for the company. We await opportunities to add exposure as the Tools sector returns to more normal growth towards the end of calendar 2024.”

Investment manager’s comments on asset allocation by subsector

The portfolio allocation in Health Care Equipment & Supplies (“Medtech”) varied through the financial year given a variety of shifting tailwinds and headwinds. Whilst this is unlike our strategic positioning in Biotechnology and Pharmaceuticals, it is a typical trading pattern for us, historically, in Medtech. We started the financial year overweight given high conviction, single stock ideas and a sub-sector valuation that appeared reasonable against a backdrop of improving procedural utilisation rates. Exposure was reduced mid-year due to profit taking, ahead of a seasonally slower second quarter, and the negative fall-out from GLP-1 data sets, such as the SELECT trial, which created significant tumult in the sector during the year. Our exposure to the group increased in November 2023 to take advantage of what we saw to be a rebound in the hardest hit parts of the sub-sector. Into the year-end, the portfolio was back to a slight overweight position, albeit slightly down year-over-year (approximately 1.5% absolute and 2.2% relative). Looking ahead, subsector fundamentals are highly bifurcated between a select group of large capitalisation companies such as Boston Scientific, Intuitive Surgical, and Stryker which are benefiting from sizable new product cycles, while most of the other large cap companies should remain at much lower growth rates and out of favour with investors.

“In Healthcare Providers & Services (“Services”), we reduced our managed care exposure meaningfully over the course of the year. Our current underweight positioning reflects the significant challenges that this sector has faced, especially for companies exposed to Medicare Advantage – including an unprecedented spike in utilisation and insufficient reimbursement updates from a more negative government stance on the industry. We are watching carefully for opportunities to increase our exposure again as utilisation appears to be stabilising.

“Historically, our exposure to Japanese pharmaceuticals has been idea based. That is, our long history in both due diligence and investing in companies from Japan has shown episodic opportunities of novel innovation and outsized returns from concentrated investments there, regardless of the Benchmark. As of the year-end, our overweight positioning here was stable, as two investment opportunities have carried through the start and end of the period, specifically Daiichi-Sankyo, the worldwide leaders in antibody drug conjugate technology for the treatment of multiple cancers, and Eisai, the longtime pioneers in Alzheimer’s disease, now presiding over a historic global launch of Leqembi (lecanemab).

“Another sector in which we have historically been overweight is Emerging Markets, in particular China healthcare. Fundamentally, there are a multitude of reasons for this, including a sizable and growing market, patient demographics, local consumer demand, and ultimately government support in building healthcare infrastructure and reforms to improve access to healthcare services for its citizens. More recently, we have also discovered the incredible innovation that is also coming out of China in the healthcare space, drug discovery and development which is rivalling, and sometimes surpassing, their Western counterparts. That said, we have also acknowledged (and capitulated) to the plethora of headline risk that has been coming out of China, primarily the given geopolitical tensions between U.S. and China. As a result, we have lowered our exposure to Emerging Markets significantly over the past four years, ending the year at 3.7% and down over 4.3% year-over-year. Nevertheless, the secular tailwinds remain strong and we expect to continue to look for and invest in meaningful opportunities in China and India.”

Investment manager’s comments on performance

“For the year ended 31 March 2024, we are pleased to report that the Company generated a net asset value total return of +12.0% whilst the share price total return was +8.6%. The net asset value performance surpassed the Benchmark return of +10.9%. Drivers of both absolute and relative performance were similar to the most recent years, namely the fluctuations between fundamental industry drivers and macroeconomic factors heavily influenced the returns during the year. With interest rates being the most significant corollary to performance, the only sustained returns were achieved in the second half of the financial year when investors and the market began to expect – and price in – interest rate cuts in 2024.

“As detailed below, key upside drivers for performance included stock picking in Big Pharma, allocation and stock picking in Biotechnology, and stock picking in Medtech. This was partially offset by allocation in China, stock picking in Japan, and exposure to unquoteds.”

Investment manager’s comments on subsector performance

“On a sub-sector level, the largest contributor to absolute performance was from Big Pharma, contributing 7% (of the +12% net asset value return). Obesity drugs and the landmark data from the newest GLP-1 medications was the true hallmark for healthcare stocks in 2023 and was a key contributor to the Company’s absolute performance. Stock picking here was key as relative contribution from Big Pharma was also positive, despite the sizable underweight positioning versus the Benchmark throughout the financial year (average portfolio weight 28% compared to Benchmark weight 41%).

“An outsized contribution also came from Medtech at just over 4% of the 12.0% NAV return. The space was particularly volatile in 2023 as small capitalisation stocks underperformed and obesity-laterals disrupted the share prices of many stocks. Additionally, stock picking here was particularly astute and combined with allocation effect (average year-long overweight of approximately 1.6%), investments in Medtech yielded nearly 2% of excess return.

“A contribution of import was also generated within Biotechnology, more specifically Emerging Biotech stocks which generated nearly 3% of absolute return. Moreover, this return also represented nearly 3% of relative return, primarily due to stock picking. The majority of this contribution came from OrbiMed’s custom and proprietary mergers and acquisitions (“M&A”) swap basket, first constructed in April 2022, which consists of handpicked biotechnology companies (by OrbiMed) that we believe are likely M&A targets as an efficient way to gain exposure to a plethora of single stocks. The strategy proved very successful, with the basket returning over 65% (USD) since inception, outperforming broad small and mid-capitalisation stocks (+28% per the XBI) and large capitalisation (+17% per the NBI) Biotechnology stocks, contributing over 2% or nearly £35 million alone. The total net contribution for Biotechnology was partially offset by our investments in Big Biotech names, which were negative.

“Detractors of note on a sub-sector level (China, Japan, Unquoted) were modest. The equity markets in China remained difficult as investor concerns over the economy were exacerbated by ongoing geopolitical tensions with the U.S. and proposed legislation that could limit China’s role in the U.S. biopharmaceutical industry. Overall, the Hang Seng Healthcare Index dropped 35% in the financial year under review.

“Thus, allocation effect primarily led to more than a 2% negative impact from China-based investments.

“In Japan, the TOPIX Pharm Index total return was negative at -6% (sterling) despite the Nikkei-225 Index advancing more than 25% (sterling) and reaching all-times highs in March 2024. Thus, the allocation effect, and stock picking, combined for more than a 1% impact to performance in the financial year.”

Investment manager’s comments on unquoteds

“During the financial year, the Company strategically refrained from making new investments in unquoted companies, as we continued to cautiously navigate the challenging public offering market for small and mid-capitalisation healthcare firms. While the capital market funding landscape has been improving, most of our unquoted companies are well capitalised and are being selective with regards to pursuing listings. We are optimistic about the ability of some of our unquoted investments to achieve listings within the next year as we anticipate the capital market funding environment will continue to improve.

“As of the end of the financial year, unquoted investments made up 6.3% of the Company’s portfolio, a slight decrease from 6.7% as at 31 March 2023. The existing unquoted portfolio demonstrates a diverse and forward-looking approach. Geographically, exposure is evenly distributed among Emerging Markets and North American companies. On a sub-sector basis, the exposure is concentrated in Services and Tools, with small exposures to Biotechnology and Medtech.

“We participated in one additional investment (£3.3 million) in API Holdings (better known as PharmEasy) which was also the only material write-down in valuation. The company was compelled to accept a capital infusion at a distressed valuation after a planned initial public offering (“IPO”) was delayed due to adverse market conditions, leading to a funding shortfall, including a potential breach of a debt covenant.

“During the year under review, the unquoted investments made a loss of £14.7 million, from an opening market value of £145.2 million across 10 companies. The unquoted strategy as a whole had an implied return of -9.9% which detracted -0.7% from performance. API Holdings was the main detractor in the unquoted strategy while other emerging markets names had minor downward valuation revisions largely due to a historically challenging public market environment in China and Hong Kong. On the contrary, North American unquoted holdings had a positive return during the financial year.”

Investment manager’s comments on major contributors to performance

“The pursuit of innovation is the longtime hallmark of the Company. Nowhere has this been better exemplified than in the study and development of the incretin class of medicines, better known as the GLP-1 agonists or the now famous “obesity drugs” Wegovy (semaglutide) and Zepbound (tirzepatide). The journey of these medicines began in 1996 when the target was first isolated from the venom of a Gila monster and is now culminating in unprecedented benefit for patients with diabetes and obesity and a plethora of other indications, including cardiovascular disease, heart failure, chronic kidney disease, liver disease, just to name a few.

“Eli Lilly can call themselves one of the true pioneers in this class of drugs and currently markets the undisputed “best-in-class” agents in the space. The company’s most recent offering is Mounjaro (tirzepatide), a dual GLP-1 and “GIP” agonist. Whilst approved for diabetes in 2022, the company presented additional data in obesity in 2023, showing weight loss eclipsing 20% and even approaching 25% in some cases. This dual-agonist therapy has pushed weight loss to new levels and the company benefited materially from the SELECT trial, with investors (and the company) assuming that “more is better”: the cardiovascular benefits shown by Wegovy should extend to Mounjaro, if not more so, given the superior weight loss profile. Sales of Mounjaro were annualising at almost $10 billion per annum at the end of 2023. The year-end approval of Zepbound in obesity was the company’s first and only approval so far in obesity and the launch has thus been explosive to start 2024. The combination of data disclosures, approvals, launches, and anticipation of next generation agents throughout the fiscal year caused the share price to more than double in the period. Eli Lilly was the top contributor to performance for the Company at 3.8%.

“The other true pioneer of the GLP-1 class is the global sales leader in this space, Novo Nordisk. 2023 contained a landmark moment for the company with the announcement and presentation of the SELECT trial, a global study that followed nearly 18,000 patients over five years to measure the benefits of taking Wegovy (semaglutide) on cardiovascular disease in obese patients. The full results were presented at the American Heart Association congress and simultaneously published in the New England Journal of Medicine in November 2023. The data was stunning and unequivocally showed a 20% drop in the risk of a patient suffering a “MACE” event (heart attack, stroke, or cardiovascular related death) by taking a once-weekly injection of Wegovy. This data surpassed all investor expectations and moved this drug from a lifestyle intervention into a chronic care medicine that can prolong a patient’s life. Sales growth has been explosive and the company’s total GLP-1 franchise was annualising close to U.S.$25 billion by the end of 2023, despite supply limitations, given insatiable demand. With additional manufacturing coming online in 2024, we expect this exciting growth to continue. With a share price rise of nearly 60% (sterling) in the period, Novo Nordisk was the second largest contributor to the Company’s performance.

“With a seasoned management team, multi-decade head start and superior robotic technology, we view Intuitive Surgical as the best positioned company in the fast-growing and vastly under-penetrated surgical robotics space. The company operates as a monopoly with its da Vinci suite of robotic systems, and we see upcoming competitor system launches as market expansive as opposed to driving material share gains against Intuitive. Over the past year, building investor excitement over a potential new system that should further insulate the company from competition, as well as accelerating top and bottom-line growth, has driven strong share performance. Intuitive’s procedure volumes benefited from rebounding U.S. surgeries and deeper penetration into new procedure categories and international markets. As procedures improved, customers required further robotics capacity resulting in strong system placements as well. The company’s latest system, the da Vinci 5, was U.S. Food & Drug Administration (“FDA”) approved in March 2024 and the roll-out has already begun. While there are still several unanswered questions about the pace of new system purchases going forward, it is clear that consensus estimates have yet to fully reflect the new system launch, and we see significant further share price appreciation in the coming years.

“Boston Scientific is an industry leading medical technology company that develops, manufactures, and markets minimally invasive medical devices in several high growth end markets including interventional cardiology, cardiac rhythm management, peripheral interventions, electrophysiology, neurovascular intervention, endoscopy, urology, gynecology, and neuromodulation. Over the past year, the company has successfully driven accelerating organic sales growth ahead of company guidance and investor expectations on the back of several new product launches, improving labour issues at U.S. hospitals and stabilising inflation headwinds. Moreover, investor optimism for improving future growth has increased in recent months on the back of positive trial results and subsequent FDA approval for the company’s next generation device for the treatment of atrial fibrillation, known as the FARAPULSE Pulsed Field Ablation System. While the company has several other new products launching over the next three years, investors are particularly focused on the pulsed field ablation device as the multi-billion dollar atrial fibrillation market could rapidly shift toward this new technology. We believe the ongoing company algorithm of best-in-class organic sales growth, differentiated margin expansion potential and ongoing M&A should result in continued strong and durable EPS growth for the foreseeable future.

“The Texas-based hospital operator, Tenet Healthcare, had an excellent year, as the most outsized beneficiary of favourable hospital market trends during the fiscal year. Hospitals spent most of 2022 managing spikes in labour costs for temporary nurse staffing, but were set up favourably for 2023 with continued strong utilisation trends exiting COVID, receding labour costs, and higher-than-average reimbursement trends in delayed recognition of higher labour costs. This combination of strong volume, price, and lower cost drove stellar results for hospitals throughout 2023, including Tenet Healthcare. Share price gains were also realised by the company due to the company’s (1) business mix toward higher-value ambulatory surgery centres, (2) impressive free cash flow, and (3) reduced leverage. Finally, we would note the company executed three significant hospital divestitures in early 2024 at valuations far beyond their own, which unlocked further value to shareholders.”

Investment manager’s comments on major detractors from performance

“In 2023, one of the most notable new drug approvals was Leqembi (lecanemab), the first monoclonal antibody to show unequivocal disease modifying effects in the treatment of mild to moderate Alzheimer’s disease. This landmark full approval was achieved by Eisai and their partner Biogen in July 2023 after receiving accelerated approval in January 2023. However, the launch has proven to be much more of a challenge than originally expected. Many factors contributed to the guarded uptake of Leqembi for prospective patients, including a cognitive test and physical exam, biomarker-confirmed diagnosis using cerebral spinal fluid (via lumbar puncture) or positron emission tomography test, confirmation of ApoE status (for safety considerations), and enrolment in a federal patient registry.

“Furthermore, the dosing regimen for Leqembi requires a patient to receive a long duration intra-venous infusion once every two weeks at an appropriate infusion centre. Much of the infrastructure for this was limited or even absent in the first year of the launch, curbing access to “chair time” for patients to get this novel medication. As a result, uptake has been modest through the second half of 2023, although it has inflected in early 2024. This situation has weighed on the share prices of both Eisai and Biogen. Share price declines were exacerbated when delays arose to the companies’ sub-cutaneous formulation of Leqembi, a drug regimen that would circumvent the need for infusion centres and perhaps require less frequent administration and almost assuredly allow for greater uptake and utilisation of Leqembi in afflicted patients.

“Ultimately, Eisai and Biogen failed to dose 10,000 patients in the U.S. – their stated goal at launch – in the financial year ended 31 March 2024. Overall, the sub-optimal launch of Leqembi resulted in Eisai and Biogen being the largest detractors to performance in the period. However, key opinion leader feedback on Leqembi remains supportive; the drug remains an important and beneficial clinical intervention for patients with Alzheimer’s disease. We believe sales can and will inflect going forward and our ongoing investment in these companies remains a lucrative opportunity.

“Madrigal Pharmaceuticals is a clinical-stage biopharmaceutical company based in Pennsylvania, pursuing novel therapeutics for the treatment of NASH (nonalcoholic steatohepatitis), or the emerging acronym of MASH (metabolic dysfunction-associated steatohepatitis). MASH is a severe form of fatty liver disease, a condition in which the liver builds up excessive fat deposits. Over time, inflammation, fibrosis, and cirrhosis can occur, leading to liver failure. With few options to treat this deadly condition and a huge prevalence globally, the commercial opportunity is large. Their primary pipeline asset, resmetirom, is a thyroid hormone β-receptor agonist which is believed to play a role in liver health. It has shown promising data in late stage, pivotal trials for this disease. However, the emergence of data for the GLP-1 class of drugs (for the treatment of diabetes and obesity from Eli Lilly and Novo Nordisk) have shown significant ability to reduce liver fat accumulation, decrease inflammation, and prevent the progression of fibrosis in patients with NASH. This finding dramatically hurt investor sentiment for all NASH players, including Madrigal. Share price declines were exacerbated by a change in the CEO and a subsequent financing, which removed the takeout premium in the stock. Ultimately, with the commercial opportunity for resmetirom blunted, we exited the stock.

“The Netherlands-based gene therapy player, uniQure, is a clinical-stage company that focuses on neurological disorders. Gene therapy, whilst still somewhat nascent, represents an incredible leap in innovation that has curative properties. The company’s lead asset is a novel gene therapy, AMT-130, for Huntington’s disease, an inherited disorder that causes cells in parts of the brain to gradually degenerate and die, progressively impacting a person’s functional abilities and results in movement, cognitive, and psychiatric disorders. However, in June 2023 the company provided a mixed interim update from its Phase I/II trial for AMT-130, which raised investor concern over target engagement of the gene therapy. The stock fell on the news and continued to sell-off. That said, we were encouraged by the totality of the data, including the early indication of function benefit across multiple measures. Ultimately, however, we concluded that the data was not approvable as is and an additional large, multi-year trial would be required to satisfy FDA and other regulatory authorities. As a result, we exited the stock.

“The global pharmaceutical company, Bristol-Myers Squibb is well known for its leadership in oncology, with major cancer franchises in both immuno-oncology and multiple myeloma. However, both franchises are aged and have reached or are nearing expiration of exclusivity. With a declining topline, the company’s price-to-earnings multiple has compressed to below 10x, creating the most heavily discounted stock in the large cap pharmaceutical space. However, this “value play” turned into a “value trap” in 2023. The company has had one of the most productive pipelines in the industry over the past three years, with new approvals in immunology, haematology, oncology, and cardiovascular disease. However, commercial execution of the many new product launches has underwhelmed, and a top line renaissance has so far failed to materialise. The share price has subsequently fallen further as has the multiple. We exited the stock during the first half of the financial year as our conviction level for a turnaround deteriorated. The share price continued to move lower in the second half of the year.”