/Healthy prospects

Healthy prospects

Polar Capital Global Healthcare explain why big pharma shouldn’t be ignored.

As well as disruption and innovation coming from smaller, more nimble companies, we are now seeing the proactive, larger businesses driving structural change across the healthcare sector.

Since early 2017, small and mid-cap healthcare companies have significantly outperformed the large caps. This started to reverse in the second half of 2018 and while we are not disputing the level of innovation we are seeing in small companies, we think some of their valuations are looking stretched.

By comparison, valuations of large healthcare companies continue to look attractive on a relative and absolute basis – the sector’s price/earnings ratio is in line with the market on a relative basis and is at its long-term absolute average. For investors, these large companies offer the potential of steady earnings growth, strong cash generation and, ultimately, compounding returns for investors.

By comparison, valuations of large healthcare companies continue to look attractive on a relative and absolute basis – the sector’s price/earnings ratio is in line with the market on a relative basis and is at its long-term absolute average. For investors, these large companies offer the potential of steady earnings growth, strong cash generation and, ultimately, compounding returns for investors.

Given the potential uncertainties going into 2019 – Brexit, trade wars, rising interest rates, geopolitical uncertainty etc – we think there is a strong case to be made for investing in large healthcare stocks that offer defensive growth. Our focus is on large companies adopting proactive business strategies to embrace and drive change in the way healthcare is being managed, delivered and paid for.

Given the potential uncertainties going into 2019 – Brexit, trade wars, rising interest rates, geopolitical uncertainty etc – we think there is a strong case to be made for investing in large healthcare stocks that offer defensive growth. Our focus is on large companies adopting proactive business strategies to embrace and drive change in the way healthcare is being managed, delivered and paid for.

Structural change in any industry has the potential to create winners and losers and healthcare will be no different. In 2017, we articulated a two-pronged investment strategy:

1. Focus on large-cap consolidators adjusting to change.

2. Identify small/mid-cap innovators disrupting the industry.

Over the past year, we have seen a significant change at some of the larger companies that has begun to blur these two trends. We are now

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