SNAPSHOT2 min read

Dom & Graham’s themes and trends: big pharma

Informal discussions about the key themes changing the world of investment – and the world. This month Dom and Graham ask why, of all the defensive sectors, healthcare is so undervalued.

14/10/2019
Market-ticker

Authors

Dominic Liversedge
Portfolio Director

What’s up with healthcare? Of all the defensive industries it looks decidedly unloved.

It’s on a forward P/E of 15.2 compared, for example, to consumer staples’ P/E of 19.

The short answer is that healthcare is a political football. And in the run-up to a US election, markets are putting the boot in.

Investors are spooked in particular by outspoken politicians such as Senator Elizabeth Warren, who talk of capping drug prices and abolishing private health insurance.

In taking a dim view of the sector, markets are replaying exactly what happened in the run-up to the 2016 election, Dom and Graham explain. “And if you’re prepared ignore the noise, you might find opportunities.”

Longer-term trends favouring the pharmaceutical industry

Current valuations might be appealing, but there is also a bigger picture which looks attractive. This is the role played by technology in streamlining the process from early-stage research to approved drugs on sale.

“In the 1990s there was a random process of drug discovery," Graham explains. "You chucked a plate of spaghetti at the wall and hoped something stuck.

“Today companies can identify genetic mutations and screen data rapidly enough to pinpoint solutions. The ratio of R&D to drugs approved is improving – and that means better earnings.”

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Authors

Dominic Liversedge
Portfolio Director

Topics

Snapshot
Thematics
Healthcare
Market views

Cazenove Capital is a trading name of Schroders (C.I.) Ltd which is licensed under the Banking Supervision (Bailiwick of Guernsey) Law 2020 and the Protection of Investors (Bailiwick of Guernsey) Law 2020, as amended in the conduct of banking and investment business. Registered address at Regency Court, Glategny Esplanade, St. Peter Port, Guernsey GY1 3UF, (No.24546) . Schroders (C.I.) Limited, Jersey Branch is regulated by the Jersey Financial Services Commission in the conduct of investment business. Registered address at 40 Esplanade, St. Helier, Jersey JE2 3QB, (No.31076).

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