The healthcare industry has been under siege this year, since pharmaceuticals fell afoul of President Trump’s ‘America First’ policy. But so far when it’s come to tariffs and pricing initiatives, the President’s bark has been worse than his bite, with the risks of further intervention now looking to have fallen.
There’s no guarantee that won’t change, and sector valuations have already strengthened.
But, we still see some opportunities in an industry that benefits from some compelling long-term growth drivers.
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Novo Nordisk – an unloved heavyweight
Novo Nordisk has lost its crown as the frontrunner in the market for ‘GLP 1’ based therapies for obesity and related metabolic disorders. Despite this, we still think the company has a very large opportunity ahead.
It continues to make impressive progress in international territories. And while growth in the more mature US market is slowing, there’s still a large addressable patient population not on therapy.
Getting approvals for additional medical conditions is a key lever to pull on here. Novo’s had recent wins on that front for liver disease and cardiovascular risk, and early research is emerging for positive impacts on neurodegenerative disorders like Parkinson’s and Alzheimer’s disease.
But new CEO Mike Doustdar has his work cut out if he’s to win back investors trust after a series of profit warnings this year. Key short-term drivers to watch out for include the expected launch of an oral version of its flagship medication, semaglutide. We’re also hopeful that Novo will make progress with legal action to curtail copycat sales of its products.
In both cases there are no guarantees of success, but we believe there’s significant downside priced into the current valuation. Analyst forecasts for next year have already cratered, reflecting both legitimate and illegal competitive threats as well as downward pressure on pricing. If the company can meet these lowered expectations, we’d expect to see an improvement in investor sentiment.
GSK – bridging the expectations gap
Despite the noise in the market, GSK is on track to meet this year’s upgraded expectations. Investors are now looking to CEO designate Luke Miels to deliver on outgoing boss Emma Walmsley’s target of growing annual sales to £40bn by 2031. That implies an average growth rate of around 3.5% per year compared to the last reported numbers.
The market remains to be convinced, with consensus forecasts earmarking average growth of less than 2%. The gap reflects concerns about the group’s ability to replace revenue from a loss of exclusivity for one of its leading HIV treatments. But it’s a disease area where the group is rapidly evolving its products.
We also see strong prospects in the wider pipeline, with 15 major product launches planned by 2031. While the risks inherent with drug development mean the 2031 target’s not a slam dunk, we see scope for further upgrades to that ambition along the way.
We think the valuation broadly mirrors the group’s near-term prospects. But if clinical and commercial progress can provide the market with more comfort around the longer-term view, there’s scope for some upside. In the meantime, there’s a 4.2% forward dividend yield on offer, which looks well supported to us, although not guaranteed.
Parties related to the author hold shares in GSK.
BioMarin – addressing the root cause of disease
BioMarin is a specialist biotech company with a strong track record of developing therapies for rare inherited diseases. It seeks to address the root cause of disease rather than merely managing symptoms. In return for dialling down on conditions with lower patient populations, developers of ‘orphan’ drugs can expect to charge higher prices, face lower competition and enjoy longer periods of exclusivity.
That’s supported by favourable legislation, and while it is subject to change, the Trump administration appears broadly supportive of companies that innovate to address these unmet needs. But BioMarin’s emerging from a challenging period.
Uptake for Roctavian, a gene therapy for Hemophilia that costs nearly $3mn per patient in the United States has been disappointing, and we’ve seen the emergence of competition for its best seller Voxzogo which treats dwarfism.
But the most recent quarterly results provided evidence that the company is feeling the benefits of recent strategic actions. We saw broad sales momentum across the portfolio underpinning an upgrade to full-year guidance. There were also some encouraging developments in the research pipeline, which includes a potential successor to Voxzogo.
Cash generation has improved dramatically over the last couple of years, with the company’s financial strength allowing it to beef up its stage pipeline through the $270mn acquisition of Inozyme, which is set to announce key clinical data early next year.
Investors haven’t warmed yet to BioMarin’s improving fortunes, and while there’s no promises of continuing success, we think the current valuation underplays the growth forecasts within the market. It’s not something we’re pinning our hats on, but there’s also the potential for a boost if disputes alleging infringements of the company’s intellectual property go BioMarin’s way.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Past performance is not a guide to the future. Investments rise and fall in value so investors could make a loss. Yields are variable and not guaranteed.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.