Halloween Horrors
October was a tough month for healthcare amidst a rocky macro picture. In the US markets, it was the worse month year-to-date on a relative basis, globally, the second worse. A large part of this underperformance can be attributed to huge moves in specific sub-sectors of the healthcare space, as explained below.
Overall, we continue to be positive on the sector, as the underlying demand remains strong, and there are winners for many of the losers.
Medicare Mayhem
The managed care companies with exposure to governmental health insurance
programs were the largest contributors to this month’s sector underperformance.
There are 3 reasons for this:
- First is the sustained high rate of healthcare utilization in the US for
Medicare patients, now for the 7th quarter in a row. - Second, upcoming changes to reimbursement laws have led to large increases in drug volumes for seniors.
- Third, with the redetermination of eligibility of Medicaid coverage – which was paused during COVID – the acuity mix of the population has shifted without being reflected in the state insurance rates.
Overall, these effects mean stronger demand for healthcare, which is
positive for other companies.
CRO Chaos
The Life Science Tools & Services space was also under severe pressure, in large part due to weakness in contract research organisation (CRO) names.
These companies are highly dependent on small but also large biotech and pharmaceutical companies outsourcing a part of their clinical trial operation to them. Despite the relative pick-up in the Biotech funding environment over the past 12 months, this has so far not been translating into increased CRO business. In addition, the book of large-cap business also seems to be slowing.
Overall, it seems the shifting end market demand is still misunderstood by markets and companies..
Top 5 this month:
- Incyte 12% Earnings
- Illumina11%
- Sandoz 9% Earnings
- Argenx 9% Earnings
- Otsuka 8% Trial data
Source: Bloomberg Finance L.P., Kieger
Bottom 5 this month:
Eurofins -23% Earnings, guidance cut
Elevance -22% Medicare pressure, miss
Carl Zeiss -21% Fears around biz in China
Smith & Nephew -20% Earnings, guidance cut
Bayer -20% No news
Chart of the Month
AI is rapidly making its way into medtech.
Since 1995 and through August of this year, the FDA has authorized 950 AI and machine learning-enabled devices. But after 2015, the authorisations grew dramatically. Reasons for the uptick include the rise of connected devices, higher investments in AI and growing understanding of regulations. Notably, the radiology sector accounted for 76% of the approvals. These devices offer functionalities, for example, to interpret and enhance image quality or to help position patients for scans.
Check out our video on this subject here.
This news article has been issued through Kieger AG and is for distribution only under such circumstances as may be permitted by applicable law. This document is for information purposes only and does not constitute an offer. Past performance is not a reliable indicator of future results. The details and opinions contained in this document are provided by Kieger without any guarantee or warranty and are for the recipient’s personal use only. All information and opinions contained in this document are subject to change without notice. This document may contain statements that constitute “forward looking statements”. A number of risks, uncertainties and other important factors could cause actual developments and results to differ materially from our expectations. Data source: Statestreet / Factset.
