Kieger Healthcare Monthly Commentary - Kieger
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Kieger Healthcare Monthly Commentary

Kieger Healthcare Monthly Commentary

The most-needed gift beneath the Christmas tree is some normalisation in 2023

After the wild ride of 2022 and the two prior hectic COVID-19 years, some peace of mind would certainly be welcome in 2023. Wishes, however, do not always come true and equity markets could be in for another rollercoaster ride this year. The odds of a global recession are rising, and inherent risks are probably not yet fully reflected in the market. In December, hawkish rhetoric (higher-for-longer rates) by major central banks around the globe and concerns regarding economic growth weighed on equities. Investor sentiment was also hurt by news of rapid virus spread in China, hence related growth and supply chain headwinds, after authorities lifted their stringent COVID-19 restrictions. Healthcare equities shed 1.2% over the month, while global equities lost 4.3%. In 2022, Healthcare returned -5.4%, outperforming the broader market by 12.7%.

Pharma gained 0.3% in December, driven by big European names such as Novo Nordisk, Merck KGaA and Sanofi – all up at least high single digits. Part of this performance is attributable to USD depreciation vs. EUR/CHF/DKK.

Additionally, Takeda (7.4% gain) will pay USD 4bn for rights to a phase 2b candidate being developed by Nimbus Therapeutics to treat psoriasis. Within Equipment & Supplies (-0.3%), DiaSorin and Biomérieux stood out, both benefitting from this year’s harsh respiratory season. Orthopaedics were solid in December thanks to several positive broker outlooks for 2023. Philips gained momentum after providing initial further testing results for its DreamStation (sleep therapy devices). FDA feedback is, however, still pending. In Biotechnology (-2.4%), most of the large caps were used as a source of cash during the month, following a strong 2022 performance. Horizon was the best performing stock, Amgen having announced a USD 27.8bn takeover. Exact Sciences also rose sharply after its peer, Guardant Health, published the long-awaited ECLIPSE study results (83% sensitivity in detecting colorectal cancer at 90% specificity), which was below street estimates. Further, Novozymes (continuing company) and Chr. Hansen announced their merger. Tools & Services (-2.5%) saw earlier gains evaporate, but no clear pattern was observable in December (returns were driven by broker rating changes). Providers & Services (-3.1%) were pushed down by investor profit-taking in the Drug Distributors and Managed Care sub-segments (2 of the 3 top performing healthcare segments in 2022). Healthcare Tech lost 13.5%, bringing its year-to-date performance to -37.1%.

In the spotlight


Important topics for 2023:
Equipment & Supplies: Overall, Medtechs, which have been rather slow in passing through rising input prices to patients, should see benefits on both the top and bottom lines over the coming year. For elective procedure-dependent names, 2023 could be a year of relief, as further moderation in hospital staffing challenges could finally help work through the backlog. Consumer-facing segments (Dentals, Hearing Aids, part of Vision) may present more muted results at the onset of 2023, with cost-of-living pressures continuing to weigh on consumer demand. That said, with the stocks trading at multi-year-low valuations, silver linings on the macro front could make them attractive again to investors. For hospital-capex firms, the debate regarding client capex cuts vs. the need for automation to counter staffing pressures will remain an overhang.

Providers & Services: In Managed Care, focus points will be the path of normalisation in non-COVID-19 procedure volumes and whether there will be an uptick in acute care due to delayed intervention. On the legislative front, the CMS’ upcoming final RADV (Medicare Advantage Risk Adjustment Data Validation) decision (expected by 1 February 2023) could impact MA-exposed firms. For Hospital Providers, 2023 could herald a further normalisation in baseline utilisation (non-COVID-19 volumes) and some data points to a stabilisation/improvement on the labour front (shortages, wages). For Drug Distributors, the environment should remain favourable in 2023 with durable drug demand, stable pricing and a growing biosimilars opportunity.

Tools & Services: Near-term, bioprocessing inventory (de-)stocking issues will continue to be at the top of investors’ minds and it might take one or two quarters to reach a more normalised growth pattern. For the more instrument/equipment-dependent firms and those with greater exposure to the industrial sector, a further deterioration of the macro environment could become a headwind. However, compared to 2008/2009, many firms are now serving less-cyclical segments of the industrial sector. For CROs, the state of the biotech funding environment remains an overhang. Recent data points showed an improvement, but it remains unclear whether these were just one-off events (year-end budgets, large single tickets, …). Still, a lot does already seem priced in, with company valuations sitting at multi-year lows. M&A-wise, 2022 saw only limited M&A activity in the Tools & Services subs-sector. 2023 could thus become an interesting year again for transformative deals. Many companies are sitting on hoards of unspent cash from the COVID-19 years and valuations for acquisition targets moderated significantly in 2022.

Pharma: 2023 will be the year of Alzheimer’s, with regulatory approvals and CMS coverage decisions. In obesity, launch progressions in approved indications for Mounjaro (Eli Lilly) and Wegovy (Novo Nordisk) will be closely followed. Pharma shares saw macro-driven multiple expansions in 2022, we would not be surprised if that will reverse with a more optimistic market.

Biotechnology: Abbvie’s mega-blockbuster Humira exclusivity will draw to a close in 2023. Although not the first drug to face biosimilar competition, what has been unseen to date is the magnitude of firms (10) that will be launching a biosimilar against a branded product during a single calendar year. 2023 will therefore offer valuable insights for the biosimilar market (market share dynamics among entrants and Abbvie’s loss of volume to them). Further, after 7 quarters of underperformance of small and mid-cap Biotech stocks, the segment is ready for a rebound. For this to happen, investor optimism and the funding environment (see above) must improve.

Video of the Month: Healthcare – Today’s challenges, tomorrow’s opportunities


Raphael Oesch and Urban Fritsche

Join our Kieger Healthcare specialists Urban Fritsche and Raphael Oesch as they look back to the last three years of healthcare investment and discuss two current challenges and corresponding opportunities.

Check out our video on this subject on following link.

Kieger Healthcare Team


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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.

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