Bellevue Diversified Healthcare

Global equities continued to recover in June 2025, with the MSCI World Index ending the month up 4.3%. While remaining a laggard, healthcare also started recovering (MSCI World Healthcare up +1.4%) from what had been a significant (perhaps peak) level of fear around US drug pricing reform in May. The Bellevue Diversified Healthcare Fund (I-shares: +1.7%, in USD) outperformed its healthcare index benchmark by 22bps, driven by stock selection.

US President Trump released an Executive Order (EO) calling for most-favored-nation (MFN) drug pricing on May 12. This called for the HHS to propose drug price targets within 30 days, with the industry being given 180 days to show signs of progress (deadline November 8, 2025). Alongside this, there remains the 232 investigation on pharmaceuticals related to national security and potential tariffs. We are therefore within the middle of these two processes, with a lack of clear direction at present. The potential for a pilot program around MFN appears to have waned. In addition, we have not seen MFN enter the reconciliation bill (big beautiful bill) negotiations in congress. This lack of information and slowing momentum has provided a support to pharmaceutical valuations.

Beyond US politics, June was a busy month of healthcare conferences. Early in the month we attended the American Society of Clinical Oncology (ASCO) annual meeting in Chicago. This is the largest medical conference on the calendar. During the meeting we gained a growing picture of the potential new modalities and mechanisms that are emerging in early/ mid-stage studies (ADCs, bispecifics etc.). Later in June, we attended the American Diabetes Association (ADA) conference (also in Chicago). This year’s ADA spotlighted the next generation of obesity and metabolic therapies. While nuanced differences exist across the pipeline, one thing is clear: the space is ripe for further innovation. Oral GLP-1 alternatives, muscle-sparing regimens, and combination hormone therapies all gained traction, pointing toward a maturing market still rich in unmet needs. Across both therapeutic areas, we have been impressed by the innovation now coming from China, including some of the stocks we hold in our portfolio.

Within the portfolio, there were strong absolute performances from Insmed (US biotech; strong clinical trial data; +44.3%), Innovent (China Biotech, strong clinical trial data; +26.4%), Sino Biopharma (China biopharma; strong clinical trial data; +16.9%), Verona Pharma (US/UK biotech; setback for competitor; +16.5%), and Protagonist Therapeutics (US biotech; strong clinical trial data; +16.4%).

We expect the current uncertainty surrounding US healthcare related policy to moderate as more details emerge. While the EO stated all branded drugs, it is likely that this will need to be narrowed to specific government channels, especially in the context of a pilot study. We also see the potential for the 232 investigation scope to be narrowed, perhaps exclusively in China which do actually hold a national security risk (antibiotics and Ibuprofen, for example). In the coming months, we could see this also acting as a clearing event for the biopharma. We therefore expect the final outcome of MFN and tariffs will be less damaging on future company earnings than feared.

We remain focused on high-conviction names from a bottom-up perspective, and see a broad exposure to subsectors, style and geography as appropriate from an risk perspective.