Bellevue Asia Pacific Healthcare (Lux)

Inflationary pressure in the US continues to subside. The latest readings for core inflation (+4.8%) and headline inflation (+3%) came in below general market expectations. Repeated interest rate hikes appear to be having the intended effect, and that realization gave global stock markets some fresh tailwind during the past month. The MSCI World gained another 3.4% in USD. All the optimism shouldn’t divert attention from the high comparative level of inflation in the prior-year period and the still solid jobs market data, especially in the US, which, in turn, is fueling private consumption. Inflation could therefore turn out to be more entrenched than many people expect. The Fed is very likely to raise the federal funds rate one more time before taking a break to see in which direction inflation actually moves. Asian equity markets also advanced in the wake of Wall Street's strong gains coupled with a weak dollar. Healthcare stocks were relative underperformers below average and gained about 1.6% in July.

Daiichi Sankyo and its partner AstraZeneca announced in July the results of the Phase III TROPION-Lung01 trial of the anti-TROP2 antibody drug conjugate Dato-DXd as a second-line (or later-line) treatment option for patients with non-small cell lung cancer. As expected, detailed clinical data was not disclosed, but Dato-DXd met its dual primary endpoint of a statistically significant improvement in progression-free survival compared to docetaxel, the current standard of care chemotherapy. Data for the other primary endpoint, overall survival, was not yet mature, but an early trend was observed in favor of Dato-DXd. We expect detailed data to be published in September or October. Unfortunately, some deaths were also reported, in contrast to previous trials of Dato-DXd. However, it is not clear whether these deaths were related to the drug, but this could raise investor concerns about the drug’s safety profile.

Legend Biotech’s partner, Johnson & Johnson, reported that the Carvykti cell therapy generated sales of USD 117 mn in the second quarter of 2023. That beat market expectations by more than 40%. The fast growth was primarily attributed to the expansion of in-house production capacity and to production process improvements. Increased in-house production of lentiviral vectors has been crucial in this regard. The aim is to establish Carvykti in earlier lines of treatment by the end of 2023. Studies to this end are currently under way. We are confident that this multiple myeloma cell therapy can generate peak annual sales in excess of USD 5 bn. 

As expected, Eisai and Biogen’s Alzheimer's drug Leqembi was granted full FDA approval. Surprisingly, the FDA added its stringent safety warning about side effects to Leqembi’s label. Furthermore, genetic testing was recommended before starting treatment. This could lead to initially low sales of Leqembi. Surprisingly, the head of the company’s US operations and its neurology business at Eisai announced his retirement at the end of the month. His position will be filled by the son of the company's CEO. For these reasons, we liquidated the entire position.

New positions were opened in Wuxi Apptec, Telix Pharma, New Horizon and Pharmaessentia during the past month and existing positions in Wuxi Biologics, Otsuka and Sun Pharma were increased. Eisai is no longer in the fund's portfolio and shareholdings of Takeda, Dr. Reddy's and Daiichi Sankyo were reduced.

Asia is the most dynamic growth region in the world and it accounts for more than half of the world's population. Asian emerging markets are forecast to account for more than 50% of global GDP by 2050. As household incomes rise, the economic growth model of Asian countries will shift from manufacturing to the services sector. A growing middle class fuels demand for modern medicine. Healthcare ranks increasingly high on their wish list. Billions are being invested in infrastructure, technology and research to modernize the healthcare systems in emerging market countries. This is giving a greater swath of the population access to better healthcare. Meanwhile rapid population aging is also stoking demand for healthcare. In 30 years’ time there will be 400 to 500 million people over 60 in China alone, and they will have a growing need for modern health services and medicines.

Japan, which has been referred to as “the world's demographic laboratory”, has championed cutting-edge innovation for decades. The Land of the Rising Sun boasts technology leadership in numerous fields, ranging from therapeutic antibody technology, immunotherapy and robotics to digitalization, diagnostics and medical imaging systems. The fund offers defensive access to Asian emerging markets as well as exciting investment opportunities in technology leaders throughout the entire region. It invests in the entire healthcare system value chain, from generic drug producers and biotechnology companies to medical device manufacturers and digital health specialists.