Bellevue Obesity Solutions

Global equities continued to recover in July 2025, with the MSCI World Index ending the month up 1.3%. The equity markets have shown a remarkable recovery since the April lows, shrugging off any bad news along the way. The same cannot be said for the healthcare sector, which remained a laggard in July (MSCI World Healthcare; -3.0%), driven by continued US drug pricing policy uncertainty and weak fundamentals from healthcare services (subsector down 15% for the month). The Bellevue Obesity Solutions (LUX) Fund performed poorly on an absolute basis (I shares: -2.2%; in US dollars) but outperformed versus its healthcare benchmark (by +75 bps).

Within healthcare, concern regarding US President Trump’s most-favored-nation (MFN) drug pricing policy grew during the month, with a letter from the president sent to 17 biopharma CEOs published on July 31. While drug tariffs appear excluded from recent deals (for example with the EU), we are waiting for the consequences of the 232 investigation, which could have a negative impact on any bilateral deals. So far, these recent developments have not proven to be the «clearing events» the sector needs (more details on the implications going forward in the Outlook section).

Beyond US politics, dealmaking in biotech has been a focus in recent months. There has been a surge in licensing deals in which Chinese biopharma companies out-license the ex-China rights for innovative drugs. Western biopharma companies are tapping China’s strengths in antibodies, new modalities, and early clinical trial conduction. Recent deals suggest that Chinese biopharma companies are no longer just fast followers in drug development; in fact, they are ahead in innovation in some areas.

During the healthcare Q2 earnings season there were many surprises, but the most significant by far was an early profit warning from Novo Nordisk (-24% on the day). While the fundamentals remain strong (it still has double-digit sales growth), a period of consolidation is likely. On the positive side, some catalysts could help rebuild confidence: MASH approval, Alzheimer’s disease data, and CagriSema’s diabetes potential.

Within the portfolio, there were strong absolute performances from Rhythm Pharmaceuticals (US biotech; strong clinical trials data; +34.9%; in US dollars), Innovent (Chinese biotech; drug approval; +25.0%; in US dollars), and NewAmsterdam Pharma (US biotech; early Alzheimer’s disease clinical data; +20.4%; in US dollars).

In his July 31 letters, President Trump cited a lack of progress on his MFN Executive Order, highlighting that 1) MFN should be extended to pricing in Medicaid, 2) MFN should be guaranteed for new drugs, 3) revenues should be returned to US patients/taxpayers, and 4) biopharma should provide direct purchasing at MFN pricing. While we see the focus on Medicaid (rather than Medicare) as a best-case scenario for biopharma, overall, this was not enough of a clearing event for investors.

Alongside this MFN policy, there remains the 232 investigation on drugs related to national security. In terms of tariffs, our base case assumption is that most drugs will be exempt from tariffs (or be subject to the country-level tariff at most), with some targeted tariffs where there are national security risks. Confirmation of this in coming weeks would be supportive.

We expect the outcome of MFN and tariffs to be less damaging to future company earnings than feared. In addition, given the level of uncertainty and low relative valuations, we expect any type of certainty on MFN and drug tariffs to be supportive of a rerating. At present, the exact timing of this clearing event and rerating is not clear. Nevertheless, as we move through this economic cycle and period of healthcare policy adjustments, we expect the certainty of earnings in biopharma to become higher than that of more discretionary/cyclical sectors.

Along with a healthcare rerating from low levels, we see potential rate cuts as supportive of higher-growth SMID-cap healthcare names and therefore supportive of active management in the sector. Nevertheless, 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 a risk perspective.