Bellevue Diversified Healthcare

Global equities recovered strongly in May 2025, with the MSCI World Index ending the month up 5.9%, and the S&P 500 and Nasdaq posting their best month since November 2023. In contrast, healthcare continued to struggle, with the MSCI World Healthcare Index down 3.6%. The Bellevue Diversified Healthcare Fund (I-shares: -3.2%, in USD) outperformed its healthcare index benchmark by 39 bps, driven by stock selection. As we will explain in more detail below, US regulatory uncertainty and some stock specific issues drove the sector underperformance in the month. 

US President Trump released an Executive Order (EO) calling for most-favored-nation (MFN) drug pricing on May 12. This added considerable uncertainty regarding future US drug pricing. HHS has 30 days (from May 12) to propose drug price targets, with the industry being given 180 days to show signs of progress. There is an expectation in the market that CMS will announce the start of a pilot program around MFN. This would involve a consulting period, which would be an opportunity for the industry to respond. 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. Should the scope narrow, we could see a clearing event for biopharma. 

Alongside this, there remains the 232 investigation on pharmaceuticals related to national security and potential tariffs. Should this be narrowed to drugs produced 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. It is possible that the US biopharma industry will volunteer to leave manufacturing capacity spare to fill any gap in supply should China tensions raise.  

In this backdrop of healthcare policy uncertainty, the month ended with two unwelcome high-profile idiosyncratic setbacks (Regeneron/Sanofi IL33 mixed results; Summit/Akeso VEGF/PDL bispecific OS miss, described below) adding to the negative sentiment around biopharma stock risk/reward.  

The conference season kicked off in May, with the team attending the Bank Of America conference in Las Vegas, where the large-cap US medtech players such as Boston Scientific and Stryker gave encouraging commentary around current trends and utilization. Late in the month, we attended the American Society of Clinical Oncology (ASCO) annual meeting. This is the largest medical conference on the calendar. We were on the ground talking to doctors about new innovation in cancer treatment. 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.).

Within the portfolio, there were strong contributions from a mixture of mid to large-sized companies which had reported strong Q1 earnings results (Insulet, Pro Medicus, Veeva, Sandoz, Galderma, Haleon).  

We expect the current uncertainty surrounding US healthcare-related policy to moderate as more details emerge. We expect the final outcome of MFN and tariffs will be less damaging than feared. Their scopes will likely be narrowed in order to pass Congress and/or be practically implemented. This creates potential clearing events in biopharma over the coming months (although exact timing is uncertain). With high-margins, considerable room for cost cutting, and diverse revenue streams, we would expect the final earnings growth impact to be more modest than the market is currently discounting for most quality companies in the sector. Moving forward towards the July reciprocal tariff deadline for all countries (and most industries), healthcare could start to look attractive from a risk perspective on a relative basis.

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.