Healthcare (Bionics and Biotech): Uncertainties create opportunities

Allocation Preferences in Healthcare

Understanding Bionics & Biotech

What is it all about?

Technology has transformed nearly every aspect of our lives, yet its impact on healthcare remains limited. Many people's primary "health tech" device is still a smartwatch. This is a paradox, as the most transformative advancement we could achieve in our life would be ensuring that we stay healthy forever. Realistically, making such longevity and wellness universally accessible will demand significantly more advanced technologies. 

With our Bionics strategy, we’re driving toward this vision through innovations that sustain and enhance the human body. Meanwhile, our Biotech strategy pursues the same goal biologically, aiming to eradicate disease at its root. Together, these complementary paths promise a future in which humans are equipped with a more reliable engine.

Bionics covers:

1. Sensing (Diagnostics/Monitoring): Detecting threats as soon as possible to reduce healthcare treatments.
2. Treatment (MedTech equipment and implants): Supporting or improving organ function.
3. Healthcare systems (Services and providers): ensuring affordability and access to care.

Biotech covers

1. Therapeutic developers: breakthrough innovation targeting high unmet medical needs.
2. Biopharma supply chain: services speeding up market access.

Hot topics

Is the "Make America Healthy Again" possible? 

Trump wants to "Go Wild" on healthcare, so he started with a "colorful" set of nominees, to say the least. For the investor, the important part is to understand their link to healthcare and their views.

The appointment of Dr. Mehmet Oz at the Centers for Medicare and Medicaid Services (CMS) raises concerns over consumers’ ability to access and pay for healthcare. Dr. Oz could make the Medicare Advantage plan the primary choice for Medicare beneficiaries. The largest provider of the Medicare Advantage plan is United Healthcare, in which Dr. Oz has a direct interest. 

The nominations of Robert F. Kennedy Jr. at the Department of Health and Human Services and Marty Makary at the FDA also raise concerns for the US healthcare system but equally create investment opportunities. Kennedy's Make America Healthy Again movement has identified chronic diseases like obesity, diabetes, autism, cancer, and mental illness as key priorities. Nonetheless, RFK Jr. is also known for its wild take on healthcare.

We still don't know how exactly this will shape up, as all these nominations need to be confirmed and approved, but one thing is already certain: Big Pharma and Big Food are on the new upcoming administration's negative watch list. On the other side of the spectrum, diagnostic and telehealth could be among the likely winners of the new healthcare administration.

Meanwhile, the new Trump administration's stricter drug approval process, which aims to "return public health agencies to the gold standard of scientific review," in RFK Jr.'s words, combined with elevated regulatory uncertainty, may discourage the pharma and biotech sectors from investing aggressively in R&D or seeking significant acquisitions. In light of these conditions, we will avoid CRO and CDMO investments at present and revisit them once the administration’s policies become more precise.

Is United Healthcare CEO's murder marking a significant turning point?

With the incoming Trump administration, it is still to be seen how many of the healthcare issues will be tackled but the murder of the United Healthcare CEO is a wake-up call: as mentioned, his company has direct links with the new administration. 

Middlemen in America's healthcare system, known for inflating prices and denying coverage, have received a stark warning. The CEO of United Healthcare was tragically murdered in New York, with bullets reportedly with the words "deny", "delay" and "defend" written on them. This shocking event underscores growing frustration with the system, mainly as United Healthcare's claims denial rate is 32%, double the industry average of 16%. Many Americans are increasingly unable to afford healthcare under such practices, and this will eventually force a change, as we highlighted in numerous articles about the power of some actors in the system, notably "U.S. drug pricing: the devil is no longer in disguise." 

In this respect, our strategy has voluntarily avoided such exposure, by conducting thorough cost-benefit analyses on business merits, and prioritizing investments in companies that can deliver superior care while reducing costs. 

Obesity, the end of the hype? Not at all

With the EU approving Catalent’s $16bn acquisition by Novo Nordisk and Eli Lilly having committed $23bn in manufacturing CAPEX for GLP-1 production, we are witnessing one of the largest and fastest expansions in manufacturing capacity for a single drug class. These massive investments show no sign of slowing, as two-thirds of the world’s overweight or obese population reside in developing countries. Even in the U.S., ongoing shortages allow compounding pharmacies such as Hims & Hers Health, authorized under FDA directives to produce medications in short supply, to capture a slice of the market.

By 2026, Novo Nordisk’s Ozempic core patent will expire, setting the stage for fierce competition with Asian API suppliers and generics manufacturers, especially in China, the world’s second-biggest opportunity for weight-loss therapies.

Obesity remains the most significant untapped drug market, and a second wave of combination therapies and targeted treatments will complement the first wave of GLP-1 successes from Eli Lilly and Novo Nordisk. Companies like Roche, Amgen, Viking Therapeutics, Rhythm Pharmaceuticals, and Zealand Pharma A/S are already positioning themselves to lead this next phase of innovation.

Big Pharma is under pressure

Despite Obesity providing future blockbusters, big pharma companies will face the steepest patent cliff in history. Forecasts indicate that over $200bn in annual sales from approximately 190 current drugs could be lost to generic competition by 2030. In 2025 alone, more than $22 bn of revenue is at risk (Johnson & Johnson $6.8bn, Novartis $6.0bn, Astrazeneca $6.0bn, Amgen $4bn).

We are currently observing that the market may already be playing the possibility of megamergers, as valuation multiples in the pharma industry have expanded over the past few weeks. However, whether this will translate into actual deals remains uncertain. We find it difficult to see the value in such large-scale mergers compared to the past, as extracting synergies has become increasingly challenging. Moreover, identifying new blockbuster drugs, aside from obesity-related treatments and niche markets like NASH, has become significantly more challenging. We think the industry will still focus on cost management before potentially considering transformative M&A transactions. 

U.S.-China tension put the MedTech supply chain at risk again

Raising U.S. tariffs on Chinese imports will critically strain the  MedTech industry’s already sensitive supply chain, echoing the costly disruptions experienced during the 2021–2022 pandemic era. As MedTech companies depend on timely access to specialized components and raw materials sourced from China (ranging from precision electronics in imaging devices to essential polymers for implantable medical devices) tariff hikes will inflate operational costs and reduce margins. 

The ripple effects extend beyond simple price increases. During the pandemic’s peak, supply chain bottlenecks led to stalled product launches, deferred clinical trials, and weakened competitive positioning in global markets. With heightened tariffs replicating these conditions, the MedTech industry risks experiencing yet another period of squeezed profitability, diminished agility, and compromised innovation pipelines, directly impacting long-term portfolio value and investment returns. 

MedTech and Pharma will double down on Direct-To-Consumer

In 2024, healthcare made a pivotal shift toward a consumer-centric model. Companies like Pfizer and Lilly embraced direct-to-consumer (DTC) strategies, driven by 52% of Americans using online pharmacies, an increase exceeding new prescription drug usage growth. Telehealth became a staple, with insurers reimbursing remote consultations at rates comparable to in-person visits. The FDA encouraged real-world evidence in regulatory decisions, prompting companies to enhance patient engagement and data strategies.

By 2025, DTC, telehealth, digital health, and AI are set to redefine healthcare, making it more patient-centric and data-driven. Pfizer’s “PfizerForAll” exemplifies this shift, offering telehealth and home-delivered prescriptions. Companies gain direct access to patient data, enabling actionable insights while regulators monitor a seamless patient-centric ecosystem.

Technologies like continuous glucose monitors (CGMs), connected wearables, and home diagnostics further bridge care and self-management. The CGM market is projected to exceed $10bn by 2025, powering AI for early diagnosis, personalized treatment, and improved outcomes. This convergence is transforming healthcare delivery and research.

Biotech-to-biotech deals taking the lead 

The latest Sarepta-Arrowhead deal stands out because it’s a biotech-to-biotech collaboration rather than the typical small-company-to-big-pharma one. Biotech-to-biotech collaborations grew to about 20% of sector partnerships in 2023, up from roughly 10% in 2018. But in this deal, the deal's value stands out. Sarepta is paying Arrowhead $500mn in cash for seven clinical assets and a $325mn equity investment. For once, we have not seen a single asset collaboration but a whole pipeline acquisition.

By maintaining control over R&D and cultural ethos, the combined entity can move faster, react more nimbly to data, and retain more value than if absorbed into a larger pharma structure. This setup allows for balancing risk across multiple therapeutic targets, improving platform utility, and potentially shortening development timelines.

The collaboration between the two companies also creates a compelling narrative for investors. Instead of a quick cash-out or a traditional buyout premium by big pharma, both companies can capture long-term upside, diversify product portfolios, and command higher valuations by becoming a multi-program powerhouse rather than a single-product shop. Ultimately, the pairing can produce a more sustainable growth engine, leveraging each side’s breakthroughs and fueling a cycle of innovation for the two.

Catalysts

• Clearer and simpler regulation in healthcare. The Trump administration has the power to simply the overly complex US healthcare system, unlocking efficiency gains.

• A partial or complete repeal of the U.S. Inflation Reduction Act. Biden's big anti-pharma push to enforce drug pricing by CMS could be eased, with a lower scope or lower rebates.

• Biotech-to-biotech deal boom. IP-rich companies with tech platforms would see non-dilutive capital coming from a new source, alleviating funding concerns with no negative impact on shareholders.

Risks

• Tariffs would hurt the sector. Most drugs in the US are imported, 70% of API come from China, and most Medtech devices are manufactured in China. Tariff would reapply pressure on Healthcare margins. 

• Faster than expected biosimilar uptake. After Humira, Stelara (JnJ) and Eylea (Regeneron) are the next blockbusters with a patent expiry in 2025. Revenue erosion about the expected rate will put additional pressure on big players.

• Wage pressure reduces hospital margins. A faster than anticipated inflation in wages would be a replay of 2021-2022 for MedTech with hospitals unable to replace or invest in new medical technologies.