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8. Bull, Bear & Beyond – HBM Healthcare Investments: executive interview
6 Plays1 year ago
HBM Healthcare Investments (SIX: HBMN) is a Swiss investment company focused on the global healthcare sector, with a particular focus on private equity and small-cap and emerging biotech companies. In this interview, we talk with the CEO, Dr Andreas Wicki, about the broader healthcare trends, the outlook for the sector and how the company’s portfolio is positioned to leverage the dynamism in the sector.
In particular, Dr Wicki outlines the rationale for the company’s leanings towards private equity and Asian markets, as well as its significant exposure to the biotech space. We discuss the main themes in the sector (with innovation as the key underlying driver), particular therapeutic areas of interest as well as the overall macroeconomic sentiment in the sector following the recent interest rate cuts by the US Federal Reserve.
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About ‘Bull, Bear & Beyond’
'Bull, Bear & Beyond': features candid conversations with senior executives and from our own team of experts from across industries, exploring strategy, innovation, and the opportunities shaping their markets.
About Edison:
Edison is a content-led IR business. We believe quality investment content should inform all investors, not just brokers. Our mission: engage and build bigger, better-informed investor audiences for our clients.
Edison covers 50+ investment trusts, read about them here: https://www.edisongroup.com/equities/investment-companies/
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Transcript
Introduction to HBM Healthcare Investments
00:00:07
Speaker
Hello, everyone, and welcome to Edison TV. My name is Jyoti Prakash, and I'm a healthcare analyst here at the Edison crew. We are joined today by Dr. Andreas Vicky, the CEO of HBM Healthcare Investments, a Swiss investment trust with a diversified portfolio of investments.
00:00:25
Speaker
Welcome, Andreas. Welcome.
Investment Strategies and Focus
00:00:28
Speaker
Thanks for having So to kick off, HPM Healthcare Investments is differentiated from many of its peers with its significant private equity focus and investments in listed small cap businesses.
00:00:43
Speaker
Can you elaborate on the rationale for this strategy and how that has helped manage volatility given the wider industry drawdown in the past couple of years? Yes, we started with this strategy, you know, from the very beginning, 23 years ago.
00:01:01
Speaker
And we were focused on private equity. But if you do pure private equity, you often have the problem that if companies go public, and most companies you know will go public if successful because you can't sell the majority of holdings, then you need to benefit from the public markets in the sense maybe you want to add to it.
00:01:25
Speaker
Maybe you want to look at other assets. So it's very, very positive for investors to have a private equity that has allowance to go all the way to public equity.
00:01:37
Speaker
But it's also important for investors to know if you have a good public equity franchise, you have to set up with the brokers, with the traders. And so you can also optimize your return, you know, by selling at the right times or by selling at opportune times.
Advantages of Permanent Capital Structure
00:01:54
Speaker
And HBM is structured as a permanent capital structure. Can you explain how that works and when compared to the traditional limited partnership funds and other open ended structures, ah particularly in the healthcare space?
00:02:10
Speaker
Absolutely. The traditional LP structure means that you have a life of seven to maybe 10 years with your investments. So let's say you make an investment in year four because you have an investment period that is maybe one to four years.
00:02:25
Speaker
That means your investments might actually not be mature by the time your fund already closes. Some of our most, the you know, profitable investments that we have done have had very long holdings because you might start with something young, something very innovative.
00:02:44
Speaker
You back it through several rounds on the private side, then it might turn public and really still grow. And you you can have, you know, very big successes. late in life meaning even after 10 years of investment in a normal traditional fund you would be out of that investment with a closed-end structure like we have you can actually still remain and you choose when you want to harvest your portfolio versus the lp structure where you often are forced to at least look for an exit earlier ah what's also good is in a you open-ended structure your investors might actually pull the money
00:03:24
Speaker
in times that are the worst for, you know, the portfolio manager, because you have maybe a downturn in the stock market. And so investors want to, you know, bring money home and you hurt your investors with a long-term perspective by selling in such times.
00:03:42
Speaker
because the prices might be the lowest for a long time to see. And so with a permanent capital structure closed, then ah your capital is actually secure in in such downturns. And you can take the opposite approach. You can actually, if you're prudent, you can invest in down cycles versus ah in open structures where you have to de-vest and you actually punch, you know, on the negative side. So we are very fortunate to have such a closed-end structure.
00:04:13
Speaker
ah The shareholders, of course, if they're really worried, they can try to get out, oftentimes, of course, with discounts to the net asset value. But, you know, you you can sell shares into other hands every day. So you have a liquidity, which also you don't have with, for example, a LP structure, you don't have liquidity unless the manager sells holdings so and then returns capital to you.
00:04:38
Speaker
So we are, I think from a overall look, this closed-end structure as we have it is really beneficial for the long-term holders as we can also make additional returns through, for example, buying back shares if they're on a very low at asset value share price level.
00:05:02
Speaker
Okay, that's very, very interesting.
Investments in Asia: Innovation and Growth
00:05:05
Speaker
um So moving on to the next one, one third of your assets are currently invested in Asia, which is significant, given given your otherwise global portfolio. um What are the key growth drivers you see in this region versus the US s and Europe, for example?
00:05:25
Speaker
You know, we always had a keen interest to invest across the globe. And in Asia, you basically have two major pockets in our sector. We are, as you know, more innovation focused, biotech focused.
00:05:38
Speaker
We have a very, very strong science base in China. And we have benefited from that through both fund investments. where we go with some of the best innovation managers and of course direct investments, which we source either directly or through such funds, but we we benefit from the top-notch science that is being developed in China.
00:06:01
Speaker
Recently, of course, you had a bit of a, you know, a rough patch in general because of the equity markets, which were really in in the winter period, I would call it, but the government is stimulating and the So hopefully that will also reflect in some ah you know higher share prices.
00:06:20
Speaker
But in general, we've been very happy with our investments in China. India, on the other hand, is another really ah very exciting investment country for us.
00:06:33
Speaker
And the majority there is domestic brand developers. ah with strong growth. Then of course the so-called CDMOs, which are companies that work you know on the innovation side, both from a manufacturing or also a discovery side for new drugs.
00:06:51
Speaker
And then of course you have the whole generics hot, which is you know very important for the global north to really bring cheap, high quality APIs and formulations to the markets.
00:07:08
Speaker
And India plays a key role in that. And so we I've experienced over the last 20 years, you know many companies who were set up with 50 million market cap, and today they're 8 billion, 10 billion, 15 billion. So we've seen massive, massive value creation in India, and we have benefited from some of that for our investors.
00:07:29
Speaker
So Asia will remain you know where certainly an important element. for our strategy and it differentiates us with degree from the traditional biotech investors who mainly invest in in the US and to a lesser degree in Europe.
00:07:46
Speaker
and
Biotech Focus and High Returns
00:07:47
Speaker
That's great. oh Your portfolio is heavily focused on biotech. um Why is that? And what are some of the key therapeutic areas within the space which offer the best prospects for the future according to you?
00:08:03
Speaker
you know, traditionally, high science and great innovation is, of course, the biggest value creator within healthcare. And it's not without risk. but If you have a good portfolio and you balance your risk, you generally can achieve high returns with innovative investment in that space. And that's ah what we're doing.
00:08:31
Speaker
So we have a obviously other segments, as I just mentioned, which can contribute good earnings. But the last 20 years, at least the innovation segment of biotech was highly rewarding, which you see, of course, even if you just look at some of the indices like the Nasdaq Biotech Index or the XBI, which had a really good double digit returns over a 20 year period in US dollars.
00:08:57
Speaker
So for us, it's ah it's a segment which we can still benefit from, and that's why we're currently still investing into those segments the most. Obviously, if you look out what happens in the next 10 to 20 years, maybe there are some changes, but the for the time being, we're happy with that sector and segment.
00:09:19
Speaker
Okay.
Opportunities in Diagnostics, MedTech, and AI
00:09:20
Speaker
And that takes us to our next question. Outside of biotech, where do you see the most significant opportunities? You know, we obviously screen the universe and there's some interesting companies in the diagnostic space. We have a couple in our out portfolio as well.
00:09:40
Speaker
occasionally there's some you know great development in MedTech. We have a few MedTech investments as well. And I think both of these segments will go on. So we will you know do our best to look outside. as as I mentioned, one element that What excites us to a degree is the whole contract development manufacturing space, the so-called CDMO space, because outsourcing is a key element for the industry.
00:10:09
Speaker
So there we we see you know good growth for the next three years with some of the smaller players. And there's certainly new initiatives where we've had a foot in as well, like digital health.
00:10:22
Speaker
There's some interesting digital health initiatives, you know, being it on a smaller scale with certain apps, being it on a bigger scale with you know, the online pharmacists that have been a subject where we have played a role.
00:10:36
Speaker
So we always find, you know, attractive new niches where we look at the latest, of course, is AI and its role in drug development or in and monitoring clinical trials and patient recruitment. so We have right now not really invested into that space, but we are observing it and see who could be a champion or who could be a contributor to value creation. creation What I didn't mention before, I forgot to tell, you know, you asked also about the, ah what indications or what areas ex excited us. So obviously, ecology is, of course, a very broad investment theme for everybody in biotech.
00:11:17
Speaker
I think, An increasing bigger pie is also for immunology and then to a degree also the whole neurological science space. So we will probably find some good assets in in those areas that create value for our shareholders.
Pharma's M&A Strategies and HBM's Positioning
00:11:36
Speaker
Big Pharma is facing a patent cliff with over $200 billion dollars of sales at risk by 2030. What are your thoughts on that and how important do you think M&A will be as a growth striver for the sector?
00:11:52
Speaker
And how does your portfolio leverage this opportunity? Yes, let's start with the you know pharma and where they really get their new products and innovations. Over the last 10 years, there was a very clear shift that the majority of the innovation or the new revenues of pharma are actually sourced from the outside. And there's two ways for them to source that. One is, you know, do license deals, which they can do in any stage of the development of drugs.
00:12:23
Speaker
So that's a very popular one where also you have some risk sharing, of course, with the innovator companies, the younger companies. On the other hand, there is M&A. M&A will play a role, but One should not overemphasize on the M&A. Notice on the total universe of biotech companies, the M&A is always a smaller fragment or a smaller percentage of the whole. but But it's it's clear it is important to add revenues or good products to the pipelines of large pharma.
00:12:55
Speaker
ah So we are well positioned, of course, in that as when we make investments, we really look for top innovation for differentiated assets that can create value by bringing in revenues in the marketplace ah with the right marketing and sales organization, which is often a big pharma.
00:13:15
Speaker
So we have a clear focus on what could be potential M&As because that will ultimately be the value drivers also for our best companies in the portfolio.
Impact of Interest Rates on Healthcare Investments
00:13:27
Speaker
The Fed recently cut its interest rates by 50 basis points. How significant do you think this is for the healthcare space in general? And how do you see this impacting overall activity in the sector?
00:13:41
Speaker
particularly in terms of IPOs and M&A activity? Obviously, lower interest rates generally have the, you know, increasing of risk appetite for investors, which will trickle down or dribble down, whatever you call it, down to even the biotech investing. So some of the investors that are more of a generalist from will maybe take some opportunity by either investing maybe in some indices or some ETFs or direct investments into some of our you know smaller names in the segment. So I think it could have a
00:14:22
Speaker
benefit for us healthcare specialists, that we see some money inflows. And we experienced some of that in the recent weeks already since the Fed cut its rate the first time.
00:14:35
Speaker
So that's probably going on. I'm always on the you know more conservative side and I'm not expecting you know dramatic inflows and you know all of a sudden exuberance again in our market. And that's why we need to look for you know, real value creation from the innovation side. So we'll we'll see how that develops over the next months and the years to come.
00:15:02
Speaker
That's great. Thanks a lot, Andreas, for this insightful discussion. We look forward to following the progress of the company in the future. um Thank you again for your time today. Thank you very much again for hosting me and have a good day.
00:15:16
Speaker
You too.