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Pasquale Sansone
As we enter the month of October, investors are faced with an obvious question: is the time right for new investments in the oncology sector? Pasquale Sansone, Senior Biotechnology Analyst, shares his analysis and convictions.
Why does the healthcare sector move in cycles?
Subject to scientific advances and regulatory decisions, the healthcare sector is subject to cycles of capital inflows and outflows. These fluctuations regularly lead to strong pressure on company valuations.
During periods of capital outflows, investors express skepticism about the chances of clinical or commercial success. We call this the ‘show-me’ stage. Conversely, when the probability of success increases and business prospects brighten, investments flow back into the sector. The growth stage marks the transition from laboratory innovation to the creation of tangible clinical assets that generate economic and financial value.
The role of Candriam's analysis is to attempt to identify these pivotal moments in order to capture the best-positioned companies, those whose scientific innovation meets tangible market potential, coupled with a favorable risk/benefit ratio. In other words, we select and invest in strategies and/or companies where biotech innovation, clinical research and market needs are strongly aligned.
In addition, rigorous risk analysis enables us to build more balanced and resilient portfolios.
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”Oncology is currently undergoing a major transformation. The convergence of precision diagnostics and targeted therapies not only creates value for patients, but also rare investment opportunities for investors
Why has the healthcare market suffered so much in recent years?
Since 2021, the healthcare sector has experienced a prolonged period of difficulties, from a combination of factors:
- Readjustment of valuations. Following the IPO boom of 2020 and the Covid vaccine euphoria, biotech valuations reached levels that were difficult to sustain. The rebalancing observed over the last three years is akin to a ‘physiological reset’ for the sector, which now seems to be stabilising.
- Slowdown in public sector acquisitions. Mergers and acquisitions, an historical growth driver for biotech, have stalled in the public markets. At the same time, the private sector, particularly in China, has seen a boom in acquisitions of innovative bio-pharmaceutical technologies. To better navigate this environment, Candriam has strengthened our benchmarking of Chinese assets, to identify the true innovations -- those expected to emerge as best-in-class, with little or no competition.
- Increased macroeconomic and political volatility. Since late 2024, the arrival of the second Trump administration in the US has increased uncertainties, particularly about future FDA regulations and a stated desire to reduce the cost of drugs. These signals led many ‘generalist’ investors to withdraw from the sector, putting further pressure on healthcare shares. It's important to note, however, that the US government is working closely with key agencies such as the FDA to establish more agile drug development and approval protocols. This process concerns all therapeutic areas, including oncology, and could ultimately support innovation and the development of reference drugs.The US administration is also looking to reduce the cost of drugs. Although there are still few details, we believe that this objective will be difficult to achieve. In anticipation of this risk, we have increased our exposure to oncology diagnostics and technologies, and reduced our exposure to oncology therapies -- in particular for those drugs most exposed to potential US government budget cuts, which mainly impact the big pharma groups.
In addition, external pressures which are not specific to the sector, such as inflation, trade tensions and the geopolitical context, are adding to the near-term climate of uncertainty. As part of our long-term investment strategy, we apply rigorous analytical methods to take these risks and underlying volatility into account.