Spectrum Q3 2024: Marvellous medicine

Fast reading

While treatments for obesity have dominated the healthcare investment narrative over the past 18 months, they are by no means the only secular growth story. The life sciences industry may be equally well positioned to benefit from longer term structural trends.
Biotech companies are innovating at breakneck speed, creating products and processes that never before existed. Artificial intelligence (AI) could supercharge the industry. With current biotech valuations in mind, we believe innovation is on sale.
Other routes to allocate to the opportunity in biotech are available. Private equity and real estate could provide nuanced, uncorrelated exposure.

Anti-obesity wonderdrugs. An end to diabetes. A shortcut to cardiovascular health. Investors with an eye on the headlines will have been hard pressed to avoid news from the life sciences sector in recent years. Ever since Novo Nordisk made its anti-obesity drug Wegovy widely available in 2021, biotech has been second only to the world of Artificial intelligence (AI) for its ability to attract the attention of investors.

And little wonder. Helped by its new anti-obesity treatments, Novo Nordisk has seen its share price quintuple since 2020 and it is now Europe’s largest company by market cap. Eli Lilly, the maker of Wegovy competitor Zepbound, has likewise seen its share price rise more than sixfold over the same period.¹

So much for the blockbusters, but look beyond the headlines and it becomes clear that the investment case for life sciences and biologics is more than skin-deep.

In this issue of our regular Spectrum report, our investment teams make the case for a nuanced approach to investing in this arena of innovation. Although the brand-named drugs and treatments may have garnered the most headlines, our teams argue there is still headroom for investors who know where to look.

Will the ongoing imbalance between supply and demand for lab space continue to deliver strong rental growth prospects?

As ever, we bring in thought leaders from across Federated Hermes to air their differing approaches. First, our Sustainable Global Equity team examine the life science tools and services firms that are carving their own space away from the spotlight. Next, our investment team at Kaufman examine the IPO landscape in a sector fuelled by lightning-speed innovation.

In part three of our report, our private equity team explain why they take a ‘picks and shovels’ approach to investing in the sector with a strategy that aims to limit exposure to riskier, early-stage companies.

Finally, the team from Federated Hermes’ real estate development arm MEPC consider the opportunity in science parks. Will the ongoing imbalance between supply and demand for lab space in the UK’s science ‘golden triangle’ continue to deliver strong rental growth prospects?