Wall St looks beyond drug makers

new york — Investors are diversifying bets in the healthcare sector, as the rush to develop treatments for Covid-19 has driven up prices for some pharmaceutical stocks.

A record 48 per cent of fund managers are overweight healthcare stocks, a BofA survey showed, and the S&P 500 healthcare sector is up nearly 34 per cent since its March low. Hopes for a treatment have also sparked outsize rallies in the shares of companies such as Moderna and Inovio Pharmaceutcials, up 253 per cent and 327 per cent since the start of the year, respectively, as of Friday’s close.

In recent weeks, news of potential treatments or vaccines to fight the pandemic have occasionally fuelled swings in broader markets.

Yet some fund managers believe lasting profits may be elusive for vaccinemakers, leading them to seek corners of the healthcare sector that could see longer-term benefits from the fight against coronavirus.

Large pharmaceutical companies such as Johnson & Johnson and GlaxoSmithKline have said they plan to make any successful vaccine available at cost,

UNPREDICTABLE: News of potential treatments or vaccines to fight Covid-19 have occasionally fuelled swings in broader markets

though they could reap profits later if a seasonal shot is needed . Multiple treatments could also divide the market between many players, investors said.

“There’s the question of ‘Does anyone really make a lot of money on this?,” said Larry Cordisco, co-portfolio manager of the Osterweis Fund.

Signs of progress on potential treatments could bolster the case for a quicker economic recovery and further fuel the rally that has boosted the S&P 500 around 30 per cent from its late March lows. In the next two weeks, Gilead Sciences is expected to announce results of clinical studies of its potential coronavirus treatment remdesivir for patients with moderate symptoms of Covid-19. Pfizer has said it expects to release safety data for initial human testing of experimental vaccine by the end of May.

Cordisco is looking further afield. One of the companies he owns is medical device maker Danaher, which manufactures a rapid Covid-19 test the FDA approved in March. Its shares are up 3.1 per cent since the start of the year.

“If you’re looking for where the profits might be in the chain, it’s somebody like that who is going to benefit. They can cash in the whole way,” Cordisco said.

Alessandro Valentini, portfolio manager at Causeway Capital Management, said his firm is looking for value opportunities as the healthcare sector becomes more expensive, trading now at 22.9 times trailing earnings, slightly more than the 21.9 multiple of the S&P 500 index as a whole.

He is staying away from potential vaccine producers in favor of companies such as Takeda Pharmaceutical. Japan’s largest pharmaceutical company said this month it could start clinical trials as early as July for a Covid-19 treatment based on antibodies from blood of recovered patients. —