The "patent cliff," which will compel large pharmaceutical companies to innovate or make acquisitions, should benefit biotech firms
Share Share by: Copy link Facebook X Linkedin Whatsapp Pinterest Share this article Join the discussion Follow us Add us as a preferred source on Google Newsletter Subscribe to our newsletter It has been almost eight years since biotech and healthcare investor Sam Isaly abruptly left OrbiMed, the Worldwide Healthcare Trust's managers (LSE: WWH). During his 22 years as lead manager, WWH produced the highest annualized return in the investment trust industry at 16.8%.
It didn't really matter because WWH performed well for the next four years. Before a rebound in the final six months, the share price underperformed the MSCI World Health Care index and fell 30% over the course of four years of poor performance.
Isaly started developing a new funds company in the interim. With its Worldwide Healthcare Partners (WHP) strategy accounting for nearly half of its current operating budget of just over £200 million, Exome Asset Management has already established a strong track record. Despite two down years, the fund returned 88% in the preceding six years, but only 70% in the year ending in November. He believes there are many opportunities in the industry.
Pay attention to China's developing biotech sector.
"With £300 billion in sales at risk and 20 percent of the entire market between 2025 and 2030, pharma is facing the largest patent cliff in history," says Isaly. "Replenishing the pipeline is essential. Bigger businesses will have to innovate or buy new products. As a result, biotech makes up a large portion of the WHP portfolio.
The US Food and Drug Administration (FDA) has shortened the review period for "breakthrough therapy designations" from 12 to two months in order to support innovation. This designation has been given to nine companies for pipeline drugs. This might make it possible for medications for extremely rare illnesses to hit the market without undergoing extensive clinical trials.
Isaly has also given China's developing biotech sector a lot of attention. China now has more clinical trials registered than the US, with 1,903 in 2024 compared to 1,499 in the US and 899 in the EU. Furthermore, 60% of international licensing agreements in the first quarter came from Chinese biopharmaceutical companies, demonstrating their willingness to license out products.
WHP's exposure in China is therefore comparatively high. Duality Biotherapeutics, a Hong Kong-based company, is creating "next-generation" antibody-drug conjugate (ADC) therapy to treat autoimmune diseases and cancer. ADC is a treatment in which a medication is chemically coupled to a monoclonal antibody that can avoid the body's immune system. It attaches itself to particular proteins on cancerous and other malignant cells, allowing the medication to enter the cell and destroy it without endangering other cells. Isaly describes Duality as "the best in its class and with a promising candidate for a particular form of lung cancer, but high risk with no drugs yet on the market."
According to him, Guardant Health, a California-based gene-sequencing-based diagnostics company similar to Illumina, is medium risk. Its blood tests can identify cancer at an early stage or find evidence of cancer that may still be present after treatment. In 2027, Isaly anticipates profitability.
The least dangerous of the three major biosimilar companies in the world is Celltrion, a Korean listed company. When a patent expires, the market for biosimilarsdrugs that are extremely similar to already-patented onesopens up. In 2026, Celltrion "should become dramatically profitable."
Strategy of hedge funds.
Isaly might make a comeback as an investment trust manager in the future. With both long (159 percent of net assets) and short (71 percent) positions spread across 4055 holdings, he currently manages WHP as a hedge fund. Five highly skilled analysts oversee three smaller funds, including an emerging markets healthcare fund, in addition to providing support to Isaly.
WHP is available for investment on a monthly basis for qualified investors; quarterly redemptions require 65 days' notice. There is a substantial performance fee in addition to the low management fee of 0.6 percent. The best funds are frequently those that are difficult to access, which may not be encouraging.
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