It’s an ill wind that blows no good, and the tax increases in Wednesday’s budget, which the prime minister has said will be “painful”, will boost expenditure on the NHS and, possibly, profits for the firms that supply it.
Many readers of The Sunday Timeswill face bigger tax bills but investors could claw some back with funds and shares in healthcare.
For example, Wes Streeting, the secretary of state for health and social care, aims to increase prescriptions of weight-loss drugs to reduce obesity-linked illnesses that he claims cost the NHS £11 billion a year, or 8 per cent of its total expenditure. Streeting announced a five-year partnership with the pharmaceutical giant Eli Lilly (stock market ticker: LLY) to see if its tirzepatide drugs, marketed as Mounjaro and Zepbound, might help overweight unemployed people get back into work.
Instantly derided as “jabs for jobs”, this initiative has proved controversial but chunkier sales can’t harm LLY. This is my fourth-biggest holding after I paid $441 in July last year, as reported here at that time. The shares cost $898on Friday.
Regular readers may recall that I was one of very few stock market commentators who invested in the Danish diabetes specialist, Novo Nordisk (NOVO-B) in June 2021, at 254 Danish krone, allowing for a subsequent two-for-one split. They were changing hands at DKK 785 on Friday and are my eighth-most valuable holding.
This would be a good point to emphasise that healthcare businesses take many forms but are no prescription for, er, healthy returns. It is not possible to invest in Bupa — formerly known as British United Provident Association — because it is not listed on the stock market. Shares in the health insurer Axa (CS) are priced at less than 11 times earnings and yield 5.5 per cent.
But gym bunnies who backed the fitness bike fad at Peloton (PTON) came a cropper. Shares that peaked above $160 during the Covid lockdowns four years ago cost just $6 this week and pay no income.
Even long-established healthcare companies can be hobbled by misfortune. Step forward Smith & Nephew (SN), the British firm best-known for artificial hip and knee joints. Demand for these orthopaedic aids is rising as more of the population grows older and overweight, so I paid £7.99 per share back in November 2013 when I began writing about my investments here. Sad to say, they cost just £10.87 on Friday, which is not much of a return on 11 years of risk-taking. This company has struggled with supply chain difficulties and the departure of several chief executives.
On a brighter note, Smith & Nephew yields 2.7 per cent — unlike Eli Lilly and Novo Nordisk, which both pay less than 1 per cent net of withholding tax. Launched in Hull in 1856, Smith & Nephew recently attracted the attention of Swedish activist investors at Cevian Capital, which could prompt this beleaguered business to throw away its crutches and dance again.
Less happily, my investments in the vaccine-makers Pfizer (PFE) and Bavarian Nordic Research Institute (BAVA) both look green around the gills. I paid $37 per Pfizer share in January 2021, that cost just $29 on Friday but at least they pay 5.75 per cent tax-free income into my Isa.
No such comfort applies to Bavarian. I invested at DKK 258 last August and the stock trades at DKK 220 now. That 15 per cent slump sends this into the Cowie’s Clangers hall of shame.
By contrast, unit and investment trusts are a convenient and cost-effective way to gain exposure to healthcare without the worry of picking the wrong pills, potion or individual stock. I have been an investor in the self-descriptive fund, Worldwide Healthcare (WWH), for more than a decade and note its £2.1 billion portfolio is led by Eli Lilly with Novo not far behind.
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Other top ten holdings include Intuitive Surgical (ISRG), which makes robots that can conduct medical operations under the remote guidance of humans. That could appeal to American and British governments which want to cut costs and see more people receive medical treatment in a timely fashion.
But “Big Pharma” must prove it delivers value for money. The National Institute for Health and Care Excellence will bar the NHS from buying drugs it considers over-priced, as it did with Eli Lilly’s donanemab treatment for Alzheimer’s disease last week.
This small shareholder transferred a Worldwide Healthcare holding from a paper-based broker in March 2014, when the shares cost £1.35, allowing for a subsequent ten-for-one stock split. They traded at£3.43 on Friday, which is neither bad nor brilliant over a decade of risk and ranks a sickly sixth out of seven funds in its sector over the past year. No wonder the shares are priced 12 per cent below their net asset value.
Finding drugs that don’t have dangerous side-effects is a difficult business. Fewer than one in ten medicines that begin regulatory trials make it to market.
However, healthcare remains the biggest investment theme in my forever fund and, in a small way, might make a difference by helping to pay for research. Most immediately, having an indirect financial stake in a properly-funded NHS could even ease the pain of Wednesday’s tax increases.
How the benefits of AI could become crystal clear
Hearing is an important part of healthcare, with several studies suggesting a link between deafness and dementia. Nobody is quite sure why but feeling socially isolated because you cannot make out what other people are saying can’t help.
So it is good to report that the world’s biggest manufacturer of hearing aids is incorporating artificial intelligence (AI) into its latest products. Switzerland’s Sonova (SOON), which owns the Phonak brand, claims that AI-enhanced aids can help users hear what we want to focus on, despite the background noise that is so often a feature of social settings, such as parties and restaurants.
An independent audiologist tells me: “This is the beginning of harnessing rapidly developing new technology and is very exciting for people suffering from presbycusis, or old age hearing loss, and for children with hearing losses below the threshold for a cochlear implant.” Or at least, I think that’s what she said.
More seriously, this audiologist expressed some scepticism about whether the new aids will help people suffering from tinnitus, which is the perception of sound when there is no external source.
More than a tenth of adults are thought to experience tinnitus, with two thirds of those aged 70 or older having some degree of presbycusis. Either way, I am glad to have invested in Sonova in April 2020, as reported here at that time, paying 173 swiss francs per share. They cost SwFr 314 on Friday.
As someone whose hearing is not as good as it used to be, the benefits of investing in improved audiology ring out loud and clear.
