Worldwide Healthcare Trust PLC (WWH) Earnings Call Transcript & Summary

's Well, thank you, very much for the introduction, and I want to welcome all the shareholders and investors in the Worldwide Healthcare Trust to our usual 6-month midyear update call. And today, we're going to cover the usual things, with 6-month performance, a couple of the important near-term investment drivers, portfolio positioning. But what we want to do a little bit different today is really revisit the original investment thesis for both the healthcare sector and the Worldwide Healthcare Trust. In the last few updates, it felt like we always we're explaining why has the healthcare sector been underperforming. We have always talking about drug price controls and politics. And actually, what we feel today is that there has been an overhang lifted here. And Trevor will, in particular, talk about the recent -- most recent Trump events on drug pricing. But with that overhang lifted, I think it's really worthwhile to revisit the basic investment thesis as well. And if we -- so if we look at the structural drivers of healthcare, this is the very, very basic reason why invest in the health care sector. It's really simple. We have an aging population, so more people, more demand, more innovation and more spending. The healthcare sector is a very, very important high-growth industry. It represents approximately 10% of the global economy. This is approximately $10 trillion and it's a high-growth sector, similar to the tech sector, and it's expected to double actually over the next decade. So this is one of the most important sectors in the stock market. And I think it's very, very important for investors to have a very large exposure to this high-growth sectors. Now why the health care -- why the Worldwide Healthcare Investment Trust? Well, it's really simple. We are a one-stop shop for all your health care investing needs. The Worldwide Healthcare Trust invests in every single subsector in healthcare. So we are in large-cap pharma, in the biotechnology sector. Life science tools we have very big exposure to med tech companies as well in the healthcare services. We do not forget what's happening in emerging markets. We have very, very good exposures there. So we are in all subsectors in all geographies and virtually in every single market cap as well. And we have an in-house expertise to cover this whole sector. We have senior analysts on the public equity team which cover every single 1 of those buckets here on this slide. Now what are some of the defining characteristics of the Worldwide Healthcare Trust. Well, most importantly, it's not a benchmark [ fund ]. We have an extremely high active share, well over 80%. So it's a collection of the very best ideas of our analyst team. So this is what drives the portfolio decision-making process. We put together the very best ideas of 30 people on the public equity team. Another very important hallmark is we are focusing on innovation and focus on growth. So we want to be in the highest growth companies and the highest innovation companies any place in the world. So this is the main reason why we are less invested in the traditional old dinosaurs in the healthcare sector like major pharmaceutical companies, and we focus more on the smaller companies with really, really high growth trajectory. So this is really key a really key part. Another very important characteristic of the fund is it's very large. It's one of the largest investment trust out there. It's very liquid, diversified. We have a very active buyback program where we are keeping the discount really narrow. And then most importantly, this fund is really managed by a veteran and investment management team. You see here myself. I have over 33 years of investing experience in this sector. Trevor almost the same. We are the lead investment portfolio managers for the fund. But with us, we have a very, very big team with a lot of investment experience. And we have a proven track record now for over 30 years. Earlier this year, we had our 30-year anniversary. Little bit about OrbiMed. I think all of you guys are familiar with since we have been the investment manager since day 1 of the trust, OrbiMed Advisors, we are the largest dedicated health care investment manager in the world. There are 3 defining characteristics I think, for our organizations, but we are very different from, I think, other dedicated healthcare investment manager. Number one, I think we are truly global. We are in 12 locations. We have offices, our headquarters in New York, but important office in San Francisco, Hong Kong, Shanghai, Mumbai and London. So that's number one point. Number two point, I think we have an in-house ability to invest from a university start-up to the very, very largest pharmaceutical companies. And that's quite unique. We have a very strong venture capital team, we never get surprised by innovation coming from private companies. But then the third and the most important defining characteristic of OrbiMed is really the size of the investment team. We are 150 employees, 80 of them are dedicated to picking stocks in the healthcare sector. And there is no one out there with such a large dedicated team to picking stocks inside healthcare. And as I mentioned already, the public equity, our portfolio management team is 30 people. And this is in a snapshot, the basic theme of why invest in OrbiMed, why invest in the worldwide Healthcare Trust and why invest in healthcare in general. And with that, I'm going to move on to actually our 6-month results because those were really exciting. This is -- we had -- the first 6 months of this fiscal year is the second best in 20 years and it's the best 6-month period in the past 10 years. And this is what I referred to at the beginning of the presentation, I think there has been an overhang lifted on the sector. And here, our trust obviously performed really well versus the benchmark. The benchmark is still lagging behind the global benchmarks, so the MSCI Healthcare still down 5.3% as of September 30, but the Trust was up 5.2%. So we generated very, very great excess return over 10%. Now, this is here the update for a very key event. You see here a blue star here. And this actually marked probably the best 2-day rally in large-cap pharmaceutical stocks and incredible rally inside the Healthcare sector. This is when Donald Trump announced a deal with Pfizer on Most Favorite Nations pricing and removing the tariffs. And I think this is the key overhang lifted where I'm quite actually hope for that this is a little bit in our rearview mirror. But here, so you see here the fund since then made a very, very significant jump plus 12.2% on a year-to-date basis. MSCI Healthcare it's just actually flat or flat on the year. So we actually further widen the gap to MSCI Healthcare index to our benchmark. So what's a key part of the attribution, where did we put our performance up? And it was in the large-cap pharma, this have been flat. Actually, MedTech which have been our best sector for the past 3 years and actually a negative attribution in the first 6 months, so negative 1.7%. But the sectors which have in -- over the past 3 years, created a lot of volatility for the Trust, they have been really outperforming. You see here biotechnology and the M&A basket, which is a biotechnology basket was by far the biggest contributor to the first 6 months, almost 700 basis points. And emerging markets, in particular, Chinese stocks, they generated 370 basis points. Then Life Science Tools company, a very exciting sector. We had some great stock picking there. Our liquid biopsy companies really came to life and we had an IPO of of a liquid biopsy company as well. So this was a very important positive contributor. So if you look on a stock-by-stock basis, the #1 pro forma in the first 6 months is Jiangsu Hengrui, a Chinese or biopharmaceutical company, probably the -- with the second largest R&D pipeline in the world, only second to Pfizer. This is an incredible innovation engine. There has been the top performer in the first 6 months, 191 basis points, second best performer, biotechnology company, Alnylam 165 basis points. Number 3 was another Chinese biotechnology company, Sino Biopharmaceuticals at 111 basis points. Number 4 name was Caris Life Sciences. This is the liquid biolepsy company, which had an IPO. And then the #5 is a European spec pharmaceutical company, UCP. So you see the growth coming from a little bit much more the innovation innovation-driven high-growth companies. This is what's been driving the first 6 months of the year. I mentioned already that the M&A basket has been a really key contributor to performance. So for 6 months, 275 basis points. Now we constructed this M&A basket because this is -- gives the fund exposure to the most important bullish secular theme inside healthcare. We are picking to 40, 45 names, which are most likely to be taken out by large pharmaceutical companies. And we just had in recent weeks a number of acquisitions, almost every single one of them was actually part of the M&A swap. It's a very, very actively managed part of the portfolio. It's constantly gets rebalanced. When names get acquired, we replace them with other good names which are likely to get acquired. And here, you see the biotech sector have been recovering of, its slow, but we by far outperformed actually the pure biotechnology benchmark, which here you see XPI plus 26%. And our M&A basket plus 72%. So this has been a great stock picking instrument for us and a great instrument to generate performance. And it's actually, together with a Eli Lilly, our largest position inside the portfolio. And I think this is one very, very important theme for the next 2 years, and this is the way how we are capitalizing on this very, very important [ theme ] inside our sector. Our -- these are our longer-term performance data. We are obviously very, very proud of the third-year performance track record of the Trust. It is -- our fiscal year-to-date has been terrific for the past 3 years. We have positive attribution over our benchmark. Our 5-year performance, that's probably our weak spot because it captures one biotechnology bear market here in 2022. But our long-term investment record is really, I think we are very, very proud of that. And then vis-a-vis all of the closed-end trust, which have been in existence over those 30 years. We are still the #2 trust out there in the investment trust sector. With that, I hand it over to Trevor.

Great. Thank you, Sven. Well, unquestionably and perhaps somewhat unfortunately, the biggest investment theme for 2025 has been the omnipresence of President Trump over the past number of months. A couple of fun facts to start here. I look these up just before we came on here, but Trump has actually issued over 200 executive orders. since he began his second term, which is basically on every week day since he's been in office and his social media posts have been over 2,000 during that same period of time from his Truth Social. In healthcare, the main 2 issues that have been key overhangs stemming from Trump, as Sven alluded to, has clearly been U.S. drug pricing, and pharmaceutical tariffs. This has been the clear #1 reason for health care under performance so far year-to-date. And Trump has been using his classic carrot versus stick tactic to get really what he wants. The headline threats of 250% tariffs on pharmaceutical companies or 80% drug price drops have been very scary for generalist investors, creating all sorts of investor angst. But he's not really trying to destroy the biopharma industry whatsoever. What he really wants is multifold. First and foremost, he wants to bring back manufacturing to the U.S. This is not only in healthcare but across industries. So reshore drug manufacturing in the U.S. Another important issue is to get increased investment in U.S.-based R&D and manufacturing. And another big thing that's been on his docket for him is maintain the innovation lead over China. That's been a big theme for us within the portfolio, something that Trump is aware of and is part of his agenda. Also, he wants to make developed countries pay their fair share for innovative drugs and raise drug prices ex U.S. And that is basically what has happened on September 30. As Sven alluded to earlier on, on September 30, an unexpected but landmark deal with Pfizer was announced, complete with the White House press conference, a classic win-win for both sides. There's a lot of detail here. I'll try and step through some of it. But Trump really got what he wanted. First is the ego affirming TrumpRx, which is now a new website in which certain drugs are going to be sold to cash paying customers at a considerable discount up to 85%, average discount of 50%. And so he gets that headline win that, yes, he was be able to slash drug prices by up to 85%. But Pfizer gets the win here, too. because they already sell drugs at 50% off list price, to managed care, to Medicare. So there's really no effect on Pfizer here whatsoever. In fact, there could be a small volume benefit here with Pfizer entering this new direct-to-consumer cash channel. Secondly, Pfizer pledged R&D and manufacturing investment of $70 billion in the U.S. over the next few years. And for doing so, they're going to get us stay on tariffs. Another win-win for both sides here. Finally, Pfizer did actually agree to most favoridation pricing, but it's for Medicaid products only today. and Medicaid already is their smallest piece of business and it's where our drug discounts are already the steepest. So the net impact to Pfizer here is going to be rather de minimis. So yet again, another win-win situation. So -- and this deal has set a really a critical precedent going forward, which will result in nearly a benign outcome for the industry and look at this quote that we put up here. I think this is really key. This is from Albert Bourla, the CEO of Pfizer, where he said, we now have the certainty and the stability we need on 2 critical fronts, tariffs and drug pricing that have suppressed the industry's valuations to historic lows. So shortly after this deal, AstraZeneca also struck a similar deal. And we expect at least another dozen of these deals to come over the next month. So obviously, this has been an imminent concern with investors for actually some time. And it's not just a 2025 phenomenon, rather investor concern over the potential drug pricing policy changes in the U.S. extends at least 10 years, a period began in September 2015, actually, with now an infamous tweet by then President hopeful Senator Hillary Clinton, which [ shut off ] some history of volatility. This 10-year period, which is sort of depicted on this very busy chart, coincide with a period in which that NASDAQ is up over 300%, S&P is up over 200%. While the healthcare index is up less than 100% and biotech here with the XBI is not up at all. So we really believe, as Sven alluded to, that this wallet worry may now be finally over. But let me get into sort of like the real key to our presentation today, which has discussed the revolution of innovation and the overarching themes that will drive growth in healthcare, not only in the near term, but actually over the next 30 years. And this is what we're really excited about. Of course, artificial intelligence will touch almost every aspect of the industry like it does across all industries today. But we expect innovation to really drive new medicines and cures at a pace never seen before. In part due to the revolution and diagnostics that we're very excited about, personalized medicine, but also advances in medical technology, which we think will change interventional therapies. And overall, we could see cost to healthcare services, plateau or even materially deflate. But we've identified 10 mega trends of investable innovation that you can see in the portfolio today and in the future across the entirety of the health care landscape, and I'm going to step through them here. First is neurology. This is one area that we are most excited about, where over the next 30 years, we believe diseases like Alzheimer's disease, Parkinson's, Huntington's and other age-related dementias will be treatable, curable and perhaps even preventable. Innovation has had an incredible impact in therapeutics over the past 30 years, and we've seen this firsthand particularly in Alzheimer's disease. The first approval of any material product was Aricept in 1996. And this drug improve patients' memory function. This is a landmark achievement at the time, but the drug did nothing to alter the course of the disease. It was really almost 30 years later, where we had another breaker therapy, which was called LEQEMBI or lecanemab, also from the same Japanese company called Eisai. This was a landmark achievement because this was the first drug to alter the course of Alzheimer's disease therapy, delaying the progression by as much as 2 years. This was really truly breakthrough achievement and one that that many people thought wouldn't happen at the time. So what's next? We think cures our next, even preventative therapies that will emerge over the next 30 years, and we're not alone in thinking that. We might have some data as soon as this year from Eli Lilly that might show disease prevention. And we do think this is the next missing piece of the puzzle, and this discovery could be really the next holy grail in the evolution of disease therapies. In oncology, we believe the next 30 years or so, that most cancers will move from death sentence to chronic disease. A shift that began really about 10 years ago with the advent of immunotherapy. But we will see the acceleration even more cures. And unlike Alzheimer's disease, however, breakthroughs in cancer treatments have occurred at an incredible pace over the past 30 years. And we expect this to continue. Why is that? Well, cancer is not just 1 disease. It's over 200 different types of cancers today. But the vast majority of them have a genetic mutation that underlies cost. 30 years ago, basically all cancers were treated with just chemotherapy. But today, we have a much more sophisticated understanding of the biology of cancer and the FDA has approved over 100 drugs for the treatment of cancer over that period. We believe all this innovation will continue to accelerate. First, through the advancements of screening technologies and improved molecular diagnostics, as Sven has alluded to already. Second, while there is some individual patient genetic sequencing that happens today, the number of targets that we look for is relatively small. We think this number will soar over the next 30 years. And third, this combination of advanced diagnostics and genetic understanding will lead to therapies that are not one size fits all, but rather one size fits one. In other words, treatment regimens that are completely tailored to your exact type and stage of cancer, all with the curative intent. Astra, Roche, companies such as this today are leaders across all of these categories. There's really so much more to go. In cardiovascular metabolic disease, I'm sure everyone is fully aware of the obesity craze that has taken over, both from a media perspective but also in the stock market as well. However, I think we're just at the dawn of a huge ripple effect on so many other disease states. I find it interesting that most people think that this new class of GLP-1 drugs is brand new, it's actually over 20 years old and has undergone many cycles of innovation over the past 2 decades. Improved efficacy, improved tolerability, improved ease of use. And yes, the weight loss of Wegovy and Zepbound is incredible. But that is not really where our excitement lies, Rather, it's the beneficial effect of these drugs on so many other pathways in your body that GLP-1s, when used with alone, but in the future in combination can dramatically impact cardiovascular health and treat a number of metabolic diseases. And today, just a beginning of this revolution. Novo, Lilly and a host of new competitors will create a whole new class of what we're calling super medicines, drugs that will impact dozens of diseases and more than quadruple the total number of patients who may benefit from these drugs in both treating disease but also preventing clinical events before they arise. We're already seeing this today with benefit shown in the prevention of heart attacks, strokes, the treatment of kidney disease, heart failure, liver disease, sleep apnea, and later this year, we're going to find out if this potential extends to Alzheimer's disease as well. We've already seen that these drugs are able to prevent disease, and this is a startling statistic. But in obese patients on the GLP-1, the 94% of them will not progress into type 2 diabetic. It's absolutely incredible. These super medicines will unequivocally increase our longevity. In inflammatory diseases, another super hot area right now. We believe the next wave of therapies will be targeted to the root causes of disease, leading maybe to disease eradication not just symptom relief. Importantly, understanding of these disease pathways has really increased over the past 30 years. I remember in the '90s, we had simple antihistamines, creams, inhalers to treat conditions like allergies, skin rashes, asthma, arthritis. They provided modest symptom relief but also significant side effects. Today, we have much more elegant antibody therapies for all of these same conditions and much better symptom relief, especially for severe forms of these same diseases. But for tomorrow's therapies, we expect a step change really in efficacy. If we can reset the mast cell system or prevent our own immune system from turning on us or genetically alter inflammatory pathways that cause asthma or rheumatoid arthritis will be really on the precipice of chronic therapies that can fully prevent the onset of these symptoms or perhaps eradicate these diseases entirely. Genetic diseases is perhaps the next area, which we'll see the most advancement over the next 30 years. With the sequencing of the human genome back in 2000, our understanding of genetic disease has grown quite frankly, exponentially. And we are extending the precipice of an explosion of many gene therapy medicines, all with curative applications. It's only been a very short 8 years since the first gene therapy was approved here in the U.S. And during that period of time, we've seen significant improvements in safety, efficacy, administration of various new therapies since then. But most excitingly, in this particular space, all of these therapies have curative intent. The number of diseases that's treated by gene technologies, I think, will also dramatically increase over time for both common disorders but also ultra-rare genetic diseases as well. The ease-of-use administration will also continue to evolve. I think this is very important because we might get to the point where many gene-related therapies will be a very simple onetime single dose regimen. And of course, the efficacy of these types of therapies will judge by their curative abilities, of course. The number of approved therapies has gone from 0 to 30 in less than 10 years now. But that number suggests the field is still in its infancy, and we think this number can grow by over 1,000% over the next 30 years. Moving to medical technology. One key area, we expect continued innovation is in robotic surgery. And some of you may have heard of Intuitive Surgical, we are the clear leaders in robotic-assisted surgery today. It's well represented within the portfolio. And you can see by these photos here how the platform has really evolved just over the past couple of decades. From the 1996 prototype, for the Da Vinci system now to the fifth generation system that is just launched earlier this year, which is in hospitals today. The sophistication of the system today, the computing power has increased by over 10,000 fold over the fourth generation. And it is AI learning, not only for an individual surgeon, but for a whole network of them. It even has some autonomous systems embedded in it today sort of like how Tesla and parallel park itself. And this technology, along with AI, continues to mature, we believe the active role of a surgeon will continue to lessen. Perhaps even to a point that they become autonomous. But all the while, this is critical -- improving patient outcomes. Continuing in MedTech, the field of stem cell technology and other novel technologies will impact probably off parts of the body in terms of organ regeneration, brain interfaces, integrated bionics. In Japan, where some of the best pioneering work has been done in stem cells. This is already happening. Companies like SanBio, Healios, Cuorips are harnessing stem cells to impact the brain, the lungs, the heart, to treat associated conditions like heart attacks, heart failure, stroke, traumatic brain injury, even respiratory illnesses as well. Companies like Neuralink are already creating brain computer interfaces that can translate these neuro signals into actual actions. While they've only done this in about 25 patients, they have a waiting list of about 10,000. And the goals here are multifold, treatment of CNS diseases like Alzheimer's, depression, migraine, epilepsy, sleep disorders, but also perhaps impacting vision and hearing impairment as well. And there's companies like Boston Scientific, Abbott, Medtronic, that are already working on these right today, although it's a little bit early. But over the next decade, we think that the technological advances will make organ and body augmentation really part of the norm. Diagnostics is a space that we've been keen on really over the past 5 years or so, not due to COVID, mind you, but rather the development of liquid biopsy, moving from surgical resection for disease identification and detection. But to simple blood draws and companies like Exact Sciences, Natera and Caris Life Sciences, that Sven mentioned earlier today, who are using AI Learning for molecular insights for cancer care and drug development. It's really quite incredible what's happening in this space. Today, we do have wearable diagnostics from Abbott, for example, to monitor blood pressure or Dexcom to measure blood sugars. But tomorrow, we believe we're going to have implantable diagnostics that will push this segment from very few conditions to potentially hundreds that can be monitored. And these types of devices, maybe for real-time diagnosis like alerting you, getting a heart attack, stroke or asthma, can you imagine getting alert on your phone if one of these events is happening to you. I don't get fully science fiction. And at-home imaging may not be quite a thing yet, but the technology is advancing rapidly. And while the costs are also plummeting, the combination of the 2, make the synonymous to being able to afford like those large flat-screen TVs in your home today, which 10 years ago were very difficult to perhaps afford. But also genetic screening is done today. It's not overly widespread in our routine, but innovation here will widen the scope of cancer detection and continue to add disease states like cardiovascular and Alzheimer's risk. But overall, we think a dramatic revolution in diagnostics will create earlier interventions for cures and prevention. And as AI continues to impact us more and more, I think this will be felt at patient level as healthcare comes home. We have Teledoc today, of course, but that's just the beginning. We believe primary care doctors will be replaced by AI-based interfaces and that diagnosis from your general practitioner will be replaced by AI design treatment algorithms, layering on the increase in personalized medicine will also represent a material shift in patient care, increasing throughput, importantly, but also once again bettering outcomes. And I think you can tell, really from these previous 9 slides that I've shown you, that we expect radical changes to the healthcare ecosystem over the coming decades across therapeutics, non-therapeutics that will impact things like drug discovery, drug development, but also diagnosis and treatment through personalized medicine, changes in medical technology. Healthcare services will shift, and we're going to see more cures, with AI impacting almost every part of this environment. Perhaps the biggest impact of all, however, may be the dramatic healthcare cost deflation, removing complexity from the system, adding simplicity and reallocating costs to parts of the ecosystem that can have a much bigger impact on health outcomes like innovative drugs rather than just health care bureaucracy. This could be game changing really on a global scale. So with that, I'm going to pass it back to Sven to discuss portfolio and positioning.

So coming to portfolio and positioning. Here, we have traditionally we always been significantly oleate pharmaceuticals. But the current level here at 19.9%, that's close to a close to a record low. So we basically have 2 major pharmaceutical companies, but our [indiscernible] Eli Lilly and AstraZeneca. But that's it. So we have been very heavily overweight biotechnology, but this is in a range where it's historically been. Historically, we've always been right around 30% of our exposure to the biotech sector. We are slightly above that. MedTech, this has back -- dropped back down below 30%. This was, at one point, a very, very large allocation starting this year. We have trimmed it a little bit back. We've taken some of our gains and used it to really allocate to some of the other subsector. I think another subsector to highlight here is Life Science Tools, where we had been significantly underweight for a long time. But now we're actually above benchmark made, and I mentioned already that liquid biopsy has been a very, very hot area, and we have significant exposure, I think, to that area. Emerging markets is 15 points of the portfolio. Now it's -- that has come up for 2 reasons. Number one, have been incredible performance here our -- from our Chinese holding in the past 6 months. But we made an important addition to the portfolio, which was Jiangsu Hengrui, it's a great stock pick, ended up being the #1 stock pick actually for the first 6 months. But we made the 500 basis point position. So this is why emerging markets is on the high side of the range. But the next time when we report probably by March 31, I would expect that to drop down into the single-digit range. So if you look here at the portfolio, all of our holding, I'm really happy by the look of the portfolio. If you go in all of the subsectors, the really hallmark of all of our holdings are within their subsector, they're the highest growth and the highest innovation companies. And this is very much true as well for the largest companies like AstraZeneca or Lilly. Those are the highest growth for our large-cap pharmaceutical companies with the best innovation. In the MedTech space, same thing here. Boston Scientific, Edwards, Intuitive Surgical, Stryker, highest growth companies, best innovative companies. But then you see all the other subsector. This is where you have more of the small and mid-cap stocks like in the biotechnology sector or in emerging markets or in life science tools. Now I've talked already about it. One of the key hallmarks of the portfolio is this very high active share. So we are not a closet benchmark. We are running this against the benchmark, the MSCI Healthcare. But we are -- the active share is extremely high, so 82.9%. And it is a concentrated portfolio as well. Top 10 represents 61% of the portfolio. We go to the next page, it shows us -- show you our gearing. We have been here in the revival of the healthcare sector in the past 3 months. We have been using our leverage or gearing significantly, and we are right now 116% invested. The next page is actually really very interesting. The next page is actually really very interesting. This is a bit about valuation. And when you listen to our stock market commentators, everyone is so worried about high valuations in the tech factor, MAG7, so extremely high-value people talking about the bubble. But look at healthcare, there is no bubble in health care. The health care sector trading at very, very large discounts to the stock market. Just look at here, pharmaceutical companies, 47% discount to the S&P, you're buying them at 11x earnings. Biotech companies, these are the profitable biotechnology companies. 13x earnings, huge discount to the S&P. Even MedTech, who had stellar performance for the last 3 years, the average MedTech company is trading at a good discount, Same thing for the managed care companies, hospitals, the only sector which is trailing at the slide premium is actually tools and diagnostics. But this is one of the key reason why you want to be exposed to it. We think there is going to be a very, very significant meaningful reversion to the mean for the healthcare sector with a lot of the pharma politics removed them when stocks once again trade on fundamentals, trade on the innovation and the growth that this sector has exhibited for all those years, but for the past 10 years, never gotten any credit for. I think we -- there is really good case to be made that we will see significant outperformance in the health care sector. And I think if you go to the playbook, the one thing what I feel very confident about and I talk about this a lot is the recipe for success for this trust, which we had established over the past 30 years is very, very much in place. We are -- our portfolio focus and innovation and growth. This is the right way to generate great long-term returns inside the healthcare sector. And I think this important secular theme and M&A. I think this will, especially in the next few months, here going into year-end into January. I think this is going to be another spark here and support for the healthcare sector because I do believe that this will really pick up. And with that, I'm concluding the formal part of our presentation, and we are going to switch over to the questions. And I'm going to moderate the question. I'm going to read the questions. And then we're going to switch between me and Trevor to answer them. So if you have questions, type them in, and we will answer them.

So first question is about our M&A basket. What are the benefits of holding the -- an M&A target swap as the top holding? It's really simple. We would never add 40, 45 small biotechnology name to the portfolio in little smaller positions. But when we constructed it and we pick the 40, 50 most likely M&A targets in the center. We almost never missed a likely take out. So I think this is for portfolio construction process is very elegant and it's a very efficient way and actually quite cheap way to get full exposure to the most likely M&A target names, and has been -- I see the numbers speak for themselves. The numbers speak for themselves, has been very, very great part of the portfolio. And the second question is related to it. It's like looking at M&A, are there particular popular therapeutic areas? Now historically, I think the biggest part of the R&D pipeline in the sector is in the oncology space. 60% of the R&D pipeline is actually our targets in the oncology space. So logically, this is always a hotspot area for M&A. But I think right now, the big strategic focus from big-cap pharma is probably in 3 additional areas. Number one, immunology, so chronic disease implications. That's an area which all the big-cap pharma companies want to get into it because products become so big. I think one area which we're going to see emerging as a very important new area is cardiovascular disease. I think there have been some very, very good Phase III successes of biotechnology companies in the cardiovascular space. And I think we are going to see some step-up or step up there in cardiovascular disease. I think one other thing, what we hear from business development teams, large-cap pharma all the time is as well that they are looking at CNS but there have been very many CNS acquisitions. But then one really key area as well, which is probably of core strategic focus for the heads of R&D of all the major pharma companies. They are all flying into China and looking at China biopharmaceutical innovation. Every single big-cap Pharma Head of R&D. They are nonstop over there in China, and they're looking at the tremendous amount of innovation happening over there. And I think this is probably the #1 agenda item, I think, for all of them. but those are typically not acquisitions, but in licensing deals of drugs of the Phase I and II clinical trials. The next question is, is the FDA under Trump constructive to new drug approvals? And I hand that over to Trevor.

Sure. Yes, that is a great question because I quite frankly, I think there's been a little bit of a misunderstanding. Like I mentioned in my prepared remarks, Trump is not here to destroy the industry. In fact, the opposite. He's pro business, pro industry in terms of his solutions. And it's a little understood fact that new drug approvals actually inflected under Trump during his first administration compared to the previous 8 years under binding. In fact, the average number of drug approvals over the past 9 years now is averaging about 50 and that inflected versus Biden by over 70%. So look, there's been a little of a tumult at FDA given some of the budget cuts that have happened there. But I think the FDA is as strong as it's ever been. And yes, so I do think Trump is constructive to new drug approvals, for sure.

Next question is, can you speak a bit more about AI drug discovery? Is this already helping or more a 5-year prospect? Now AI is transformative to healthcare, but they are not necessarily just specific single stocks, which we can say, oh, this is single -- 1 single ANI, artificial intelligence stock that you must own, which is going to transform drug discovery. I think when it comes to the drug discovery part, the biggest bottleneck is still the human clinical trial. So the Phase I, Phase II, Phase III clinical trials. While AI helps with the rational drug design of new drug candidate it does not help with the actual drug development in clinical trials. So it doesn't speed it up there. But I think for me, personally, when I look at AI in healthcare, the most exciting part is really the transformative part in diagnosis of diseases and how the treatment paradigm will change annual checkups because there's 1 thing for sure. If you do, for example, do liquid biopsy on your blood. You can detect a lot with AI, a lot of diseases that, including cancer. Then the second part of it, if you use, for example, whole body scans can detect any other disease growing in your body as well. And if you use ANI tools there on an annual basis, this could really replace you going to a general practitioner and actually artificial intelligence could really replace that part. And this is where I'm actually most excited about it in the long term for the healthcare sector. Next question, and this is for Trevor. Assuming pharma tariffs and MFN are solved with a range of company-by-company deals? Are there any other threats expected from this administration? No damage expected from RFK except vaccine business.

Yes, this is actually a great question. Clearly, tariffs and MFN have been the #1 issue by far, and it does look like that has been resolved. So I agree with the premise of that question. Other shoes to drop? I don't see any. We do have to acknowledge RFK's [indiscernible] role in vaccines. That has been deleterious without question. His points of view, his public commentary, his handling of the ACIP Committee by dismantling that and replacing it with what I would call nonexperts has been poor and a negative, the portfolio shortly after his appointment removed any vaccine exposure within the portfolio. We'll continue to do so. But no, I don't expect any other threats. In fact, I expect other constructive things to happen. I touched on the FDA a little bit than the new product approvals. But the leadership of new Commissioner, Martin Makary there has been very positive, very progressive, very refreshing. And perhaps the signature piece of policy there is a new commissioners voucher, which is a voucher that if you obtain one, your drug review time will go from 10 to 12 months to 1 to 2 months. That is an impressive tailwind and an important move forward, I think, in terms of getting new drugs approved. But no, I don't see any other shoes to drop across health care coming from this administration if we get through MFN and tariffs.

Okay. Next question is related to Life Science Tool sector. And can you talk a little bit about the fundamentals of your largest positions in Life Science Tools. What's your view in Thermo Fisher and Danaher? Now our largest position in tools has always been for the longest time has been Natera, a liquid biopsy company, which is a very, very important tool for diagnosing cancers. And then the second largest or actually right now, the largest Caris Life Science, which was the recent liquid biopsy IPO. And we have a third liquid biopsy name Exact Sciences there as well, so 3 names. And this is probably the most promising part of the tool sector. Now on the big diversified tools providers, Thermo Fisher and Danaher. Danaher is actually our most recent acquisitions. This is a new position, which we acquired actually just in recent weeks and we're pretty close to the 52-week lows of it. Tools, the tool sector has been a little bit growth hampered. There were [indiscernible] about economy slowing down, slower growth in China. And this is why actually Danaher and Thermo Fisher haven't been great performing names, but we were bottom fishing there a bit. And we got, I think, our timing right, Danaher just reported today the quarter and actually an excellent quarter. And we think we picked them up here at the bottom end and increased our exposure to the tool sector. Next few questions. So a lot of China question and biotech questions. So let's see, so we have seen the pressure release of the top of the biotech sector [indiscernible] with impressive run-ups in that segment of the healthcare industry. What has been the main reason for it? Is this macro driven? Or have valuations been for long -- too low for too long. And is the -- finally the market reacting? Well, this is a great question. And it is probably not one single thing. I think a really important part have been valuations had been too low. The sector has been trading the unprofitable biotechnology companies. Many of them have been trading at a 50% discount to the cash on the balance sheet. These low valuations are in the long run, not sustainable. The sector can't be trading at a discount to the -- its cash on its balance sheet. But I think, obviously, with some of the overhang removed on drug pricing that has been beneficial. I think another very important part, the biotech sector has been very sensitive to interest rates. So in an environment where interest rates have actually been on the upward slope, I think the sector underperformed. And actually, we are now reversing the trend where we have a more accomodative Federal reserve iin the U.S. and the interest rates are generally trending lower. I think this is as well another macro theme that has helped is of the biotech sector. And this, together with M&A picking up again here in the fall, I think, has created the bottom and we have seen a nice proof of biotechnology off the bottom. Let's see. Two questions on China. Maybe I'll let Trevor handle them. Aside from the top performer, does China look competitive. And how would you describe the factors behind the Chinese biotech rally? Do you consider those factors sustainable? Maybe Trevor, you maybe just tell all the investors what big pharma CROs have been saying about China biotech right now?