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

Good afternoon, and welcome to the Worldwide Healthcare Trust plc Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to Trevor Polischuk, partner at OrbiMed. Good afternoon to you.

Great. Well, thank you, Alex, and good afternoon, everyone, and good morning from New York City. I'm very excited to chat with you today on investing in health care and specifically the Worldwide Healthcare Trust. I find health care a fascinating industry. I've really made it my life's work and it's something you consume from the day you are born to the day you die. Let me start with why you should be investing in health care today. It's really quite simple. First of all, more people as people are aging, this is creating more demand. Older people consume more drugs, consume more health care. There's more innovation. There's more spend. Every part of this ecosystem is being influenced and accelerated by artificial intelligence, all conspiring to create a very highly predictable long-term, high-growth industry that is huge, representing approximately 10% of the global economy in excess of $20 trillion of annual spend and expected to more than double as we go into the next decade. And really, the Worldwide Healthcare Trust that I manage is poised to capitalize on this growth as we focus on the entirety of the health care industry and seek to invest in all subsectors, all geographies and virtually all market caps in health care, really from developed markets all the way to emerging markets and everything in between, pharmaceuticals, biotechnology, life science tools, diagnostic companies, medical technology companies and even health care services. And with the Trust, we like to focus on what we call our recipe for success, which is a laser focus on innovation. We overweight growth in a portfolio of a collection that we consider our best ideas across all subsectors and a fund that is very large, liquid and diversified. And we think we're unequivocally your one-stop shop for global health care investments. Turning the cards over on how we populate the portfolio. First, I would call out heavy investments in pharmaceuticals and biotech at 39%, 35%, respectively, right now. That said, pharma is a material underweight for us. Portfolio benchmark is 50%. And that's really given the have and have-not nature of pharmaceutical companies. We like some, but not all of them. Conversely, biotech is a material overweight for us in the portfolio. Benchmark is only 10% biotech. Why is that? Well, we view this sector as the real cradle of innovation within health care. Then we have another 30%, as you can see here, in nontherapeutics, tools, diagnostics, med tech services. And lastly, I would note on this slide that we have a notable investment in emerging markets, particularly China health care, which is not in our benchmark whatsoever. But that's a nod to the true innovation coming out of China. So I'd really like to get into it and pivot, start with some recent performance. And let me start with some headline numbers here with this slide. And for those of you who don't know, our fiscal year-end is March 31. So we've just closed the books on fiscal year '25. Our AGM is going on right now as I speak, actually, and it was a solid year of performance. You can see the 10% absolute return on the year. Excess return was over 8%. And something that I'll talk a little bit through my presentation is something called the OrbiMed M&A basket. This is a custom design swap basket that we populated with biotech companies that we think are candidates to get bought because we're in an M&A frenzy right now, that contributed a spectacular 560 basis points. Then I pivot, talk a little bit about our current fiscal year numbers. I didn't plan to do this today because we're just through our first quarter of the new fiscal year of '26, but it's been a phenomenal start with a 12.6% absolute return in the first quarter, 6.1% excess return. Our NAV just reached a record high, and I'm cheating with this because that was just last week, so technically in July post the first quarter. But it's really been a great 15 months for the Trust as we enter our 31st year in this environment. So this slide shows our NAV in the dark blue line versus our benchmark, gray line for fiscal year 2025 over the year. It was really a challenging start for us back in April of 2025 when President Trump Liberation Day announcement came out, outlining his global tariff tactics, which really panicked and kind of spooked the entire market, including health care stocks at that time. But shortly after that, you can see some recovery. We had an acceleration of biotech M&A, as I mentioned. Interest rates were coming down. And then that red star represents the first of 17 drug pricing agreements reached here in the U.S. between 17 companies and the Trump administration, which removed this long-standing overhang about drug pricing in the U.S. But all of this conspired to really fuel our performance through the rest of that calendar year. But this was cut down early in the year and the conflict in Iran began in late February, but some prominent M&A on the very last day of the fiscal year and our performance benefited once again. And this slide shows sort of the winners outpacing the losers for us in that fiscal year. But what I wanted to point out here primarily was the diversity of the top contributors. Here's the M&A basket that I mentioned, companies that we select, it's about 50 names in that basket that we select that we think may get taken out or will go up in sympathy when other similar companies get taken out as M&A can float many boats even if you're not getting taken out. But then you can see AstraZeneca, a large cap pharma company that re-rated higher on commercial and pipeline execution. Apellis, this is a commercial stage biotech company. It was acquired by Biogen in the year for USD 5.5 billion. Then we had a company called CG Oncology. This is a clinical stage biotech company. No sales yet, that rerated higher on positive data for their bladder cancer asset. Avidity Biosciences, another clinical stage biotech company acquired by Novartis outright for $12 billion. Exact Sciences, a cancer diagnostics company acquired by Abbott for $23 billion. And you can see Eli Lilly here is next. Everyone knows Eli Lilly now. And obviously, they had a spectacular year with GLP-1s, and we can get into that in a little bit. Then Natera is another diagnostics company; argenx, another biotech company, UCB, a specialty pharmaceutical company based in Europe with a commercial biologic. And then a couple of key detractors. The biggest one for us by far was Boston Scientific. But after a multiyear rerating, that stock kind of collapsed a little bit after sales growth estimates had to come in rapidly and unexpectedly at the start of the year, and that hurt us. And like I said, I wasn't going to talk about our fiscal year-to-date, but here's that first quarter that I alluded to earlier. You can see the massive inflection in June, which has provided a great start to the current fiscal year for the first three months. And you can see the numbers there that I mentioned earlier, the 12.6% absolute return. over 6% above the benchmark. So a tremendous start to the new fiscal year despite a little bit of a turbulent macro environment in these first three months. And once again, the drivers are very diverse, pharma companies, diagnostic companies, biotechnology companies. In this case, many managed care names that have re-rated here in this first quarter. Natera is there again. And even Novo Nordisk, a name that we bought recently off the bottom and enjoyed a little bit of a bounce in that name. And the detractors, again, were very few. Boston Scientific there again, unfortunately, we've reduced that position, but they had a little bit of incremental data on one of their key products that was disappointing. And then emerging markets that I haven't talked much about. That was a notable winner for us last year, some profit taking this year has hurt us a little bit to start the year, but again, still a very great start. So what really mattered in 2025? Well, you can see, first and foremost, M&A, biotechnology M&A was a big deal for us over the last five quarters. You can see 69 deals, a mix of private takeouts, but public deals as well. I articulated some that we would own outright. But look, totaling almost $200 billion of acquired companies over the past five fiscal quarters. And you can see how the M&A basket really performed during this period, plus 89%, including that massive June that we had. You can see how that compares to our benchmark over that five quarters. So this has been a real alpha generator for us. We think this is going to continue throughout '26 and into '27. The large cap companies in this space, the big pharmas, the big biotechs, they need new products. The best way, easiest way to get them is to just buy them. So we think this trend continues. Another factor that fueled the sector and our performance, and I alluded to it earlier, but -- and it's probably been the largest catalysts in the space over the last 10 years, but that was drug price legislation in the U.S. has finally happened. There's a lot of details I won't go into here. But on September 30, Pfizer was the first company, and they signed a landmark agreement with the current administration here in the U.S. That not only spared the company from tariffs, which was a big concern a year ago, but created stability and certainty in the domestic drug pricing environment that will increase affordability for some patients for new drugs in the U.S., but also protect innovation going forward because prices aren't going to collapse. And in fact, we expect some prices to rise outside of the U.S. in other developed nations. And now all 17 companies that President Trump sent a letter to have agreed to something basically very similar. And you can see how parts of the sector rerated from September 30 into fiscal year-end, particularly biotech and pharma outpacing the benchmark and certainly outpacing the S&P during that period. And then finally, for 2025, a brief comment on the FDA because it has been a tire fire from a leadership perspective, countless hirings, countless firings over the past 1.5 years, almost too many to count, and some of these people appear here in more than one fashion. That said, with the FDA, we do think the worst is behind us. Some of the worst pieces of the FDA rather have been removed. And I think we have some rational talent now in control. But importantly, let's look at more an objective scorecard. What matters for us as investors with the U.S. Food and Drug Administration. That's basically new drug approvals. And here, you can see a chart that we got 52 in calendar 2025, 52 new approvals. This year, so far, we're halfway through. We're on pace for another 52. And this is in line with the previous eight years. And this has been a very robust period for the industry. So despite the turmoil ongoing at FDA, they're still getting the job done, and I think that's what's most important for us as investors in this space. Well, let's pivot and let's look ahead. I think this is the fun part of my presentation. What are we excited about on a forward-looking basis? And it's really about all the innovation that's going on. I think this is a super neat slide. This slide talks about the acceleration of mega blockbuster medicines. Recall, a blockbuster medicine is a drug that sells $1 billion per year. A mega blockbuster is something that sells multiple millions, billions of dollars per year. And this was a bit interesting. I went back to sort of look at some history here, just to remind myself about the evolution of the blockbuster. And the first drug to achieve $1 billion in annual sales was a drug called Tagamet. I'm sure many people on this broadcast might be familiar with that, but this was one of the pioneering ulcer medications by SmithKline, yes, by SmithKline back in the day that sold $1 billion in 1986. Then I think the next sort of interesting sort of threshold was the first $10 billion product, which was 18 years later. Another well-known product called Lipitor sold $10 billion in 2004 and it's still widely used today, obviously, in a generic form, but it was another 17 years until we had the first $20 billion product. And this was an injectable biologic for various skin conditions and gastrointestinal conditions called HUMIRA. But look, things have been really starting to accelerate. So the first $30 billion product came only three years later in 2024, which is a cancer drug called KEYTRUDA for Merck. Then last year, we're going to have the first $40 billion drug, which was semaglutide, which was Novo's Ozempic and Wegovy drugs reached $40 billion last year. And this year, we expect the first $50 billion franchise with tirzepatide from Eli Lilly, and this is branded as Mounjaro and Zepbound, the famous GLP-1 products for obesity, reaching $50 billion. So this acceleration of mega blockbusters is super exciting because we expect dozens more mega blockbusters to come from now the available oral GLP-1s, next-generation GLP-1s, drugs for Alzheimer's disease, new immunological agents. A whole variety of cardiovascular agents on the horizon and many new cancer treatments also coming forward. So not only these newer drugs are going to drive the top line with just huge sales potential, but will have outsized impact on margins and profitability of these companies as well going forward. So let's dive into some of these therapies. I have to start with everyone's favorite topic, which is really the GLP-1s. It's also my favorite topic. I've been studying and been involved with GLP-1s for 20 years. I think many people think this is a new class of drugs. It's not. It's been around for 20 years. What is new is the incredible current generation drugs, their efficacy, their safety and their ability to impact so many things. We remain bullish despite the volatility in some of the share prices of these companies, but why is that? Well, the market is huge and simply getting bigger and better as we go forward. Sales of the big 2 molecules, I mentioned in that previous slide, semaglutide from Novo and tirzepatide from Lilly surpassed $20 billion just in the last quarter alone. We expect sales to reach $100 billion this year, which is a quadrupling of sales in just three years. Also key drivers, the oral alternatives have now launched in the U.S., which is the Wegovy pill, but also Foundayo from Eli Lilly. We expect these to be mega blockbuster products as well. The prescription volumes in the U.S., we predict will reach 3 million prescriptions per week by year-end. Globally, the market expansion is still early days, but already selling billions of dollars per quarter. in mostly a cash pay market. It's been incredible. But most importantly is probably all the labels expanding from the treatment of diabetes and obesity to things well beyond just those two conditions, improvement in cardiovascular health, reducing cardiovascular events like heart attacks and strokes, improving heart failure function, reducing kidney disease, preventing sleep apnea, reduction in patients with arthritis pain, reduction in liver disease. These next-generation therapies are also coming. They're just around the corner. They're better, stronger, faster, quite frankly. And competition is also coming as well, which is going to expand the market, and there's a company I've highlighted here called Structure Therapeutics. This is a clinical stage company that might have the best-in-class oral GLP-1 therapy we've seen. We need to wait on some data, but this company is massively undervalued if their data is going to look good in Phase II. So GLP-1-based therapies have already reached unprecedented scale, significant headroom remaining as indications expand and global penetration increases. In cardiovascular disease, the innovation here is as novel and is driving sort of the next wave of value creation in this particular space. And recall, statistically speaking, at least, you are more likely to die from a cardiovascular event than anything else. So any therapies that can reduce risk or prevent altogether, any type of CV event can be a huge drug. And some of the things that we're following are old or new again or brand new, such as PCSK9. This is a druggable target, an established target that helps to lower bad cholesterol. This is on top of statin therapy. They've been around for about a decade, but only as injectables. And most patients with cardiovascular disease are on oral therapies, but now oral formulations are just coming out this year. They're just around the corner, can be a complete game changer in lipid management. As super simple but amazing effective add-on therapy, which is going to reduce event rates. And we're going to have some of that data later this year. Another new target here is something called Lp(a) or as nerds like me call it Lp(a), which is now proven to be an independent biomarker of cardiovascular disease, and we're soon going to have drugs that lower and hopefully lower your event risk. And we're going to have outcomes data perhaps any day from Novartis. They're in the lead pack here. And this would open up a whole new patient population who have high Lp(a) levels, which is -- can be tested for. We're testing for it now. But once we have a drug for it, the testing is going to go through the roof and utilization with outcome studies could be just enormous. We also have next-generation factor inhibitors for patients with atrial fibrillation who are at risk of stroke. These next-generation therapies, we're hoping are going to be more efficacious, especially more safe and not cause dangerous bleeding versus the current standard of care therapies. Then we have other drugs in this space for heart failure, cardiomyopathy, hypertension. Each of these categories represents mega blockbuster potential and a plethora of catalysts that are coming forward. Finally, oncology. I mean, this has probably been the hottest area over the past 10 years. With the invention or the advent of immuno-oncology way back in 2014, oncology has just completely exploded for new therapies. Despite all the hype on GLP-1s, oncology is probably still the hottest space. I won't go into a lot of detail here. There's a lot on this slide, but the innovation remains incredible. So many new and innovative therapies that are removing cancer as a death sentence and moving cancer really to chronic disease category, advancing more cures than ever before. There's so many targets, so many modalities. Oncology is the true epicenter of personalized medicine because cancer isn't one disease, it's like 200 different diseases, quite frankly. So much so that we expect global sales of oncology medicines to nearly double to over $400 billion by 2028. I think it's very impressive. One other reason I'm going to throw into by health care right now, the sector is still cheap. It's re-rated. Yes, but that's after 10 years of underperformance. So there's still a huge amount to go. All the key sectors continue to trade at a discount to S&P, especially pharma, biotech as well as med tech. A couple of sectors have moved to a premium, managed care, which is really on fire right now because of the utilization trade, utilization is down, pricing is high. Margins in managed care here in the U.S. are exploding in a positive way, and we've captured that in the portfolio. And tools have also moved really because of the liquid biopsy and the excitement there with a lot of companies with novel ability to detect cancer with a simple blood draw. So those are a little bit justified. But overall, health care valuations remain very inexpensive. And maybe just a final comment here to conclude with on performance, in this case, performance since inception. So we were founded in '95. And you can see here, most excitingly, we just hit a record high NAV just last week on July 7th. And you can see the dark blue line on top is our NAV, nearly a 5,500% return since inception versus the benchmark at roughly 2,600%, and the FTSE on the bottom and the purple there at just under 1,000% return over these past 31 years. And I think this chart shows a few things. First, I think exposure to health care is a real must for any portfolio. I think secondly, I think this chart shows that a specialist investor like us at the Worldwide Healthcare Trust can truly outperform the benchmark over the long term in a sector that is highly complex from both the technology side, a science side, a political side and quite frankly, a regulatory side. It's full of land mines, but a special investor can outperform in the long term. And I think finally, this shows that despite the increased volatility in our performance over the past five years, we've been able to make higher highs through that period despite some difficult turbulent times. And as I mentioned, the record NAV just this past week. So how does this performance stack up versus the entire world of closed-end trust over the past 30 years. So this is a list of closed-end trust, not just health care, but any closed-end trust that has been in existence since '95 or longer. And we're very -- we're comfortably in the #2 spot here despite some of this volatility that I spoke of over the past few years. And we're very proud of this. But more importantly, we're very bullish about the near-term future, given the secular tailwinds and the incredible amount of innovation ongoing in the health care space today. It's both near term and long term. So, with that, I'll hand it back to Alex.

That's great, Trevor. Thank you very much indeed for your presentation. [Operator Instructions] While the company take a few moments to review those questions submitted today I would like to remind you that recording of this presentation along with a copy of the slides and the published Q&A can be accessed by our investor dashboard. And Trevor, as you can see, we have received a number of questions. So if I may now hand back to you to read out the questions where appropriate, and I'll pick up from you at the end. Thank you.

Okay. Great. Thanks, Alex. Yes, we have a bit of a number of different questions here. So the first one is what are your current views on Glaxo? That's a great opening question for this audience. So there's a couple of things. First, just a high-level comment. I know a lot of our investors, I think, over 80% are U.K.-based, whether that be institutional investors or retail investors. So one of the things we keep in mind when populating the portfolio is we do try to provide alternatives to the obvious health care investments you can make here in the U.K. And obviously, the two gold standards there are Astra and GSK. So do we set a little bit higher bar for those companies to get into the portfolio? Yes, we do. We do own Astra right now, which is a combination of valuation, but more importantly, the robust late-stage, diverse pipeline that they have is probably the best in industry. I know they've had a little bit of turbulence more recently and one of those pipeline readouts was most recently negative. But we like AstraZeneca quite a bit and the opportunity for it to rerate higher is extremely high. GSK, we like it. Don't love it for two reasons. First and foremost, pipeline is not as robust as some others in the industry. They also have some very important patent expirations that are looming. They've done some recent M&A. They have a new CEO, an internal candidate that has been promoted. So we like it. It's interesting, but not quite meeting our threshold to enter the portfolio in part for those reasons I just articulated, but also just we have a little bit higher bar for U.K.-based companies because we're trying to provide investors here with alternative investments from what you can do just domestically. Another question here. What -- where are you seeing the most compelling opportunities to capital within health care? And what is the sell discipline you follow when you see strong performance in the portfolio? Two very good questions. Like I said earlier on, we're very diverse with our portfolio in the Worldwide Healthcare Trust. We like to invest in everything. Biotech is probably our #1 area where we see the most opportunity for re-rating, but that carries a much higher sort of risk premium and risk evaluation because of the binary event of emerging biotech companies. These are companies that are not yet selling a product, clinical stage development that can be worth 10x what they're worth today or they could also be worth a zero. So we do like biotech. Pharma is very interesting. As I alluded to earlier, it's a group of have and have not. It's a very heterogeneous group of companies. In pharma, we like to focus on companies with the best pipelines, best growth profiles. Sometimes these are the most expensive companies and sometimes the most volatile like Astra, like Eli Lilly, for example. And we like companies with new product stories. So some of those companies, for example, like Merck, Novartis, Roche are all in the midst of new product opportunities, Bristol. But some companies, perhaps management teams aren't as strong. Their business development is not as strong. They have to do M&A or they've done poor M&A. They have a lot of patent expirations, so a little bit episodic. Right now, one of the hottest areas is in managed care here in the U.S. as I mentioned that during my portfolio. So we've increased our exposure there. Everyone's hating med tech these days. We've reduced exposure there, but we're kind of hoping for a turn later this year. We got to get through 2Q. Our sell discipline is very straightforward. We have a large team of analysts, and we have very sophisticated modeling, forecasting and various other metrics to come up with price targets across all of our companies within the portfolio. And we just remain disciplined when a stock does hit our price target, that triggers a sell. First, it triggers a bit of a debate internally to reassess and challenge assumptions. But it's pretty straightforward with being disciplined and being very tight to our valuation metrics. Next question, I love this one. Could increasing competition in obesity therapies ultimately pressure pricing and margins across the sector. That's what everyone is afraid of. But what's super interesting over the past 1.5 years, in part due to the Trump administration, but in part due to the self-pay market, both U.S. and abroad, the amount of transparency and price compression we've seen in the obesity market is something like I've never seen before in my career. So my answer is we've already seen price compression here. And I don't think it's going to go much lower because we've seen elasticity. There's consumers that are going to pay $200, $300, $350 out of pocket per month for these therapies that are effective and safe. So these therapies were selling just a year ago at $1,100, $1,200 on a list price basis. On a net price, they are selling between $500 and $600. But now that's come down to between -- some starting doses depending on who you are, it could be started as little as $100. But I think we've already seen it. So increased competition is just going to allow for better access on a global basis. This is the biggest market I've ever seen. The total addressable market in terms of number of patients is certainly hundreds of millions, and it could be 1 billion-plus patients. I'm not afraid of pricing pressure. I think this is the biggest opportunity I've seen in health care in my whole career. Other questions. Are there any new drugs or medication for type 1 diabetics? That's a good question. Not much on the radar screen for type 1 diabetics. There is some promise for gene therapy or other biologic intervention for type 1. That's been a tougher disease artificial pancreas is something that could be in the horizon as well. So yes, it's nothing in the portfolio that represents that, but optimistically have something maybe more towards early next decade there. And then one of the last questions on my sheet is, does big pharma still have the balance sheet strength to keep buying biotechs? Another great question because does the spigot run out at some point? So there's two answers to this. Simple answer is, yes, they still have the balance sheet. We've only had a couple of companies effectively tap out. Pfizer is the most sort of prominent one to sort of publicly declare their balance sheet is already stretched. Other companies keep talking up -- most companies keep talking up the need to do more deals. They have the balance sheet power to do it. The other thing I would also articulate is, one, the cash flow of these companies is really incredible. So every time another month, another quarter goes by, is adding cash to that balance sheet, and so they can rebuild it. And I think this is still a multiyear process here for M&A. Then we also have some examples like AbbVie. AbbVie did a deal a couple of weeks ago for a company called Apogee. This was an immunological company with a Phase II asset that they bought for $10 billion. In the two weeks after they bought it, their market cap went up $40 billion. I'm not saying every M&A deal is going to result in the acquirer's market cap going up, but it was a smart deal at a good price, and they articulated how the return on that deal was going to impact them over the next decade and investors loved it. So smart deals are going to get rewarded. Bad deals can also be equally punished. But in this environment, I think it's still going to be robust M&A going forward well throughout '26 and probably into '27 as well. And Alex, I see with that, that was the last question I have.

Fantastic. Trevor, thank you very much indeed for addressing all those questions from investors today. But before you direct investors to provide you with their feedback, which is particularly important to yourself, Trevor, could I just ask you for a few closing comments?

Yes. First and foremost, I'd like to thank everyone for their time today. It was absolutely my pleasure to talk about the Worldwide Healthcare Trust. And I hope what I said resonated with you, this is a great time to be buying health care. I'm perhaps the most bullish I've ever been with health care right now, given where valuations are at, given the political overhangs are subsiding, drug pricing is no longer a big issue. And the innovation, most importantly, the innovation is incredible, probably at all-time highs, a great time to get in, in the space right now.

Fantastic. Trevor, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback, which will help the company better understand your views and expectations. On behalf of the management team, we would like to thank you for attending today's presentation, and good afternoon to you all.