Health Care Sector Update and Outlook


Teresa McRoberts (continued): The FDA has also reallocated resources, shifted people off of certain things, but the FDA has also tried to make sure that lifesaving therapies for cancer, gene therapies and other things have continued to be approved. And in fact, they have continued to improve things in general on time that were most of the way through the approval process. So that's a positive. Certainly companies' budgets were set, for this year, were set at some point right last year or even in the fall of last year. So they haven’t really cut their budgets, but they might not use them. In some cases, if somebody is working on something that’s thought to be deemed a central product, they haven't been allowed on their labs to work on things. Still they're receiving their paycheck though, so it's hard to say. People are not saying I'm going to stop doing R&D, but clearly, they haven't even been just logistically allowed in some cases. Also one of the things that happened during the Clinton health care reform era, which was a while ago, companies did cut R&D budgets because they were afraid they couldn't launch their products with the freedom as they wished to. And they paid the price for that a decade later. And they all learned their lesson that when you cut early stage R&D, you pay for it later, and it can be very painful. So I don't see companies using this as a reason to cut R&D, but I was just surprised that sometimes they actually can't physically do the R&D until their facilities are open up and people are allowed back in. There's also a tremendous amount of early stage money still from the venture capital people and from investors continuing to support IPOs. So there's a lot of interest in continuing to support innovative science. Absolutely no time to slow down in that area. Dennis Hearns: Okay. So here comes the tough question. In your view, is there a specific industry or industry group within the health care sector that offers the best investment opportunity as we evolve through this period of global pandemic? Teresa McRoberts: I would say that there's not a specific industry. Health care is very stock-specific and it's partly because people are working on difficult medical issues. And so one of the things that you see if you're working on a cancer product and you have a

huge breakthrough, you and maybe a few other people are working on similar products get the benefit, but not the whole sector. So it's very idiosyncratic. And that's how I've always invested in health care; is the individual stock worth investing in? And so one of the ways that I have focused in this, is that I'm still not sure when they're going to open up, when health care is going to go back to being normal, even when R&D would go back to being normal. So I have tended to focus on areas of innovation. Some of the areas that we've talked about in the past, like diabetes, something that affects a large chunk of the population, it's still a very attractive area. Sadly diabetics are among the most at-risk patients for COVID. If anything, the virus is for those people to get themselves under control, even more importantly. I think the pandemic is going to change the way people think, something like telemedicine doing virtual health care visits. I think that is going to be a change that is going to be permanent just like we all do Zoom or Zoom-like videos now instead of physical meetings. I think that we're not going back to 100% physical meetings for a long time. I think there are things like that that are going to be a benefit. I think some areas where I still have a lot of questions about, as I said, it's when the hospitals go back to normal. And so when do what they call elective procedures, which means anything that's a scheduled procedure, when do they go back to normal? When do people go back to getting their heart operation, their cancer operations, which don't sound particularly elective, but they were considered elective. No one wants to go back to keeping people away from that kind of care for months on end. So, I'm sticking with innovation. I still think cancer, gene therapy, things that save people's lives on the therapeutic side, those names are going to get rewarded. It may take an extra three months or six months to get the product out because of a pandemic. It might take an extra year, but these are such high unmet needs. At the end of the day, if you can find something to deal with some of these very serious medical issues, even if there's a slight delay, because of COVID, it would still be a good product to have. So that's sort of where I'm focusing.

Conference Call 4/8

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