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Rune Sand

Rune Sand

Rune Sand is Portfolio Manager for DNB Health Care, DNB Fund Health Care and DNB Bioteknologi.

Rune joined the company in April 2020 as an Analyst within the Health Sector and Portfolio Manager. Before joining the company he was a sell-side Equity Analyst covering the shipping sector at Carnegie (2012-2014) and covering the Shipping, Real Estate and Construction sectors at Nordea (2014-2020).

Rune holds a Master of Science in Finance from the Norwegian School of Management (BI).

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2024 is already on the horizon. By December at the latest, investors will be wondering how they should position themselves for the coming year. How interest rates by the major central banks will develop, is not yet clear. It also remains a question whether economies in Europe will slide into recession. In such difficult market situations, defensive sectors that have already successfully faced difficult times on the market in the past are particularly suitable. One example is the healthcare industry. As the sector encompasses reliability and multi-layered growth prospects, it is worth taking a look at the details, even beyond the hype surrounding the injections from Eli Lilly and Novo Nordisk.

Innovations: From gene scissors to new cancer therapies

Demographic factors have always been a classic driver for the healthcare industry - a growing global population requires more medical care. Increasing prosperity in emerging markets is also supporting demand. Currently, however, there are some technological innovations that provide opportunities for investors to support them with investments in pharmaceutical and biotech stocks. Immunotherapy is playing an increasingly important role in the field of cancer research. The aggressive treatment of early stages of cancer in particular, has proven to be successful. Early detection will play an even greater role in the future, in order to better treat aggressive diseases such as pancreatic cancer or myeloid leukemia. Companies with a focus on this development could benefit. The area of diagnostics is also interesting because the Inflation Reduction Act (IRA) has tightened price regulation for certain blockbuster drugs in the USA - investments in oncology have therefore become more complicated.

Nevertheless, innovation remains an important driver of growth in the healthcare industry. The success of mRNA vaccines during the coronavirus pandemic also provides attention to cancer research. Companies such as BioNTech and Moderna have already established research pipelines with a focus on this innovative technology. Numerous lesser-known companies are moreover advancing research or developing auxiliary technologies to optimize the efficacy of new mRNA vaccines. Radiopharmaceuticals, i.e. drugs that contain specific radioactive isotopes and are able to destroy cancer cells, are an exciting future trend. Companies, researching this new technology often target deadly types of cancer. The reason for this is that it is easier to make an argument for added value compared to standard therapies in clinical trials - in acute myeloid blood cancer, for example, clinics still rely on chemotherapy, which had already been the treatment of choice in a similar form, back in the 1960s.

AI boosts valuations

In addition to the fight against the widespread disease of cancer - the World Health Organization (WHO) expects the number of new cases to rise to over 30 million people per year by 2040 - innovative companies in the healthcare sector are furthermore increasingly able to target rare diseases. Around four-fifths of rare diseases are genetic. This is where gene therapies come into play. While gene therapy is based on the modification of external genetic material, gene editing can be used to achieve permanent changes to the genome of the respective patient. The gene editing tool of choice is the CRISPR gene scissors, whose inventors Jennifer Doudna and Emmanuelle Charpentier were awarded the Nobel Prize in 2020. A gene-editing drug developed by CRISPR Therapeutics and Vertex Pharmaceuticals to treat the rare sickle cell disease is currently awaiting approval. As companies who are active in this field are pursuing a platform approach, in order to identify new applications for gene therapies more quickly, successful approval is likely to pave the way for further innovative active ingredients.

In addition to biotechnological innovations, the AI revolution that began around a year ago is another defining factor when it comes to the healthcare sector. The technology is already aiding in analyzing patient data, creating important documents for approval procedures and improving IT security. Especially when it comes to analyzing large volumes of data, AI can significantly increase productivity and also enable smaller companies to carry out complex projects. Corporations across the entire healthcare spectrum are currently investing in AI - from large biopharmaceutical firms to solution providers within life sciences and medtech companies. In addition to major innovations in a shorter period of time, AI also promises cost reductions outside of research and development. However, investors focusing on companies in the healthcare sector must also pay attention to valuations related to the growing AI fantasy - some stocks are currently already too expensive.

The selection of suitable securities determines returns

The hype surrounding the weight loss drugs Wegovy and Zepbound from Novo Nordisk and Eli Lilly has also led to rising valuations in the industry. In this context, investors should take into account the limited production capacities of manufacturers and the reaction of organizations such as health insurers. In any case, investors should not just focus on the hype theme. Several trends are currently coming together in the healthcare sector, which should give shares in the industry a tailwind in 2024. The long-term outlook also promises to be positive. However, the careful selection of promising companies and their effective allocation remains a prerequisite for turning this outlook into stable returns.

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