The year 2024 began with a general expectation of greater stability and fewer unknowns. This sentiment has been reflected in a significant improvement in biotech funding, which rose to approximately $23 billion in Q1 2024, the fourth highest quarter on record. As supply chain, credit, and worker shortages ease, new legislation might introduce additional pressures The impact of the BIOSECURE Act remains uncertain, but it is expected to provide a tailwind for US manufacturing by bolstering biomanufacturing capabilities and enhancing the production of critical medical supplies and technologies domestically. Changes to Medicare Advantage are putting pressure on payers, though there is no clear indication of systemic effects on healthcare yet. We anticipate accelerated recovery in the second half of the year, building towards a strong 2025.
In Q2 2024, the ROBO Global Healthcare Technology & Innovation Index (HTEC) underperformed the VettaFi Full World Index, with a return of -3.74% compared to the benchmark’s 2.87%. While Genomics and Precision Medicine showed strong performance, gains were offset by headwinds in Medical Instruments and Process Automation. This quarter, 69% of the companies in the index beat EPS expectations, with a weighted average surprise of 10.45%. Valuation remains attractive, with the index trading at 4.26x EV/Sales, close to the pandemic low of 4.37×. This presents an opportunity, especially with the expected double-digit growth in EPS, sales, and EBITDA in 2025.
Genomics (15.55%) saw the resolution of the Illumina (5.72%) saga. Following legal challenges in both the US and Europe, Illumina’s acquisition of Grail culminated in Grail being spun off and added to the index as a standalone company. This move allows Illumina to resume its leadership in DNA sequencing, while Grail joins the thriving liquid biopsy field. The subsegment continued its strong momentum with notable performances from Twist Bioscience (43.57%), CareDX (35.88%), Natera (17.44%), and Guardant Health (41.01%), whose Shield product remains on track to become the first FDA-approved blood test to meet Medicare coverage performance requirements. All this highlights the growing relevance of cancer diagnosis via blood tests.
Alnylam Pharmaceuticals (49.15%) led the way in Precision Medicine after announcing the success of its Amvuttra drug in treating ATTR-CM, a serious heart disease. For context, a Pfizer drug for the same condition is expected to generate over $4 billion in sales this year. Other highlights included United Therapeutics (38.84%), a Q1 24’ addition to the index, which continued its 2024 rally after announcing the first-ever transplant of a Xenothymokidney (a genetically modified pig kidney into a living human recipient. Moderna, Vertex, Roche, Incyte, and Regeneron also saw gains above 10%, capping a strong Q2 for the subsegment.
On the downside, Process Automation (-15.54%) and Medical Instruments (-7.12%) underperformed. The market responded unfavorably to Ginkgo Bioworks’ (-68.43%) business model restructuring, which focused on front-loading revenues vs their previous long terms bets approach. Eurofins (-25.64%) faced a short report alleging accounting anomalies, though the company responded stating that they maintained confidence in its accounts. Align Technology, makers of Invisalign, fell -27.7% for the quarter, despite remaining the main player in clear aligners and laying foundations for next-generation products with its acquisition of Cubicure earlier in the year.
Diagnostics (-6.33%) lagged but saw the resolution of Royal Philips’ (+34.95%) class action suit over some of their CPAP, ventilators, and BiPAP machines with a $1.1 billion settlement. Exact Sciences (-36.29%) presented data showing that earlier and more personalized treatment interventions lead to better outcomes for cancer patients, supporting the idea that regular cancer screening should become part of traditional medical maintenance.
In conclusion, 2024 has shown promising signs of recovery and growth in healthcare, highlighted by significant funding increases and easing supply chain and credit issues. Despite underperformance in certain subsegments, the overall market conditions and attractive valuations indicate a potential for robust recovery and growth in the latter half of the year, setting a positive tone for a strong 2025. With upcoming legislation like the BIOSECURE Act and ongoing changes to Medicare, the landscape remains dynamic, yet filled with opportunities for innovation and advancement in healthcare technology.
VettaFi LLC (“VettaFi”) is the index provider for HTEC, for which it receives an index licensing fee. However, HTEC is not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of HTEC.
For more news, information, and analysis, visit our Disruptive Technology Channel.
