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Chris: Heading into 2024, we're seeing a really exciting opportunity to revisit the pharmaceutical sector given some of the underperformance we saw in 2023. We've got investors sentiments actually pretty bearish for the group right now. And we think that's going to be a really nice opportunity for investors to look at a fairly well positioned group at record low valuations.

 

Chris: We're really excited about the innovation more broadly across the sector. If you just think about 2023, we had the first disease modifying Alzheimer's drug fully approved by the FDA. If you look at oncology market, we had new technologies, things like CAR-T, bispecific antibodies, ADCs, meaningfully improving standard of care in a number of tumor types. These are huge markets where you haven't seen innovation in the last decade or longer.

 

Chris: The GLP one category. This year has been really an exciting year. We're estimating that this will be over a hundred billion revenue opportunity for the sector by the time we go out to the early 2030s. And that would make the GLP-1s the largest therapeutic market we've ever seen. We're expecting the capacity for the GLP-1s to double in 2024, increase another 50% in 2025, and that should really alleviate the bottlenecks we have from the capacity standpoint.

 

Chris: As we think about M&A, the themes really remain growth and innovation and that should lead to further consolidation of the small and mid-cap biotech sector, particularly the higher quality names. What we're seeing is a pivot away from larger, more complex transactions that we saw in the past. And instead what the industry seems to be doing is looking at these kind of smaller assets that are easier to integrate.

 

Chris: As I think about healthcare reform, the big focus for us is going to be on drug price negotiations. This is really coming about because of the inflation reduction act, which is allowing the US government for the first time to directly negotiate drug pricing with the pharmaceutical industry. Many of these are going to make drugs more affordable for seniors, which is great. But for the drug industry specifically, we're got to really watch to see how these negotiations go. It's a big overhang for the sector. One we think is manageable, but obviously we've got to watch exactly how these negotiations play out.

Lisa: Things to watch for in 2024 when we think about healthcare services specific to managed care and facilities, one, utilization trends. If you think about 2023, we saw an uptick in Medicare advantage utilization trends, we anticipate that those trends will carry forward into the first half of 2024. Second, GLP-1, the impact on both sides. How will this impact the commercial market? How will it impact PBMs? Third, the presidential election.

 

Lisa: GLP-1 were a big area of topic in 2023. They are currently not covered by Medicare or Medicaid. However, as we move into 2024, We'll need a legislative change for them to be covered.

We recently conducted a survey of 50 of the top 500 companies in the country, a large percentage of them are saying they're not going to cover it for weight loss, so we'll have to wait and see what happens.

 

Lisa: As we think about the medical costs and pharmacy costs in 24, we're getting back to normalization. Post covid, we had two years where people did not go to the doctor. They did not have surgical procedures done.

We had anticipated coming into 23 that we would see a higher acuity level. what we saw this year is that both cardiac procedures as well as orthopedic procedures, were higher than expected.

As we go into 2024, we expect that trend to continue within Medicare Advantage. On the commercial side, we have generally seen in line, utilization trends across the commercial population.

 

Lisa: As we think about potential legislative changes for the PBM, pharmacy benefit management business. One of the areas that they're trying to drive is more transparency in the business model. We believe any of the legislation is pretty benign to the current industry as we see it and therefore remain positive on the industry.

Environmental Social Governance is growing in every geography around the globe. It’s in the headlines, high up on the agendas of corporations, and at the forefront of investor interest.

 

Even though it started to take shape in the 1960s, ESG has gained significant momentum in recent years, with 2020 standing out as a milestone year in this space. Adoption across the global asset management industry more than doubled, with total ESG funds growing more than 100 percent. And companies are now rally more ambitious ESG goals.

 

What’s driving the move from momentum to mainstream?

 

This is ESG Investing, Unpacked.

 

ESG Investing looks at an asset, like equities or bonds, through an Environmental, Social and Governance lens.

 

The goal is to determine whether the asset makes a positive impact. For example, fighting climate change or supporting safe working conditions. Governance is all about how a company balances stakeholder interests: How are decisions made? What processes are in place? Who benefits?

 

Here’s another way to think about it: The “E” and “S” are the end results. The “G” determines how these results are achieved.

 

This data helps investors make better-informed decisions.

 

The rise of ESG investing is based on a few points in history. Among them are the social movements against the Vietnam war and apartheid in South Africa, when companies faced divestments in opposition.

 

In 1981, the first major U.S. organization that advances responsible investing was founded: The U.S. Sustainable Investment Forum. And key events created global awareness of environmental issues.

 

In 2008, the Financial Crisis called into question the industry’s social license to operate: How can the financial system works for everyone and not just shareholders? In 2015, 196 countries signed the Paris Agreement to reduce carbon emissions.

 

Most recently, the COVID-19 pandemic demonstrated the connectivity between crises: Public health, climate change and social inequality. In response, companies prioritized even more ambitious goals around ESG.

 

Three main ESG Investing strategies are growing quickly. Negative Screening typically excludes investments related to weapons, tobacco and fossil fuels. While exclusions were historically based on moral or religious preferences, now it’s about the financial risk associated with the negative impact of industries, such as human health for tobacco and climate change for fossil fuels.

 

ESG Integration has become the leading strategy. It focuses on how companies incorporate ESG criteria into their daily activities to achieve long-term financial performance. Then, ESG considerations and timelines are factored into risk analysis and investment decisions moving forward.

 

Impact Investing is the newest strategy. It intentionally aims to create positive social and environmental impact that is actively measured, as well as financial return. Like investing in the private debt of a company with a business model aimed at providing access to high-quality education for students from low-income backgrounds. Impact Investing is becoming increasingly common because more people want their money to contribute to the United Nation’s Sustainable Development Goals.

 

The ESG lens can be applied to any asset class. While equity is the most common, representing half of total ESG assets under management, green bonds are on the rise. Typically purchased by institutional investors, they help finance a company’s specific project climate-related or environmental project.

 

Sustainability-linked bonds are also gaining traction. These are performance-based and tied to whether the issuer achieves pre-defined ESG objectives within a set timeline.

 

Many investors are now looking beyond ESG targets and are increasingly focused on measurable results with clear plans. This trend, along with wanting more of a say in a company’s ESG practices, is expected to continue for the next several years.

 

Heightened regulation including environmental, employment, and civil protections, is another factor driving ESG market growth. Around 90 percent of oversight was implemented in the last 20 years and 50 percent arrived after 2010.

 

Europe leads this effort, where public companies are required to report implemented policies and where regulations are constantly evolving to reflect broader sustainability goals. Take the EU Green Deal, a set of policies to help the EU reduce emissions 55 percent by 2030 and reach net zero by 2050.

 

But sustainability challenges are global and require mobilized capital to solve them, all countries are working on ESG. Asia is beginning to implement its own regulations, and the U.S. administration is currently working on its own standards as well.

 

For the next several years, innovation will continue to shape the ESG landscape. From advancements in clean energy, like the growing hydrogen market, to how companies will deliver on advancing racial equality, and the upcoming public investments on clean infrastructures, all eyes are on ESG.

How healthy is the US economy? Could a recession be coming? How do investors feel about the current economic situation?

 

While none of us can see into the future, yield curves can help us map what lies ahead, answering these questions and many more with surprisingly-high levels of accuracy. So what exactly is a yield curve and how can one little line tell us so much? "

 

This is "Yield Curves: Unpacked.

 

In a nutshell, a yield curve is found on a graph that compares bond yields to maturity dates. Once plotted, the points are joined together with a line, forming the familiar yield curve. Here are four terms you'll need to understand to wrap your head around yield curves.

 

Bonds are debt securities issued by governments and corporations to raise money. In other words, bonds are a loan from an investor to an issuer. If an investor buys a Treasury bond, for example, they're essentially lending money to the U.S. government. Coupons are fixed interest payments, which investors receive periodically. This is the same as the interest paid on any loan, such as a mortgage or personal loan.

 

Maturity is when a bond's term comes to an end. This can be from 1 year to more than 10 years. At this point, the investor will get back the money they paid for the bond.

 

Yields are the returns made on a bond. The simplest version of yield is calculated by dividing the interest rate by the bond's current market price. Longer-term bonds will have higher yields-- in a stable economic environment, anyway. This is because they're considered riskier investments, as there's more time for market conditions and bond prices to change.

 

While a price change doesn't affect the fixed coupon payment, it does affect the yield. When prices go up, yields go down, making the bond less appealing. When long-term bonds have higher yields than short-term bonds, this forms the typical upward slope of a yield curve from left to right. A steeper slope can signal better economic conditions ahead, with higher growth and inflation, meaning better returns on long-term bonds.

 

Yield curves can also invert and slope in the opposite direction. This happens when short-term bonds have higher yields than long-term bonds. It's rare, but it can signal that an economic slowdown or even a recession is coming. This is particularly true of the U.S. Treasury yield curve, which tracks yields on short- and long-term treasuries. If you hear someone talking about the yield curve, they're likely referring to this one. And it's predicted past recessions with a great degree of accuracy.

 

How is this possible? First, the Treasury yield curve is a good reflection of investor sentiment. If investors expect interest rates to fall in the future, they might buy longer-term bonds to lock in the current rate, pushing up the price and lowering the yield. This is one way a yield curve can invert.

 

Low interest rates are usually associated with a weak economic environment, which is why this pattern can spell bad news for the economy-- if investors are correct, of course. Another reason is simply that the Treasury yield curve is so widely watched. Potential signs of a flattening curve may be enough to put markets in a spin.

There can be many reasons behind the pattern seen on a yield curve. And it's hard to account for all the forces at play within the bond market. But whatever the reasons might be, the Treasury yield curve will remain a strong signal of economic activity.