We recently compiled a list of the 7 Best Mid-Cap Healthcare Stocks To Buy Now and in this article we discuss why institutional investors are bullish on Roivant Sciences Ltd. (NASDAQ:ROIV).
Challenges in the Health Sector
The healthcare industry is considered to be a fairly defensive sector due to its need. According to a World Health Organization report from December 2023, global healthcare spending reached a new high in 2021 at $9.8 trillion or 10.3% of global gross domestic product (GDP). However, spending distribution remained highly unequal, with public health spending increasing worldwide, except in low-income countries where government health spending declined as it relied heavily on external health aid. In 2021, 11% of the global population lived in countries spending less than $50 per person annually on health, while high-income countries spent around $4,000 per capita. Additionally, low-income countries, despite having 8% of the global population, accounted for only 0.24% of global health expenditure. The report states that while there was a significant increase in public spending on health during the peak of the COVID-19 pandemic, this growth is unlikely to be sustained over the long term as countries now focus on economic challenges like slowing growth, high inflation, and increased debt servicing. Dr Bruce Aylward, WHO Assistant Director-General, Universal Health Coverage, Life Course said:
“Sustained public financing on health is urgently needed to progress towards universal health coverage. It is especially critical at this time when the world is confronted by the climate crisis, conflicts and other complex emergencies. People’s health and well-being need to be protected by resilient health systems that can also withstand these shocks.”
Apart from that, due to the residual effects of the COVID-19 pandemic, the healthcare industry has also been facing challenges such as labor shortages and high costs. To read about this in detail, check out our report on the 11 Best Healthcare ETFs to Buy Now.
Adversity Drives Innovation
While the broader market has outperformed the healthcare sector by a huge margin over the last year, healthcare companies have been putting in their work to drive innovation in the industry. AI and other technologies are the driving forces for these companies. However, some of the companies have been using these technologies for longer. For example, Pfizer has been using AI in pharmacovigilance since 2014. The company also uses AI to analyze vast datasets, predict treatment outcomes, and streamline clinical development processes. The company made the following comments in one of its reports:
“If the ultimate goal of a self-driving car is to navigate a busy city street, in pharmaceutical research, the goal is to navigate the connections between a potential treatment and its effectiveness in treating a disease.”
On May 21, AstraZeneca’s CFO Aradhana Sarin told CNBC that the healthcare company is in a “new era of growth.” The company is expected to generate a revenue of $80 billion by 2030. Sarin said in the interview that the company is expecting to launch 20 potential new drugs by that time, and a number of them could potentially be $5 billion drugs. The CFO mentioned several upcoming innovations for the company, such as replacing chemotherapy with antibody-drug-conjugates (ADCs) and radiation therapies with radiopharmaceuticals. At its Q1 2024 earnings call, the biopharmaceutical giant’s CEO, Pascal Soriot said:
“Today is what do we intend to deliver in terms of our financial progression in ’24, ’25, ’26. Tomorrow is what are the products we are going to launch that will drive our growth between 2025 and 2030, and what is our strategy there, what do we intend to do with our pipeline, and what other products we believe are growth drivers to 2030. And the day after tomorrow is really the sort of post-2030 period. And what are — what do we believe are the technologies that will shape the future of medicine in oncology and beyond, and how are we building some of those platforms that will help us shape — participate in shaping the future of medicine in the therapy areas where we are.”
Institutional Investors are Betting on Roivant Sciences Ltd. (NASDAQ:ROIV)
Our Methodology
For this article, we used the Finviz stock screener to identify nearly 140 healthcare companies with market capitalizations between $2 billion and $10 billion. We narrowed down our list to 7 stocks that were most widely held by institutional investors. The best mid-cap healthcare stocks are listed in ascending order of their hedge fund sentiment.
The hedge fund data was taken from Insider Monkey’s database of 919 elite hedge funds as of the first quarter of 2024. Why are we interested in the stocks that hedge funds pile into? The reason is simple, our research has shown that we can outperform the market by imitating the top stock picks of best hedge funds. Our quarterly newsletter’s strategy picks 14 small and large-caps every quarter and it has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Are Institutional Investors are Betting on Roivant Sciences?
Roivant Sciences Ltd. (NASDAQ:ROIV)
Number of Hedge Fund Holders: 54
Roivant Sciences Ltd. (NASDAQ:ROIV) is a UK-based commercial-stage biopharmaceutical company that develops and commercializes medicines for inflammation and immunology areas.
On May 10, Piper Sandler analyst Allison Bratzel maintained a Buy rating on Roivant Sciences Ltd. (NASDAQ:ROIV) and set a price target of $20.00. The stock has a consensus Buy rating among 10 analysts, and its average price target of $17.43 implies an upside of 58.74% from the last price of $10.98, as of May 24.
54 hedge funds held stakes in Roivant Sciences Ltd. (NASDAQ:ROIV) in the first quarter, with positions worth $2.558 billion. As of March 31, Viking Global is the most dominant shareholder in the company and has a position worth $731.15 million.
Greenlight Capital stated the following regarding Roivant Sciences Ltd. (NASDAQ:ROIV) in its first quarter 2024 investor letter:
“We established a small long position in Roivant Sciences Ltd. (NASDAQ:ROIV). ROIV is a biotech company focused primarily on inflammation and immunology therapies. In addition to an exciting pipeline, ROIV has a strong track record of positive trial results and successful monetization of pharmaceutical assets. The market currently believes core ROIV is effectively worthless, as the company has a market capitalization of about $9 billion, but holds over $6 billion of net cash and a $2.6 billion stake in its publicly traded subsidiary, Immunovant (IMVT). We believe there are several valuable assets inside the company, notably a broad patent estate around lipid nanoparticles used in COVID vaccines for which Moderna and Pfizer may owe ROIV several billion dollars in royalties, a potential multi-billion-dollar specialty autoimmune disease drug that recently passed its 7th successful Phase 2 trial and a novel topical agent to treat skin conditions such as psoriasis and atopic dermatitis. Additionally, we believe there are several other promising earlier stage assets inside ROIV. Lastly, the management team continues to find new opportunities to in-license from larger pharmaceutical companies. ROIV recently announced a $1.5 billion share repurchase program. We acquired our shares at an average price of $10.96. ROIV ended the quarter at $10.54.”
Roivant Sciences Ltd. (NASDAQ:ROIV) ranks 2nd on our list of the best healthcare stocks to buy. To find other mid-cap healthcare stocks that hedge funds are bullish on, check out our free report on the 7 Best Mid-cap Healthcare Stocks To Buy Now.
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Disclosure. None. This article is originally published on Insider Monkey.