PLUMB LINE INSIGHTS

Manager Q&A: Opportunities in Healthcare

05/2018

We believe that global healthcare innovation is one area with dynamic opportunities. There has been some tremendous advancement in this field, including new drugs, therapies, early detection, treatment, medical devices, information systems, and robotics, to name just a few.

DOWNLOAD A PDF PRINTABLE VERSION

Where are you seeing opportunities in healthcare? 

We believe that global healthcare innovation is one area with dynamic opportunities. There has been tremendous advancement in this field, including new drugs, therapies, early detection, treatment, medical devices, information systems, and robotics, to name just a few. Many companies in this industry have benefitted from these innovations and, we believe, are postioned for continued growth into the future.

What fascinates you about the biotech sector? 

The biotech sector has the potential to be very disruptive, which is a key factor that we like. We want to assess if a company can change how things are done; do they have the potential to disrupt the existing people or processes that are in place. A new therapy, new structure, or new way of approaching pharmaceutical development can be very disruptive. As a result, there is the potential for billions of dollars of sales.

A problem we see with the biotech sector is recurring cash flow. Recurring cash flow is another factor we favor for our investments. Often, biotech is highly capital-intensive; those companies tend to lose money at first. Our research focuses on homing in only on those companies where we believe that there is some real success potential, and not just a dream. 

Are there specific characteristics you look for in healthcare companies?

We assess how large we think the market could be, who the entrenched players are, and what the economics would be to serve that market. When we look at it from a biotech standpoint, we’re interested in what type of drug therapy would be so new that it could have the potential to change the way things are done, or possibly invalidate some of the current offerings in those spaces. In other parts of healthcare, we look at recurring revenue streams from companies that are leading the marketplace. There, we look at medical tech companies more often than we look at biotech companies. 

Where are you seeing the most innovation today?

I think that innovation doesn’t strictly stay in one spot or the other. That said, currently we’re seeing significant innovation in the hospital space. Companies like Intuitive Surgical Inc. and Abiomed are changing the ways surgery or therapy are done and are saving lives.

Abiomed’s innovative device operates essentially as your heart for a certain period—and is a pretty significant savior of lives. Intuitive Surgery designed the highly sought after da Vinci surgical system, a robotic-assisted surgery, which is a minimally invasive approach to prostate surgery. Those companies who can create a wide competitive moat in the marketplace are typically able to support a strong economic structure. We view the key as the recurring revenue stream. With a change to disposables and services when they have an installed base, we see the possibility for a recurring revenue stream, high margins and predictability.

 

Thomas G. Plumb is the founding principal of Wisconsin Capital Management, LLC (formerly Thompson Plumb & Associates), which began in 1984. In addition to his roles with the Funds, Tom maintains an ownership interest in and serves as the president of SVA Plumb Financial, LLC, an affiliated entity.Tom formerly was the lead portfolio manager of Dreyfus Premier Balanced Opportunity Fund.  He earned a bachelor of business administration from the University of Wisconsin-Madison in 1975, is a member of the Madison Investment Management Society and holds the Chartered Financial Analyst designation.

 

Important information

Opinions expressed are those of the speaker as of May 22, 2018 and are subject to change, are not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

Click here for holdings and most recent quarter-end performance for the Plumb Equity Fund.

Click here for holdings and most recent quarter-end performance for the Plumb Balanced Fund.

Fund holdings are subject to change at any time and should not be considered a recommendation to buy or sell any security. References to other mutual fund products should not be interpreted as offers of those securities.

Earnings growth is not a measure of the Fund’s future performance.

Read 174 times Last modified on Monday, 04 June 2018 08:23