It is nearly eight years since healthcare and biotech investor Sam Isaly abruptly stepped down from OrbiMed, the managers of the Worldwide Healthcare Trust (LSE: WWH). In the 22 years in which he was lead manager, WWH achieved an annualised return of 16.8%, the highest in the investment trust sector.
Since WWH continued to perform well for the next four years, it didn’t really matter. However, there followed four years of dismal performance in which the share price fell 30% and underperformed the MSCI World Health Care index before a recovery in the last six months.
Meanwhile, Isaly began building a new funds business. Exome Asset Management now runs a little over $200million, with nearly half in its Worldwide Healthcare Partners (WHP) strategy, but has already built a formidable performance record. In the year to the end of November, the fund returned 70%, after achieving 88% in the previous six (despite two down years). He sees plenty of opportunities in the sector.
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Focus on China’s emerging biotech industry
“Pharma is facing the largest patent cliff in history, with $300billion of sales at risk – 20% of the total market – between 2025 and 2030,” says Isaly. “Pipeline replenishment is necessary.” Larger companies will either need to innovate or acquire new products through acquisition. Hence, the WHP portfolio is heavily weighted to biotech.
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To help innovation, the US Food and Drug Administration (FDA) has cut the review time for “breakthrough therapy designations” from 12 to two months. Nine companies have been granted this designation for pipeline drugs. This could allow drugs for ultra-rare diseases to reach the market without full clinical trials.
Isaly has also focused on China’s emerging biotech industry. China has passed the US in the number of clinical trials registered, with 1,903 in 2024 versus 1,499 in the US and 899 in the EU. Moreover, Chinese biopharma companies have proved willing to license out products, accounting for 60% of global licensing deals in the first quarter.
Hence WHP has a relatively high exposure in China. This includes Hong Kong-based Duality Biotherapeutics, which is developing “next-generation” antibody-drug conjugate (ADC) therapy to treat cancer and autoimmune disease. ADC is a therapy whereby a monoclonal antibody, able to evade the body’s immune system, is chemically linked to a drug. It binds to specific proteins found on cancer and other malignant cells, enabling the drug to enter the cell and kill it without harming other cells. Isaly calls Duality “high risk with no drugs yet on the market, but the best in its class and with a promising candidate for a particular form of lung cancer”.
California-based Guardant Health, a gene-sequencing-based diagnostics firm comparable to Illumina, is medium risk, he says. Its blood tests can detect signs of remaining cancer after treatment or identify it at an early stage. Isaly expects profitability in 2027.
Korean listed Celltrion, one of the world’s three major biosimilar companies, is least risky. Patent expirations open up the market for biosimilars – drugs which are very similar to existing patented ones. Celltrion “should become dramatically profitable in 2026”.
Hedge-fund strategy
Maybe Isaly will one day return as an investment trust manager. For now, he runs WHP as a hedge fund, with both long (159% of net assets) and short (71%) positions across 40-55 holdings. Isaly is supported by five highly qualified analysts, who also manage three smaller funds, including an emerging markets healthcare fund.
For eligible investors, WHP is open for investment monthly, with quarterly redemptions subject to 65 days’ notice. The management fee of 0.6% is low, but there is a generous performance fee. This may not be encouraging, but the best funds are often those that are hard to access.
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