For its long book global healthcare firm Arcoda Capital Management is sticking to companies it believes will not be affected no matter what healthcare reform the U.S. Congress decides upon later this year—those which produce “orphan” drugs, or drugs developed specifically to treat a rare medical condition.
Michael Meyers, founder, ceo and cio, said the Arcoda Global Healthcare Fund likes companies with orphan drugs which are at the start of their launch process, treat chronic conditions and are targeting a group of around 200,000 patients—situations where there is an inelasticity of demand even if prices are high.
Most companies will not be able to weather the reform quite so well, though, and the fund is slightly net short overall. Meyers said he feels particularly bearish about the subsectors of medical devices, healthcare services and pharmaceuticals. He said his firm is short medical device companies which are tied to hospital reimbursement. As Medicare comes under question and services come under price pressure, Meyers says he believes there will be compression in the average selling price for many devices used in surgeries and other procedures.
Arcoda invests in 25-35 companies, with 75% of its investments meant to be held about a year, or until a target price is reached, while the other quarter takes advantage of specific trading opportunities, such as earnings reports. The fund’s team— which includes Former Deputy Commissioner with the U.S. Food and Drug Administration (FDA) Scott Gottlieb—speaks with purchasing managers and other healthcare industry insiders prior to making investment decisions, which Meyers said has been particularly important amid rumors surrounding healthcare reform.
Arcoda has begun marketing the onshore and offshore versions of the Arcoda Global Healthcare Fund. Meyers declined to give a target size for the fund, but said due to capacity concerns the firm will close the fund somewhere in the range of $750 million and $1 billion. The fund currently has $60 million under management. Arcoda Global Healthcare Fund was up in 2008 and is also in the black year-to-date. It reaches its one-year anniversary July 1.
This article was originally published in Alternative Investment News.
