Q:  What is unique about healthcare sector?

A: There are very few sectors that occupy such an important intersection between business, public policy and societal aspirations. When you start highlighting people’s priorities, people for the most part desire to be healthy and have a high quality of life. The products of the healthcare industry are of incredible importance when you lose your health.

In most industries you have some level of demand and the industry springs up to generate supply but in healthcare more supply creates more demand. For example, right now we don’t have a market that has a high demand for Alzheimer’s disease because we don’t have great therapies. But if we were to have great therapies, all of a sudden the demand would explode and that is the unusual characteristic of the therapeutic-based area of the healthcare market.

The aging demographic brings with it a higher consumption of healthcare and the United States has a world-class biomedical infrastructure that is a national treasure and competitive advantage. That biomedical infrastructure is the basis for which better therapies are developed.

Q:  What are the main categories within the healthcare sector?

A:Within healthcare, the world is broken down into four broad categories. The first is pharmaceuticals, both domestic and international, also including subsets such as specialty pharmaceuticals and generics.

The second is healthcare services. Examples here would be managed care, hospitals, dialysis companies or any company that is not making a therapeutic, but is involved in the delivery or the administration of healthcare to a patient.

The third area is medical devices or Med Tech companies. These tend to be orthopedic companies that make devices used as a therapeutic, to replace a knee or a coronary stent or a catheter.

The final area is biotechnology, which is a category of companies whose products were protein-based as opposed to chemically synthesized orally available pills that we take.

These categories have lost their distinctions over time because many of these companies have evolved so that their products are improved through a common mechanism. They often compete with one another. Their business models are similar, but they still retain these categorical distinctions for the basis of Wall Street classification.

Q:  Are you overweight in some of these healthcare areas?

A: About 75% to 80% of the fund’s long-term investments are in therapeuticbased companies or companies that make medicines, vaccines, and any therapy that tries to cure a patient of a disease or tries to prevent a disease. The other 20% is invested in healthcare services or companies that provide medical insurance or are involved in the distribution of pharmaceuticals.

Q:  Why do you put a greater emphasis on therapeutic-based companies?

A: If you look at what companies today are the most valuable at the top of the list you would find Pfizer, Johnson & Johnson, Amgen, Genentech, Novartis, Roche and what most of them have in common is that they are in the business of providing therapeutics to patients.

Q:  What is your investment philosophy?

A: Healthcare is a very special place in our society because on the one hand, it is a business and on the other hand, it affects health that is very precious to all of us. There is an escalating tension between the ability to pay for healthcare and the desire to have more healthcare. One of the things that shapes our long-term philosophy is that we are always mindful of the fact that this tension is not going away; in fact, it is only going to escalate.

Q:  What kind of companies are you looking for?

A: We don’t want to just be involved with any company that provides a therapy, but with companies that provide therapies that make a significant impact on a patient’s disease. We are looking for companies whose medicines are differentiated from the other medicines. One of our long-term philosophies is that society will continue to reward companies providing therapeutic solutions for heart disease, high blood pressure, diabetes, HIV disease, Alzheimer’s disease, just a wide-range of common ailments. Society will continue to award those companies that bring to the marketplace a medicine that is highly impactful and has the potential to become a standard of care type medicine. The tension between the desire to obtain more healthcare and the ability to pay for it continues to escalate and it will not go away and therefore the rewards will be increasingly reserved for those medicines or therapies that are really impactful.

Q:  Are these types of new medicines in small, medium or large sized companies?

A: They can come from any kind of size of company but if we can find them in the context of a smaller company, we have the opportunity to leverage our shareholders to a company whose future is about to be transformed in a dramatic way by virtue of the introduction of an important new medicine, all else being equal.