Morningstar Advisor - August/September 2010 - 44

Morningstar Conversation

high risk is, in the next five years, are we going to have an Alzheimer’s therapy? That would be explosive.
Acker: I agree with Kris on Human Genome

Five years ago, I don’t think China was among the top 20 global pharmaceutical markets. Today, it’s number five. In five years, it’ll be number two.
Andy Acker

Sciences and Benlysta. It’s a compelling, high unmet medical need. We’re seeing areas in immunology that are getting addressed with new therapies. We’re starting to learn how to harness the immune system to fight cancer. At a conference about three weeks ago, we saw the first immune-based therapy for metastatic melanoma. This was the first trial to show a survival advantage. The drug is called ipilimumab from Bristol-Myers. Another company that just got a drug approved is Dendreon, which has an immunotherapy. This is where you take cells from the body, activate them against the tumor, and then re-inject them back into the body. In the device space, one of the exciting areas is heart pumps. Heart failure affects 5 million people in the United States, and 500,000 people are in class four, the worst part of the disease. There are not enough heart transplants to go around, so hundreds of thousands of people die—with medical therapy you get a two-year survival rate in the 10% range. They started with artificial hearts, but this technology takes a long time to develop. Now, they have artificial heart pumps that they can install inside of a person’s heart. This is a huge growth area. They’re doing about 4,000 implants today. The pumps use a magnetic levitation system, so there’s only one moving part and no friction. Technically, they can last as long as the patient does. With these devices, they’re seeing two-year survival rates expanding to 60% to 70%. There are a couple of companies that dominate this space. We’re invested in one called HeartWare HTWR.

Areas of Innovation
Conover: When you invest in health care, you have to be cognizant of scientific innovations. Where are you seeing true innovation, and which stocks look best positioned to capture that innovation? Jenner: One of this country’s global assets is

That process takes 10 to 15 years. I’d also caution everybody that you have to be selective. In many cases, something positive occurs at a company, but it is offset by a negative, so they counteract one another. As a result, you’ve got a wash in the stock. What we’re looking for is a significant, innovative product that will have the most meaningful effect on the stock price. But to your specific question, I think that the hepatitis C area is one where we’re about to see some real improvement—where the cure rates for a life-threatening illness is going to go from about 50% of individuals to maybe 70% or 80%, and the duration of therapy may get cut in half. Human Genome Sciences HGSI—we’re a top shareholder— is about to bring forward the first new medicine, Benlysta, for lupus in 50 years. A question that holds the most reward but comes at very

our biomedical infrastructure. What I mean by that is our universities, our biotechnology companies, and the pharmaceutical industry— that whole gestalt is something that is trying to take scientific innovation and discovery and turn them into medicines and devices that are both more effective and safer that what we have now. I think you’ll hear from both of us an optimistic assessment, but I would caution everyone that it takes quite some time to play out because what we’re talking about is the natural rhythm of scientific innovation.

Potential of Emerging Markets
Conover: A lot of interest is starting to bubble up over emerging markets. Ten years ago, emerging markets didn’t contribute much

44 Morningstar Advisor August/September 2010

Morningstar Advisor - August/September 2010

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