Bio… The Other Technology

As a background, earlier this year, Palumbo Wealth Management (“Palumbo”) announced the formation of our Palumbo Emerging Growth Portfolio. We built a portfolio of public companies within the emerging technology and biomedical technology sectors.

Our belief is that we are at the beginning of new wave of long-term technology megatrends that offer investors the potential for attractive capital growth. The Palumbo Emerging Growth Portfolio is designed to provide our clients a way to take advantage of these technology megatrends through curated exposure to both emerging technologies including those specifically focused on biomedical technologies.

With the broader markets continuing to climb higher in the face of the Federal Reserve beginning what appears to be a period of sequential rate cuts, we thought it would be timely to check in with Marc Pentopoulos, CFA, Founder and CIO of Vista Point Capital, and our advisor to the biotechnology portion of the Palumbo Emerging Growth Portfolio for a market update.

Below are Marc’s views on the state of the sector and what opportunities he sees in the short and intermediate term:

The healthcare industry looks positive from a number of different metrics as we head into the end of 2024, especially the small cap area. Small cap healthcare stocks peaked in early 2021 on the back of zero percent interest rates driving market speculation and interest in healthcare driven by the COVID pandemic. However, since that time, interest in the sector has cooled considerably and many companies are still trading at big discounts to their 2021 highs. Higher interest rates, concern over the impact of the Inflation Reduction Act of pharmaceutical costs and a difficult funding environment drove many companies out of business and others to acquisition by larger players. Investor interest collapsed and many companies in the sector saw price declines of over 70%.

However, during this time, companies have cut their spending and become much more operationally efficient. In addition, the science has progressed, and these companies are now closer to commercialization than they were 3 years ago. We are truly at the edge of game changing developments in the way we develop drugs that will be able to treat diseases on a level not seen before. Many cancers that were once deadly are now treated in a way to give patients another 10-20 years of life. And many genetic diseases are on the cusp of being curable with new technologies.

With a new administration should come changes at the FTC that could ease some of the pressure against mergers and acquisition that we have seen in the Biden administration. With interest rates coming down and with government opposition to acquisitions easing, we should see another wave of acquisitions as larger companies take the opportunity to build their revenue base and add interesting new products and technologies to their pipeline. We anticipate that we will see increased M&A activity starting this fall, which should continue through next year, especially if valuations remain compressed like they currently are. With interest rates coming down, M&A activity is likely to ramp up and improve operational efficiency in the small cap area, we anticipate the sector is poised to do well in the near future.

Marc’s comments encourage us that the potential we are seeking for medical breakthroughs remains intact. We were excited to hear his hopeful expectations of our new biomedical technologies leading to improved, efficient drug discovery, more effective cancer treatments and the ability to cure genetic diseases. As advisors, it leaves us hopeful that we can uncover some of these opportunities for our clients, resulting in attractive long-term capital growth.

The Palumbo Emerging Growth Portfolio Requires a Longer-Term View

We always remind our clients that we have a long-term horizon when investing in the Palumbo Emerging Growth Portfolio. This approach is the same overall philosophy the firm has for all client portfolios. These scientific breakthroughs, especially in biomedical technology, take time to develop and commercialize, so our focus is on the long-term. As time passes, investor interest in biomedical technologies will rotate in and out of favor, but technological advances add value over time. With the help of our research advisors, our goal is to invest in these growth companies at attractive values that will help to drive attractive long-term returns in the Palumbo Emerging Growth Portfolio.

In concert with our research advisors, we are glad to entertain questions regarding the Palumbo Emerging Growth Portfolio, selective opportunities we see in biomedical technologies along with those in AI and other emerging technologies, so please feel free to reach out to us!

Have a great week!

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All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for, decisions based on such information, and it should not be relied on as such.

The views expressed in this commentary are subject to change based on the market and other conditions. These documents may contain certain statements that may be deemed forward‐looking statements. Please note that any such statements are not guarantees of any future performance, and actual results or developments may differ materially from those projected. Any projections, market outlooks, or estimates are based upon certain assumptions and should not be construed as indicative of actual events that will occur.

Past performance is no guarantee of future returns.

Different types of investments involve varying degrees of risk. Therefore, it should not be assumed that the future performance of any specific investment or investment strategy will be profitable.

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By: Adam