Betting on Healthcare’s Future Hits - and Misses

Key Points

Fast followers will harness obesity innovation

The two current giants of the obesity therapeutics world are attracting investor interest from beyond the healthcare market. But Vince Aita’s focus is different.

The founder and Chief Investment Officer of healthcare-focused hedge fund Cutter Capital Management is less intrigued by Novo Nordisk and Eli Lilly than by their ‘fast followers’ in the market.

Aita sees it as unlikely that the duopoly can retain their market exclusivity for long: “If there’s one thing that pharma knows how to do above all else, it’s how to be copycats and innovate upon proven innovation,” he says.

“It’s all about those second generation players and what’s been priced into them – that’s a much more fascinating evolution of this market.”

“If there’s one thing that pharma knows how to do above all else, it’s being copycats and innovating upon proven innovation.”

Vince Aita, Founder and Chief Investment Officer, Cutter Capital

M&A firepower is at the ready

Aita is optimistic about the prospects for M&A in the therapeutics sector. He points out this is a perennial need, as larger pharma companies must seek innovation externally, given the low odds of success for their own novel products. That driver is enhanced by the assets currently at companies’ disposal. Aita cites the $150bn in total M&A volumes in the sector last year – around half of the EBITDA generated by the top 17 pharma companies.

“There’s so much firepower on the sidelines that it’s almost an inevitability that we will see a continued pace, if not an acceleration, of M&A,” he adds. “It’s almost as inevitable as the search for innovation itself.”

He is also awaiting the emergence of the “tremendous sized queue” of private companies seeking to launch IPOs: “I’m more interested in what that means for the health of the market than individual excitement over any one of those players.”

“There’s so much firepower on the sidelines that it’s almost an inevitability that we will see a continued pace, if not an acceleration, of M&A.”

Vince Aita, Founder and Chief Investment Officer, Cutter Capital

IRA price impact may be overstated

The potential for price caps under the Inflation Reduction Act is making generalist investors wary. While understanding that perspective, Aita believes the IRA’s impact may be overplayed.

He suggests that the Act is focused on cutting gross prices, rather than the net prices paid in practice, which are often a fraction of the listed price.

“I’m hopeful as a healthcare investor that IRA turns out to be more bark than bite,” he concludes, “but the bark is loud.”

“I’m hopeful as a healthcare investor that IRA turns out to be more bark than bite – but the bark is loud.”

Vince Aita, Founder and Chief Investment Officer, Cutter Capital

Opportunity through success – and failure

Aita believes the healthcare sector lends itself to Cutter Capital’s market-neutral approach. He points to the forward visibility provided by the drug development process and companies’ pre-marketing efforts.

“We try to formulate a differentiated view around the probabilities of success or failure of innovation in the space,” Aita says. “You have opportunities on the upside of innovation, but you also have opportunities on accessing the inevitable failures in the process.”

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Featured Guest:

Vince Aita
Founder and Chief Investment Officer, Cutter Capital

Vince Aita is currently the Founder & Chief Investment Officer at Cutter Capital Management LP since 2022. Prior to this, he worked as a Director at VioQuest Pharmaceuticals, Inc. from 2003 to 2007, a Partner at Kilkenny Capital Management LLC from 2004 to 2007, an Analyst at HealthCor Management LP, and a Portfolio Manager at Surveyor Capital Ltd. from 2014 to 2021. He also worked as a Senior Analyst at Critical Mass Partners LLC. Dr. Aita holds a doctorate degree from The Trustees of Columbia University in The City of New York, which he received in 1999, and an undergraduate degree from State University of New York at Binghamton, which he received in 1995.