Host: Well, with midterm elections looming and borrowing costs at near multi-year highs, investors are shying away from Big Pharma as well as debt-heavy biotech stocks, but a powerful rotation is gaining momentum inside healthcare. Now oncology diagnostics are in the spotlight, and they are powered by AI pattern recognition as well as liquid biopsies replacing invasive tissue samples. Now early cancer detection platforms are also rapidly becoming the sector's best-performing assets. Meanwhile, as the one-hot weight loss drug trade loses steam, fund managers are targeting 50% upside in colorectal screening as well as automated labs. Joining us live here to break down her top healthcare picks and the booming cancer testing market is Elena Meng, portfolio manager and research analyst for the Gelli Healthcare and Wellness Fund. Elena, great to have you here. Thank you so much for joining me.
Elena Meng: Thank you for having me.
Host: Well, when we take a look at the healthcare sector within the S&P 500, that sector is still outperforming the index itself, but I understand that you're focusing on oncology diagnostics. So tell us why.
Elena Meng: Sure, I think, you know, for the past decades, right, we have been trying to allocate a lot of resources to finding cancer drugs, trying to treat the patients, but what we're seeing right now, I think innovation is taking place. We're entering into a very interesting time where, you know, instead of finding a cure, maybe we can help the patients detect cancer much earlier, before even the symptoms appear, right? So, I think there are multiple cancer diagnostic platforms. They've been existing, they've been around for years, but it's just like, you know, because of the AI acceleration, we're finally seeing them taking off, right? So, I think from zero to one is always the hardest, but we're halfway through, right, with the regulatory approval, with the clinical validation, and now with finally the insurance reimbursements all taking place. So that's the reason why I think many of these cancer diagnostic platforms have been performing really well this year.
Host: And Elena, we all know that when it comes to detection, early detection is key. And for viewers out there who are wondering what's working and what's not, what would you say to them?
Elena Meng: I would say, um, for certain cancer types, so the way the technology works is basically, um, they do like a very simple blood draw and then they analyze that, right? Um, basically there are 50 different kinds of types of cancers, and for certain types, because of the ctDNA that's shedding in your blood, for some certain types of cancers, it does show a signal that's very strong. So it's very helpful, especially for colorectal cancer, right, and for breast cancer. So for some other types of cancers, it may not be that kind of obvious. So, like, you see, overall the performance is not as high as we would hope for, but I think, you know, this is kind of the trend. We are shifting from the traditional, like, a tissue biopsy. The trend is going to the liquid biopsy. So although right now the performance is not there yet, I do believe, you know, in the long term we're gonna get there.
Host: So now that you've given us a great background when it comes to the science of this early detection, give us your perspective on the valuation side on Wall Street.
Elena Meng: Yeah, so, um, I think a lot of these diagnostic companies are really trading at pretty high sales multiples, but the way we think about it, um, you know, we don't value these companies like, you know, LabCorp or Quest, right, like these very traditional types of labs that have very sustainable, um, free cash flow and earnings. I think these are pretty much biotech companies that, um, we think, you know, as long as the top line, the companies can keep growing, the ASP can sustain there, and um, there is a long way for the insurance company to, like, for the company to get more insurance coverage, and then I think, you know, the valuation is still well adjusted. For example, like for Guardant Health, right, they're gonna reach, like, break-even on EBITDA, like, next year, and for BillionToOne as well. So I think a lot of these valuations, for now, you may look at it as, oh, it might be a little, um, kind of, um, hard to justify if you only look at the 2026 and 2027 numbers, but if you look at the longer picture, as I mentioned, right, this trend doesn't happen overnight. It's a trend that we're bullish on over the next couple of years. So if you look at the 2030 numbers, I think the valuations are still very cheap.
Host: And while I have you here, since you mentioned artificial intelligence, I do want to get your perspective and also ask you why you think Thermo Fisher is a winner here.
Elena Meng: Absolutely. So, I think Thermo Fisher is one of the, you know, most underappreciated AI names from two perspectives, right? So, first of all, um, as pharma is basically, like, you know, pouring more and more energy and time and allocation into discovering the next generation of drugs, right, you don't have to literally bet on which drug is going to become the next blockbuster, right? Simply owning Thermo Fisher, the supplier to all of these pharmaceutical companies, right? And on the other hand, Thermo itself is doing all the AI integration itself. They have launched the, um, the partnership with Nvidia, trying to, like, you know, basically accelerate their autonomous laboratory services. They also have the partnership deal with OpenAI, trying to accelerate the, um, clinical trials. So they are benefiting from two hands. Um, that's why I think this is clearly a winner because of the AI trend.
Host: And Elena, finally, before I let you go, I do want to get your perspective on what we're seeing when it comes to GLP-1s, in particular fatigue. I do feel as though I could probably rattle off or sing some of these songs when it comes to the popularized GLP-1s out there, but I understand there has been a rotation to labs. Is that correct?
Elena Meng: Yeah, I think, uh, GLP-1s are still fundamentally very important. It's just pretty much a figured-out market in terms of the TAM, the pricing, the market share, right, like people are fighting for that. Whereas, like, in diagnostics, it's a completely brand-new kind of market. It's a new category that people are still, like, in the early innings and trying to figure out the TAM. And, um, you know, like now we're talking about cancers, but it could be very much, you know, going into, like, five different kinds of diseases, right? So I think that's what makes the cancer diagnostic companies so compelling.
Host: Well, thank you so much for your time. I appreciate you joining us live here at the New York Stock Exchange, and thank you so much for all of your insights.
Elena Meng: Thank you for having me. My pleasure.
