Axa framlington health fund presentation final

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Gemma Game, Fund Manager

AXA Framlington Health Fund

May 2012

The team and the Fund Manager

Why healthcare?

Themes

Fund structure

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Agenda


The Fund Managers Regional / sector specialists

Linden ThomsonSecondary Fund Manager 7 years’ experience in the Healthcare sector Previously with Hedge Fund Clear River Capital, responsible for fundamental

stock research across the global pharmaceutical and biotechnology sectors. Prior to that with Goldman Sachs based in the healthcare research team with specific focus on the biotechnology sector

BSc in Medical Microbiology from Edinburgh University and is a CFA Charterholder

Gemma GameLead Fund Manager 10 years’ experience managing Global Healthcare Equities Joined AXA Framlington in 2007 and started managing the

AXA WF Healthcare Fund in Q1 2008 Previously Fund Manager on the Global Equities Team at

BlackRock, responsible for investments in the Healthcare sector

BSc in Natural Sciences (Pharmacology) from Cambridge University and is a CFA Charterholder

Chisako HardieJapan20 years

Jeremy GleesonTechnology14 years

Jamie HooperUK Growth14 years

Stephen KellyUS20 years

Julian ThompsonEmerging Markets17 years

Khiem LeEurope Healthcare13 years

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Fund performance

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Since inception

Chart source: Lipper. Basis: bid to bid, net income, net of fees to 31/03/2012 in GBP. Indices on a total return (TR) and Capital change (CC), where stated, in GBP. Table source: Lipper & FactSet. Basis: total return, UK tax net, bid to bid, net of fees to 31/03/2012 in GBP. Quartiles based on total return, UK tax net, bid to bid, net of fees, Peer group: Lipper Global Pharma & Health.

Net performance (%) YTD 1Y 3Y (Ann) 5 Y (Ann)

AXA Framlington Health 6.96 8.96 16.36 7.92

MSCI World Healthcare 4.92 13.60 13.48 7.95

Excess over comparative benchmark +2.04 -4.64 +2.88 -0.03

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Apr-87 Apr-89 Apr-91 Apr-93 Apr-95 Apr-97 Apr-99 Apr-01 Apr-03 Apr-05 Apr-07 Apr-09 Apr-11

AXA Framlington Health Fund S&P 500 Healthcare (TR) NASDAQ Biotech (CC) MSCI Healthcare (TR) Russell 2000 Healthcare (TR)

Investment style

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Unconstrained investment approach– Benchmark-aware rather than

benchmark-driven

Invest across market cap spectrum

GARP approach – high quality growth companies

Stock selection driven with thematic overlay

Biotechnology Medicaldevices

Pharmaceuticals and

drug delivery

Healthcareservices

Concept: Why healthcare?

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Top left chart – Source: United Nations Dept of Economic and Social Affairs: “Population Aging and Development 2009”.Top right chart – Source: Wild et al Diabetes Care 27: 1047-1053, 2004.Bottom - Right-hand charts: WHO “World Health Statistics 2011”.

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Healthcare expenditure as % GDP for OECD and BRIC* countries

* Brazil, Russia, India and China

Valuation: P/E ratio of the MSCI World Healthcare Index

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Source: Bloomberg as at 31/03/2012.

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Healthcare universe

Qualitative

Portfolio <100 stocks

Sell discipline

Re-evaluation offundamentals and valuations

Portfolioconstruction

Fundamental researchindustryanalysis +

company analysis

Quantitative

Current themes

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Invest in innovationInvest in cost savings and efficiency

Politics: The current US Healthcare System

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Source: www.house.gov; Patient Protection & Affordable Care Act, P.L. 111-148; Health Care & Education Reconciliation Act, P.L. 111-152.Prepared by: Joint Economic committee, Republican Staff Congressman Kevin Brady, Senior House Republican Senator Sam Brownback, Ranking Member.

Theme 1: Cost savings and efficiency

Why now?– Continuous rise in healthcare spend as % GDP– Healthcare delivery systems across the world are

costly, inefficient and lack transparency

How big is the opportunity?– The National Health Care Anti-Fraud Association

(NHCAA) estimates conservatively that 3% of all health care spending – or $74 billion of the $2.47 trillion spent in 2009 – is lost to healthcare fraud

– Hence eliminating fraud, waste and abuse in the healthcare system could yield significant savings

Beneficiaries include:– Pharmacy Benefit Managers: Medco, Express

Scripts, CVS Caremark– Healthcare IT companies: Cerner, HMS Holdings – Dialysis companies: Fresenius, DaVita– Generics companies: Teva, Mylan, Hikma, Nichi-

Iko

Chart 2: National Health expenditure before and after 2011-2019

Chart 1 – Source: CMS National Health Expenditure (NHE), historical and projected, Goldman Sachs Research estimates, November 2010.Chart 2 – Source: Centers for Medicare & Medicaid Services, Office of the Actuary. he health spending projections are based on the National Health Expenditures released in January 2011. The projections include impacts of the Affordable Care Act.

Chart 1: National health care spending as % of GDP 1960-2019E

National expenditure $bn

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CAGR 6.5% CAGR 6.8%

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Cost savings & efficiency: Fund share

Cost savings & efficiency relative to MSCI World Healthcare Index

Source: AXA IM as at 05/04/2012.

Generics

Pharmacy Benefit Managers (PBMs)

Dialysis

Healthcare IT

CRO / Outsourcing

Generics 7% PBM

6%

Dialysis 5%

Healthcare IT

3%

CRO/ Outsourcing

1%

2.68%

3.55%

3.54%

0.65%

4.43%

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Healthcare IT

Generics

Dialysis

CRO/ Outsourcing

PBM


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Generic utilisation will continue to rise, to near 80% by 2012

Source: *Bloomberg as at 31/03/2012. **AXA IM as at 31/03/2012. Bottom-left: 2011, Credit Suisse estimates 23/03/2011. Bottom-right: Bloomberg as at 30/03/2012. Top-right: Sanford Bernstein, screen print for illustration purposes only.

Express Scripts Pharmacy benefit manager – negotiates drug prices

on behalf of managed care organisations, government programs and large companies

Drives efficiency by increasing penetration ofgenerics, offering mail order prescriptions anddisease management programs

Market cap*: $26.6bn 2013 P/E ratio*: 12.9x 2011–2015 EPS CAGR*: 24% Weight in portfolio**: 4.06%

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Theme 2: Innovation

BioPharmaceuticals

Significant unmet medical need in key therapeutic areas (for example: Alzheimer’s Disease, cancer, pain, stroke, diabetes and obesity)

Rare genetic diseases create niche markets with attractive pricing for life saving therapies (for example: Gaucher’s Disease, Fabry Disease)

Medical technology

Move towards less invasive surgical procedures improves patient outcomes and reduces cost of care (for example: Minimally Invasive Surgery, robotic surgery)

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Theme 2: Innovation

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Innovation: Fund share

Innovation: Relative to MSCI World Healthcare Index


7.97%

-43.75%

0.53%

0.51%

1.68%

-55% -45% -35% -25% -15% -5% 5% 15%

Biotech

Pharmaceuticals

Speciality Pharma

Medical Instruments

Orthopaedics

Biotechnology

Medical Instruments

Orthopaedics

Specialty Pharmaceuticals

Pharmaceuticals

Biotech 17%

Pharmaceuticals12%

Medical Instruments

8%

Speciality Pharma

7%

Orthopaedics4%

Theme 2: Innovation

Alexion Pharmaceuticals Biotechnology company focussed on treatment for

ultra rare diseases Largest product Soliris treats PNH (paroxysmal

nocturnal hemoglobinuria, a rare blood disorder affecting 8,000–10,000 patients in the US)

Market cap*: $17.2bn 2013 P/E ratio*: 37.2x 2011–2015 EPS CAGR*: 34% Weight in portfolio**: 2.59%

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Source: *Bloomberg as at 31/03/2012. **AXA IM as at 31/03/2012. Top-right: Soliris mechanism of action, February 2010. Bottom chart: Bloomberg as at 30/03/2012.

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Active positions

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Overweight Underweight

Source: FactSet. Holdings data as at 31/03/2012. Comparative benchmark: MSCI World Healthcare.

NamePortfolio

weight

Comparativebenchmark

weight Difference NamePortfolio

weight

Comparativebenchmark

weight Difference

HMS Holdings Corp. 2.22 -- 2.2 Johnson & Johnson -- 7.21 -7.2

Alexion Pharmaceuticals Inc. 2.58 0.69 1.9 Pfizer Inc. 2.72 6.97 -4.2

BioMarin Pharmaceutical Inc. 1.84 -- 1.8 Sanofi S.A. -- 3.53 -3.5

CVS Caremark Corp. 1.57 -- 1.6 Novartis AG 1.64 5.16 -3.5

Mylan Inc. 1.94 0.40 1.5 Roche Holding AG 1.90 4.89 -3.0

DaVita Inc. 1.87 0.34 1.5 Merck & Co Inc 1.93 4.68 -2.8

Express Scripts Holding Co 2.52 1.00 1.5 GlaxoSmithKline PLC 1.78 4.51 -2.7

Hologic Inc. 1.71 0.23 1.5 Novo Nordisk A/S -- 2.35 -2.4

McKesson Corp. 2.33 0.86 1.5 Bayer AG -- 2.32 -2.3

Cardinal Health Inc. 1.98 0.60 1.4 AstraZeneca PLC -- 2.31 -2.3

TOTAL 20.56 4.11 16.4 TOTAL 9.98 43.94 -34.0


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Top ten holdings (%)

Sub-sector split


UnitedHealth Group Inc. 3.20 HMS Holdings Corp. 2.41

Express Scripts Inc. 2.79 McKesson Corp. 2.22

Celgene Corp. 2.75 Alexion Pharmaceuticals Inc. 2.19

Pfizer Inc. 2.64 Covidien PLC 2.15

Thermo Fisher Scientific Inc. 2.44 Allergan Inc. 2.09

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Cash

Enabling Technology/Tools

Pharma

Speciality Pharma

Biotech Product

Devices

Healthcare Services

AXA Framlington Health MSCI World Healthcare

Healthcare Services

31%

Devices22%

Biotech Product

17%

Pharma12%

Specialty Pharma

12%

Enabling Technology/

Tools4%

Cash1%

Important notice

AXA Framlington is an expertise of AXA Investment Managers UK Limited. Issued by AXA Investment Managers UK Limited. Registered in England and Wales No: 01431068. Registered Office: 7 Newgate Street, London, EC1A 7NX. Authorised and regulated by the Financial Services Authority. A member of Investment Management Association.

The price of units and the income from them can go down as well as up and investors may not get back the amount originally invested. An initial charge is usually made when you purchase units. Your investment should be for the medium to long term i.e. typically 5–10 years. Past performance is not a guide to future performance. Changes in exchange rates will affect the value of trust investments overseas.

This advertisement is for professional advisers only and must not be relied upon by retail clients. Circulation must be restricted accordingly.

This document does not constitute an offer to sell or buy any units in the Fund. Information relating to investments is based on research and analysis undertaken or procured by AXA Investment Managers UK Limited for its own purposes and may have been made available to other members of the AXA Group of Companies which, in turn, may have acted on it. Whilst every care is taken over these comments, no responsibility is accepted for errors and omissions that may be contained therein. It is therefore not to be taken as a recommendation to enter into any investment transactions.

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Appendix

Politics: Impact of Health Care Reform

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Health Care Reform Legislation Element Effective date

1. Medicaid base rebate increase from 15.1% to 23.1% January 1, 2010

2. Change in calculation of Average Manufacturer’s Price (AMP)– “Market basket” price on which Medicaid rebate is calculated– The “market basket” now excludes clinics and hospitals

October 1, 2010

3. Application of Medicaid rebates to Managed Care Organisations March 23, 2010

4. Expansion of Medicaid coverage eligibility from 100% FPL* to 133% January 1, 2014

5. Part D “donut hole” mandatory discount January 1, 2011

6. Public Health Service (340B) program eligibility expansion January 1, 2010

7. Prescription Drug Manufacturers Annual Fee January 1, 2011

Varies by company and exposure therein

* FPL = Federal Poverty Line.

M&A activity: Consolidation continues

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Source: Bloomberg as at 31/12/2012

$154bn

$105bn $118bn $106bn

$215bn$190bn

$318bn$289bn

$221bn $208bn $216bn $217bn

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Axa framlington health fund presentation final