变种、疫苗、估值和波动率：欢迎来到虎年

（生命科学行业2022年展望）

Variants, Vaccines, Valuation and Volatility: Welcome to Year of the Tiger.

(Life Sciences 2022 Outlook)

1. 2021 Sector Review.

① Tools outperformed in 2021 as investors were willing to pay a premium for resiliency, growth and (of course) COVID upside.

· Core tools outperformed expectations again this year, given high-growth and resiliency to pandemic disruptions relative to other parts of healthcare, with ongoing COVID tailwinds also providing support.

· Looking closer, growth in core tools was driven by rebounds across all end markets from COVID-lows in 2020, paired with substantial growth in biopharma driven by COVID-19 vaccine and therapeutics, but also underlying market trends.

· Cyclical names (A, MTD, PKI, WAT) continue to trade at high valuations relative to more diversified players (TMO, DHR and AVTR) and overall, the Life Science Tools Index outperformed the broader market (+32.8%), beating the SPX (+24.4%) and significantly outperforming the XLV (+22.4%).

② Growth names and recent IPOs broadly underperformed during 2021.

· Smid growth names saw substantial weakness during 2021, as the market saw a rotation from growth to value, which even pressured names with solid fundamental performance (e.g. NTRA +68% YTD topline growth vs. YTD stock performance -10% vs. XLV +22.4%).

· Additionally, a number of names pulled back substantially post-IPO, due to operational missteps (e.g. ZY, TLIS), but the broader dampening on growth names also impacted IPO performance.

2. 2022 Sector Outlook.

① Difficult 2022 set up for core tools, but we expect diversified players (DHR,TMO, AVTR) to fare better than peers.

· We believe core tools has a difficultset up heading into next year due to difficult comps, high multiples, supply chain concerns and a rising tax and interest rate environment.

· Additionally, we are seeing a rotation from core tools back into other areas of healthcare (med tech, managed care, pharma, etc.).

· All in, we think the diversified players like TMO, DHR and AVTR are better positioned to manage potential macro headwinds given broad exposure to high growth and macro insulated bioprocessing markets.

② COVID vaccine and therapeutics demand remains durables, while we see potential for testing players to see transient benefits from variants.

· Given recent updates on the Omicron variant, we are increasingly confident in the magnitude and durability of vaccine tailwinds (DHR, TMO, AVTR, RGEN).

· On testing names, Omicron will likely provide tailwinds for COVID testing, although any benefit will likely be transient and discounted by investors.

· It is too early to tell how Omicron will impact testing longer-term, but given what we know about transmissibility and severity thus far, the variant could signal the transition to an endemic phase, which combined with higher vaccination rates and the scale-up of antiviral drug production, would support a dialed-back pandemic.

③ Catalyst-rich smid caps could see rebound.

· Growth names with near-term catalysts should be positioned to see a rebound in 2022.

· Specifically, we would highlight ADPT (potential milestone from Genentech on go/no-go decision for second shared product, accelerated clonoSEQ uptake on back of recently-launched IGHV enhancement, incremental revenue from T-Detect COVID given CMS pricing, as well as the T-Detect Lyme launch in 2H).

· GH (ECLIPSE readout and LUNAR-2 launch in 1H22，REVEAL CMS reimbursement starting next year, salesforce expansion driving penetration into the community setting, OUS expansion in UK and Japan) and NTRA (meaningful Signatera ramp on the back of ADLT status and the recently-expanded LCD coverage, with Prospera indication expansion further contributing to the revenue ramp).

· Names withextremely depressed valuation (e.g. AKYA and BLI) could also see upside in 2022.

④ We expect consolidation will continue in the year ahead, despite regulatory concerns.

· Companies have bolstered cash positions from pandemic tailwinds and accordingly, we believe 2022 will be another active year on the deal front.

· For our coverage, in particular, the large-cap consolidators have a healthy amount of cash on the balance sheet (DHR, TMO).

· However, as seen with ILMN and Grail, the regulatory environment is not favorable to large mergers, and may continue to be unfavorable given positioning from the Biden Administration.

⑤ CROs and CDMOS set up well into 2022 given valuation gap.

· Despite some near-term COVID roll off in 2022, a favorable market backdrop in addition to continued consolidation among the large players support strong LT growth, as evidenced by IQV’s latest analyst day calling for +10-12% LT growth (including +200 bps of M&A).

——唐加文