Published Date: August 7, 2025
Author: HANetf
Market in review
The Health Care sector lagged the broader equity market rally in Q2 2025, continuing a multi-quarter trend as investors favored secular growth in Technology and AI. Despite this bias, fundamentals remained constructive in key Health Care segments, notably commercial-stage Biotech and innovative MedTech. Sentiment across the sector was dampened by U.S. budget uncertainty, reimbursement policy volatility, and heightened political scrutiny tied to the 2025 election cycle. These pressures were most acute in Managed Care and Life Sciences Tools, where demand visibility remains limited.
Biotechnology outperformed within the sector, as positive data catalysts, renewed M&A speculation, and a preference for companies with near-term revenue potential drove investor interest. Meanwhile, the Managed Care and CRO spaces faced headwinds from utilization trends and cautious R&D spending. Markets remained selective, rewarding innovation and execution over broad beta exposure.
Quarter performance – contributors and detractors
Biotechnology
Ascendis Pharma (ASND) was the top-performing stock in the portfolio during the quarter, contributing 127 basis points to relative returns. The stock rebounded sharply as momentum behind the Yorvipath launch exceeded expectations and investor confidence grew around near-term profitability. We believe Ascendis is well positioned to beat Street numbers over the next several years. Pipeline catalysts remain on the horizon and should continue to support the investment case through the back half of the year.
MoonLake Immunotherapeutics (MLTX) also delivered strong performance, rallying on reports that Merck had made a non-binding M&A approach. The stock retained most of its gains as investors began positioning for Phase 3 hidradenitis suppurativa data due in September. Legend Biotech (LEGN) rallied following positive Carvykti follow-up data presented at ASCO, reinforcing its lead in multiple myeloma.
Additional contributors included Soleno Therapeutics (SLNO), which advanced on strength in patient onboarding metrics for DCCR in Prader-Willi Syndrome, and Rhythm Pharmaceuticals (RYTM), which posted strong results after its pivotal setmelanotide data in hypothalamic obesity exceeded buyside expectations.
On the downside, Rocket Pharmaceuticals (RCKT) detracted after a patient death in its pivotal Danon Disease trial significantly impaired sentiment and created regulatory uncertainty. The position was exited during the quarter.
Health Care Equipment
DexCom (DXCM) delivered strong performance following a first-quarter earnings beat, upward revenue guidance revision, and announcement of a $750M share repurchase. The stock also benefited from continued CGM adoption tailwinds and supportive policy momentum around diabetes wearables. In contrast, Lantheus Holdings (LNTH) detracted after disappointing Pylarify sales and mixed forward guidance clouded investor confidence in the growth trajectory. Glaukos (GKOS) traded down early in the quarter due to weak iDose commentary and softness in its iStent franchise, though sentiment began to stabilize toward quarter-end.
Health Care Providers and Services
UnitedHealth Group (UNH) was the largest single detractor. The company reported a sharp miss and lowered its outlook early in the quarter, citing elevated Medicare Advantage utilization. Subsequent developments—including the withdrawal of full-year guidance and a leadership change—added to investor concern. Ongoing DOJ scrutiny and broader uncertainty around Medicare Advantage reimbursement models continue to pressure sentiment across the space.
Life Sciences Tools & Services
ICON Plc (ICLR) declined along with the broader CRO complex amid cautious biopharma R&D budgets and delayed sponsor spending. The company lowered full-year guidance following program cancellations from large pharma clients. While longer-term fundamentals remain intact, near-term performance will likely hinge on a recovery in biotech funding and development activity.
Pharmaceuticals
Verona Pharma (VRNA) was a strong contributor, driven by better-than-expected launch metrics for Ohtuvayre, its inhaled PDE3/4 inhibitor for COPD. Management raised guidance and sell-side surveys continued to reflect potential upside to consensus sales estimates. The name gained further traction late in the quarter as investors speculated on its attractiveness as a takeout candidate.
Source: Westfield Capital Management as of 30.06.2025. Past performance is not indicative of future performance and when you invest in ETFs your capital is at risk.
Buys and sells
During the quarter, we purchased Verona Pharmaceuticals, a commercial-stage biopharma company focused on lung disease with strong early launch data driven by expanding uptake, strong compliance and favourable pricing/reimbursement support. We have been following the company for some time and have taken advantage of a pullback to initiate a position.
We sold our position in biopharma company Rocket Pharmaceuticals, after a patient death in its pivotal Danon Disease trial significantly impaired sentiment and created regulatory uncertainty.
Industry overweights and underweights
Entering 2025, the Biotechnology industry represented the largest overweight relative to the index and it remains a significant overweight as of 6/30/2025. Approximately 45% of the portfolio remains allocated to biotechnology, with an emphasis on commercial or near-commercial names. Following a period of over-capitalisation and investor euphoria that peaked in February 2021, we have seen a precipitous decline in valuations, all while many high-quality companies have made significant progress in the clinic and have dramatically improved intrinsic value. We also believe an unprecedented wave of merger activity could be on the horizon.
The Pharmaceuticals industry represented the portfolio’s largest underweight as of year-end and continues to be the largest underweight as of 6/30/2025. We continue to believe that the industry includes many interesting opportunities, and the industry represents a large absolute weight in the portfolio, however we remain underweight given our focus on risk-adjusted opportunities within the industry.
Macro Outlook
We remain constructive on innovation-led areas of Health Care, particularly commercial-stage Biotech, rare disease therapeutics, and MedTech companies with strong clinical differentiation. The obesity drug class continues to dominate headlines, but we believe adjacent opportunities in comorbidity management and targeted respiratory indications are gaining investor attention.
Policy-sensitive segments such as Managed Care and CROs are likely to remain volatile, but we are watching for signs of stabilization in reimbursement and R&D activity. The portfolio remains oriented toward companies with near-term catalysts, compelling product cycles, and M&A potential. We are closely monitoring Medicare Advantage developments, obesity pipeline progress, and funding dynamics that could influence activity in tools and services as we move into the second half of the year.
Source: Westfield Capital Management. Additional sources available upon request.
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