(Updates share prices through Friday close)

By David Randall

NEW YORK, May 22 (Reuters) – Investors are diversifying bets
in the healthcare sector, as the rush to develop treatments for
Covid-19 has driven up prices for some pharmaceutical stocks.

A record 48% of fund managers are overweight healthcare
stocks, a BofA survey showed, and the S&P 500 healthcare sector
is up nearly 34% since its March low. Hopes for a treatment have
also sparked outsize rallies in the shares of companies such as
Moderna and Inovio Pharmaceutcials, up 253% and 327% since the
start of the year, respectively, as of Friday’s close.

In recent weeks, news of potential treatments or vaccines to
fight the pandemic have occasionally fueled swings in broader
markets.

Yet some fund managers believe lasting profits may be
elusive for vaccine-makers, leading them to seek corners of the
healthcare sector that could see longer-term benefits from the
fight against coronavirus.

Large pharmaceutical companies such as Johnson &
Johnson and GlaxoSmithKline Plc have said they
plan to make any successful vaccine available at cost, though
they could reap profits later if a seasonal shot is needed
. Multiple treatments could also divide the market
between many players, investors said.

“There’s the question of ‘Does anyone really make a lot of
money on this?,” said Larry Cordisco, co-portfolio manager of
the Osterweis Fund.

Signs of progress on potential treatments could bolster the
case for a quicker economic recovery and further fuel the rally
that has boosted the S&P 500 around 30% from its late March
lows. In the next two weeks, Gilead Sciences is expected to
announce results of clinical studies of its potential
coronavirus treatment remdesivir for patients with moderate
symptoms of Covid-19. Pfizer has said it expects to release
safety data for initial human testing of experimental vaccine by
the end of May.

Cordisco is looking further afield. One of the companies he
owns is medical device maker Danaher Corp, which
manufactures a rapid Covid-19 test the FDA approved in March.
Its shares are up 3.1% since the start of the year.

“If you’re looking for where the profits might be in the
chain, it’s somebody like that who is going to benefit. They can
cash in the whole way,” Cordisco said.

Alessandro Valentini, portfolio manager at Causeway Capital
Management, said his firm is looking for value opportunities as
the healthcare sector becomes more expensive, trading now at
22.9 times trailing earnings, slightly more than the 21.9
multiple of the S&P 500 index as a whole.

He is staying away from potential vaccine producers in favor
of companies such as Takeda Pharmaceutical Co Ltd.
Japan’s largest pharmaceutical company said this month it could
start clinical trials as early as July for a COVID-19 treatment
based on antibodies from blood of recovered patients.

“This is a company that will be part of the solution and can
buy a world class business for a significant discount to what we
think the fair value is,” Valentini said. Its shares are down
nearly 6.5% for the year to date.

Mike Caldwell, a portfolio manager of the Driehaus Event
Driven Fund, said his fund is focusing on supply chains of
vaccine production rather than the drug companies themselves.

He is betting on companies such as Roche Holding and
Abbott Laboratories, which have large diagnostics
businesses that will likely be a part of any future COVID-19
treatment.

He is also bullish on smaller companies such as Luminex Corp
, which received an FDA emergency use authorization for
its COVID-19 diagnostic test. Shares are up 36% year to date.

“With so many players who have meaningful resources, it’s
hard to predict what the ultimate market share of any one
approach will be,” he said.
(Reporting by David Randall; Editing by Ira Iosebashvili and
David Gregorio)