Five reasons why healthcare may be the sector of the decade

The pandemic has thrown a spotlight on the healthcare industry. It has exposed the inadequacies of healthcare infrastructure across the globe, while also showcasing the astonishing innovation potential of medical science. There is a compelling argument that healthcare could be a significant success story in the years ahead. Here’s why:

It already had some powerful tailwinds – demographics have been on the side of the healthcare market for some years with people getting older, fatter, and needing more medicine. In the US, for example, national health spending accounts for 18% of total US GDP today, but is projected to reach $6.2 trillion by 2028.

In emerging markets, a growing middle class is demanding better healthcare provision. A study in the Lancet recently suggested that by 2040, emerging market countries would have increased healthcare spending as a percent of GDP by 24.4%. There are significant initiatives in place – including India’s “National Health Protection Mission” and China’s “Healthy China 2030 Plan” to meet the growing demand for healthcare.

Amazing things are happening - The vaccine may have hit the headlines, but Moderna’s MRNA technology has applications far beyond Covid-19. As the company says: “mRNA medicines take advantage of normal biological processes to express proteins and create a desired therapeutic effect. This enables the potential treatment of a broad spectrum of diseases, many of which cannot be addressed with current technologies.”

This is just one of hundreds of breakthrough technologies. There are huge and astonishing developments in cancer treatment, for example. Astra Zeneca recent reported promising results for its Enhertu drug on women with advanced breast cancer. Immunoncology, which helps the body’s own immune system fight the disease, is also delivering encouraging results.

New options are emerging – healthcare is no longer just about diagnosing people as sick and giving them medicine. There is an increasing recognition that getting to people earlier might save money and lives. There has been significant growth in personalised healthcare, for example, recognising that individuals respond differently to different treatments.

There is also the growth of consumer healthcare options – from fitbits to blood pressure measurement to personalised nutrition. One in 20 Google searches are now healthcare related. People care about their wellness and are doing more to stay healthy. The market is growing at around 4% per year and has higher margins than other parts of the healthcare market.

The pandemic- the frailties of healthcare infrastructure around the world. It seems likely that governments will direct money to make sure they are not left as vulnerable again. Governments often spend time trying to solve the previous crisis, as seen with the banks – and healthcare is likely to be no exception. Governments are likely to direct more time and capital in trying to solve the problems of healthcare infrastructure. In particular, companies that can help deliver healthcare more efficiently seem likely to thrive.

The sector has real diversity - Healthcare stocks fall into six categories: pharmaceuticals, biotechnology, medical equipment, sales, insurance, and facilities. While the big pharmaceutical companies may be defensive, biotechnology companies offer a higher risk and higher potential return. ‘Healthtech’ offers another fast growing option. With this in mind, the healthcare sector can meet a range of investment needs.

It also remains a fertile sector for merger and acquisition activity. Merck’s vast acquisition of Acceleron Pharma, for example, was announced in September. Big pharmaceutical companies with deep pockets continue to snap up promising biotechnology companies. This should provide support for share prices.

Healthcare is a rich and diverse sector with short- and long-term structural drivers. The pandemic has ushered in a new era for the sector and conditions are in place for it to thrive from here.