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UBP in the press 12.12.2018

Innovation creates opportunities in healthcare

Innovation creates opportunities in healthcare

Bilan (12.12.2018) - The secular trends in healthcare – ageing populations, emerging market demand, and expanding basic health insurance – remain well entrenched. However, investors should shift their focus towards differentiated innovators in the healthcare space via mid-sized biotech and medical technology (like Swiss companies Lonza and Galapagos, for example), and healthcare-focused IT companies (such as Teleadoc).


The global healthcare market continues to expand rapidly, driven by ageing populations, emerging market demand and expanding basic health insurance, which will continue to drive demand for best-in-class and highly efficient treatment options: worldwide healthcare spending is projected to increase at an annual rate of 4.1% in 2017–2021, up from just 1.3% in 2012–2016, and combined healthcare spending in the world’s major regions is expected to reach USD 8.7 trillion by 2020, up from USD 7 trillion in 2015.

Industry reports find that, in aggregate, average price increases have contributed to more than 60% of the over 20% growth in US sales of the 45 main pharmaceutical products over the past three years. We expect the benefits of these price rises to continue to wane even as the growth in demand for those products slows further. Partially driving this is a commitment on the part of many pharmaceutical companies not to increase drug prices through 2018 in response to US political pressure.

Without these price increases driving growth, investors need to shift their focus to innovation as their key source of return. In particular, therapeutic and technological innovation, with the potential to disrupt the existing USD 1 trillion annual biopharmaceutical market, is a key opportunity: there has been a notable increase in the number of approvals for new drugs and R&D budgets focused on areas of unmet need are growing. We have identified six growth areas in the current innovation cycle: immuno-oncology, gene-therapy, rare diseases, obesity, neurological diseases, and healthcare IT.

For investors, simply focusing on the world’s largest pharmaceutical companies to participate in these growth trends is no longer a viable strategy. Bernstein Research highlights that almost 50% of blockbuster drugs – those with peak sales exceeding USD 1 billion – now emerge from smaller and mid-sized biotech and medtech companies, which in turn need investors in order to pivot their focus.

Beyond this, in light of the high level of inefficiency in the global healthcare market, we see an opportunity in healthcare IT. Tech consultancy Gartner estimates that healthcare providers in the US will have spent approximately USD 42 billion on IT services in 2017, or just over 1% of domestic US healthcare expenditure. If the average spend on IT services across healthcare companies were to reach 3.3% (comparable to non-healthcare companies in corporate America), healthcare IT providers could see an incremental revenue opportunity of over USD 70 billion.

Though the healthcare sector should retain several of the secular growth drivers seen in previous decades, a shift in focus from safe, dividend-paying names to the interplay of multiple, fast-changing factors is needed to continue to participate in ongoing innovation and efficiency in the provision of healthcare.

Investment expertise

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Robin Boldt
Global Healthcare Equity Analyst

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