Investor concerns this year seem to be dominated by short-term anxieties. How will tax cuts impact markets and the economy? Will contagion from vulnerable emerging markets spill over to the developed world? Is the cycle coming to an end?
While these questions are critical in our day-to-day investment process, it is equally important to watch for long-term trends that can impact markets not only in the immediate future, but for the next 20 years. One sector where we see long-term opportunity for innovation, growth and shareholder return is healthcare. There are two key reasons why:
The first reason may not come as a surprise to many. The elderly share of the global population is on the rise. People require more healthcare as they age, which drives demand for new medicines and treatments. By 2050, 16% of the global population (and almost 30% of the developed world) will be over 65, from 9% today. Healthcare companies have identified the trend and are developing treatments for age-related illnesses such as cardiovascular disease, osteoporosis, Alzheimer’s and cancer.
The global population is not only aging, it is also getting wealthier. With increasing wealth comes increasing demand for basic healthcare in the developing world. Emerging market economies spend less than one-quarter on healthcare than developed nations do on a per capita basis.1 In the United States, the number of insured individuals continues to increase, which should also result in increased demand for healthcare.2
It is no secret that global demographics seem to support the healthcare sector. What may be less appreciated is the second point: Advances in medical research and technology are enabling the development of revolutionary treatments. For example, consider how artificial intelligence, augmented reality and 3D printing are starting to be applied:
Within medical research, oncology is one of the most dynamic areas in terms of innovation and investment. Indeed, 68 public and private M&A deals have been completed in the space since 2005, which is twice the number of deals completed in the next highest therapy.
Today, CAR-T therapy, or the process by which a patient’s own immune system is modified to attack cancer cells, is at the cutting edge of oncology. Large companies such as Celgene and Gilead have recently spent ~$20 billion dollars to acquire smaller leaders in CAR-T therapy. The U.S. Food and Drug Administration recently approved Novartis’s CAR-T therapy for childhood leukemia: 83% of patients who underwent the therapy entered remission .
Outside of oncology, gene therapy is another technology that has tremendous potential. Genome analysis is already helping to diagnose rare diseases faster and more cheaply than conventional tests.
Importantly, the costs of sequencing the human genome have fallen from around $100 million per genome to only $1,000 per genome in 2017. As the cost to sequence the genome decreases, gene therapies will become more widely used. This could unlock the potential for it to eradicate hereditary diseases, remedy the effects of bioterror attacks, and eliminate antibiotic-resistant microorganisms.
The benefits to humanity from these advancements are clear. What is harder to discern is which companies will win out as they compete to enhance and prolong life by pursuing advancements in healthcare. Remember, 90% of drugs that reach human clinical trials never make it to market.3
Therefore, we believe that an active approach to healthcare investing is the most appropriate approach.
To learn more about the opportunities to diversify your portfolio and enhance returns by investing in the healthcare sector, please speak to your J.P. Morgan investment advisor
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