The healthcare sector is dynamic.
So says Bob Deresiewicz, partner and senior vice president at Wellington Management Company. He co-manages the Renaissance Global Health Care Fund.
He offers a breakdown of the main areas of the sector:
- About half the companies operating in the space are biopharmaceutical businesses, which develop and sell protein or small-molecule drugs, for example.
- There are also medical-device businesses, which produce artificial joints and organs, as well equipment like cardiac pacemakers.
- And generic drug manufacturers sell medications that are copies of those developed by biopharmaceutical companies.
In the case of the generic manufacturers, “a big company will develop a drug and enjoy patent protection for a while, [but that] patent will lapse or wane at some point. Then, the field is ripe for generic companies to come in,” Deresiewicz says.
The healthcare services division is also crucial. It includes hospital companies, drug distributors and retail pharmacies.
“There are several pillars that underlie the interests of the [healthcare] sector,” says Deresiewicz. First, he says the current biotech revolution is helping companies look at more diseases, as well as develop more effective drugs and treatments.
For example, people are benefitting from innovative technology such as novel chemistries and biomarkers, as well as improved DNA sequencing. These tools are being used to deal with “serious, unmet medical needs…[and] diseases for which there are no reasonable treatments.”
People who suffer from these diseases may be willing to pay high fees for cures and medicines, says Deresiewicz.
Second, globalization and “rising prosperity in certain emerging markets,” is having a major impact on the healthcare sector, he adds. “As countries move into more developed states where middle classes are growing…[their populations] demand better, modern healthcare.”
Multinational companies operating in regions like China, Brazil, Russia and Turkey are currently focused on meeting these demands, says Deresiewicz. That’s because “Western medicine is [needed] and there’s ample opportunity for ongoing growth” in those countries.
Growth will also continue in Western markets because their populations are aging. As such, people in these developed countries will consume more healthcare services.
Overall, “we’re going to have more patients clamouring for the types of drugs and services [heathcare] companies produce. More of those patients will be older in the markets that already are well-penetrated at high drug pricing. We’ll also have novel and modern medicines to address [their] unmet needs.”
As the healthcare services sector expands, Deresiewicz suggests investors focus on companies that have quality management, advanced information systems and scale.
“There will be government pricing pressure across the sector as a whole and internationally,” but companies that underwrite their risks and harness their bargaining powers—which are based on the size of their patient populations—will be well-positioned.
Quality companies can be found in the U.S. and in leading emerging markets.