From immunology to artificial intelligence: revolutionizing latent … – Military Medical Research

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From immunology to artificial intelligence: revolutionizing latent ... - Military Medical Research

Investing in healthcare where are the opportunities? – Hargreaves Lansdown

Key takeaways

The healthcare sector covers the huge range of activities needed to deliver medical care globally. Things like diagnostic tools and the wide selection of pharmaceuticals and medical devices used to treat patients.

Then there are research organisations and insurers. This universe also includes privately-run care facilities, as well as medical distributors and pharmacies.

Past performance isnt a guide to the future. Source: Refinitiv Eikon, 26 November 2023.

The pandemic has been hugely disruptive for the healthcare sector. It caused significant delays in clinical trials pipelines and an unprecedented backlog in patient care. Made even worse by difficulties in the supply chain.

So maybe its no surprise that the sector underperformed at the peak of the pandemic. But it also let certain players demonstrate excellence in science innovation. They led the world's response to the crisis through the development of new treatments, and most importantly the rollout of vaccines in record time.

In 2022 this let the sector keep generating positive returns, while the wider market retreated as the global economy saw high inflation and rising interest rates.

More recently though, those companies that saw a boost from tackling COVID-19, have struggled to replace the revenue from falling sales of these same products. That's seen a lot of the initial outperformance reverse in 2023.

One of the biggest stories coming from the healthcare industry is the boom in next-generation medicines for combating obesity and diabetes. These have the potential to become the biggest category of pharmaceuticals in medical history.

For now, this space is dominated by a handful of trailblazers, but theres a swarm of competitors waiting in the wings. This reflects the growing burden of chronic diseases. Tackling these conditions makes commercial sense and potentially creates long-term revenue streams.

We also see an opportunity in the evolution of new treatment mechanisms that can help or potentially cure serious diseases. Despite huge advances in the standard of care, cancer is still responsible for nearly one in six deaths worldwide and is by far still the busiest area for pharmaceutical research.

Immunotherapy, where the body's own immune system is honed to fight cancerous cells has been a key driver of improved survival rates. But there's room to improve its efficacy and increase the number of people and cancers it can be used on.

Gene therapy and stem cell treatments are other breakthroughs keeping the white coats busy, and they could also have use cases in other disease areas.

But it's not all about new products.

Pursuing approvals in new territories, patient populations, and conditions for medicines that already exist in the market makes perfect sense. This is a concept thats become known as a pipeline in a product.

Information and communication technology could also have a transformational effect on healthcare delivery.

The adoption of telemedicine was accelerated by the need for social distancing during the pandemic. It's now relatively common to have a consultation by video call, and we expect this will stay integral to health services going forward.

Healthcare hasn't escaped the hype around artificial intelligence either. There are opportunities in drug discovery, diagnostics and the delivery of patient care, but this is still early days.

Drug development is lengthy and expensive, with a low success rate. Companies that focus on these need to spend a lot of cash, with no guarantee of a return.

And it's important to keep refilling the hopper as eventually the exclusivity you get for taking the initial risk lapses. This paves the way for generic competitors to enter the market. And there's always the chance competitors will develop more effective treatments.

In the near term, pressure on government finances could keep a lid on the level of expenditure committed to the healthcare sector.

The sector is dependent on the availability of highly-skilled doctors, nurses and research scientists. This can hamper the development and delivery of products and services as well as push up costs.

Healthcare is highly regulated and a crucial political battleground. There's growing pressure to bring down prices. Consolidation in the industry is attracting the eye of the competition authorities. And there arent guarantees that certain medicines will be reimbursed by state or private health insurers.

Safety of clinical trials and marketed medicines is another risk to watch. It can take years after a product launch for side effects to become apparent, and this leaves the sector open to legal claims which can be expensive.

While COVID-19 seems to be well managed for now, we can't rule out the emergence of aggressive or vaccine-resistant strains, which could bring huge disruption to the sector.

The healthcare sector has an impressive long-term growth record. A number of drivers are likely to prolong this trend, not least being population growth and increasing life expectancy.

Meanwhile, there's a need to improve patient access and bridge the gap in healthcare coverage between developed and developing nations.

It's also a sector that has significant barriers to entry, which we see as a key attraction for investors.

In recent years, many of the major breakthroughs in medicine have been made by smaller biotech companies. The winners among them have proved very rewarding for investors. But the challenging economic environment has seen the falling appetites to fund these riskier businesses.

We favour companies with good cash flows and strong balance sheets. This lets them build more diverse development pipelines. And also create the infrastructure needed to commercialise their science, meaning they get more of the profits.

It also allows them to take advantage of the funding gap for smaller industry participants, by cherry-picking companies and assets in spaces they think are attractive.

It's certainly an exciting space to be in, but also a complex one. Its important to make sure you understand what youre investing in before diving in and remember, there are no guarantees.

Investments and any income from them can fall as well as rise in value, so you could get back less than you invest. This isnt personal advice if youre not sure whats right for you, seek advice.

To make sure you dont miss out on our latest share sector reviews, sign up to our Share Insight email. Well send you our latest share research and articles every week, direct to your inbox.

This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication. Non-independent research is not subject to FCA rules prohibiting dealing ahead of research, however HL has put controls in place (including dealing restrictions, physical and information barriers) to manage potential conflicts of interest presented by such dealing. Please see our full non-independent research disclosure for more information.

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Investing in healthcare where are the opportunities? - Hargreaves Lansdown