In recent years, healthcare has been a very productive sector for investors, providing not only yield, but also growth, all at a fair price. The healthcare sector presents a lot of opportunities for investors which need to be extensively analyzed to deliver long-term, sustainable returns.
Healthcare providers, medical device manufacturers, and pharmaceutical groups are benefiting from big trends that can fuel returns for investors who have the skill and experience to decipher the complex forces that shape the sector.
Three Big Trends
In healthcare sector, there are three big forces today that are stimulating change. These include innovation, policy, and pricing structures. However, these dynamics often clash, complicating the investment outlook for a company or product. Regardless of these challenges, there are ways to make educated judgements across the industry that can lead investors to solid sources of investment returns and profitability.
Avoiding a common fallacy is the first step. Don’t make predictions regarding drug trials. No one can reliably forecast drug-test results, not even the world’s best scientists. So, there is no reason why investors should gamble. That’s why it is recommended that you have a clear idea regarding how pricing, innovation, and policy dynamics could affect the growth rate and profitability of a company.
For decades, scientific innovation has supported healthcare advances. However, in many different ways, the technological revolution and innovation in this industry is still in its infancy. Anyone interested in investing in this sector needs to look beyond biotechnology or cutting-edge equipment in order to understand how innovation will reshape the healthcare industry. For instance, while the utilization of big data is still quite limited in the development of the pharmaceutical sector, given time, it has the potential to become an important tool in improving the efficiency of drug trials.
New technological developments will impact different areas. Robotics have already been proven to be useful, especially in changing surgical procedures. Treatments for cardiovascular disorders and Alzheimer’s disease will help fight the economic and physical costs of demographic change. The development of solutions to old issues from a mere cough to cancer is just a matter of time.
While technological innovations and revolutions have their advantages, they don’t always make economic sense. If you want to measure the earning potential of a company, you will need to understand how pricing points are determined for a new service or product.
Pricing and innovation have an interesting relationship in the healthcare sector. In technology, everyone knows that innovation is the key that pushes down costs and drives performance improvements exponentially. In healthcare however, innovation tends to drive prices up. For instance, two decades ago, cancer patients paid about a few hundred dollars for chemotherapy and success was limited. Nowadays, some chemotherapy treatments have a high chance of curing cancer with very few side effects, but at a cost of tens of thousands of dollars.
In most cases, as an investor, you must ask whether the prices are realistic. Some companies provide certain offers such as a discount prescription card while others have high-priced products and services. While high-priced services and products may compliment the margins and earnings of a company, they could prove to be a weakness if policy decisions or market dynamics force the price down.
The success and failure of a business also depend on the government policies about healthcare. Healthcare spending per capita varies drastically from one country to another, and the quality provided does not always reflect the price paid. For instance, United States spends more on healthcare sector than virtually any other country in the world, yet Germany and UK rank higher when it comes to the quality of healthcare provided, even though they both spend much less.
Policy decisions determine which treatments and costs are covered. In this way, they can make the difference between life and death. Around the globe, there is a strain of rising costs on healthcare systems, and workers are responsible for meeting even more costs of healthcare. At the same time, emerging economics demands are growing. Because of this, spending is likely to increase in an attempt to improve the healthcare quality. These trends will redesign price points for services, technology, and treatments.
Given the huge demographic tailwinds that push up healthcare spending, the healthcare industry provides great theoretical returns. However, choosing the right healthcare stocks can be very difficult, especially if you are new to this sector. It is recommended that you consider the above-mentioned trends when making a decision. Getting invested is the most important step that you can take. Healthcare has a long way ahead of it, so don’t let the complexity of investing in this sector prevent you from taking advantage of that great opportunity.