Five reasons to invest in health

Reasons to Invest In Health

Why should you invest in health right now?

The COVID-19 pandemic has in the past years put the healthcare sector into center stage. The global collaborations and innovation which contributed to successful vaccine development have shone a light on the importance of this sector on a personal, community, and national level. That innovation has also been rewarded with multiple market success stories. Looking at Moderna’s meteoric rise to over 23x their pre-COVID levels at peak, it is hard not to be tempted to allocate funds toward healthcare investments.

For those who may be contemplating a new or increased investment focus, I believe the healthcare sector offers a number of attractions, including:

1. Healthcare is a high impact sector
   Healthcare is one of a select few industries where social and economic incentives often move in lockstep. Investing in health provides the opportunity to make a positive impact on patients and communities by contributing to bringing new solutions to those in need. Venture and growth capital is critical to enabling entrepreneurs to bring new therapeutics and new care models to market, helping make health solutions more affordable and accessible to all. 
   

2. Healthcare is counter cyclical with historically strong returns
   Earnings growth in the healthcare industry has historically shown strong performance, just behind that of the tech industry. The S&P 500 Healthcare index had a nearly 20% 1-year return, and a recent report by data provider IQVIA estimates prescription drug spending will increase by $133bn in the next 4 years. Healthcare also typically has lower volatility compared with the overall market and attracts investment during recessionary times. Even in late cycle periods, there will still be strong demand for quality care and effective therapies.
   

3. Healthcare is supported by long-term evolving demographic trends
   Across the US and Europe, the majority of countries are facing an aging population and a rising incidence of chronic conditions. The combination represents an opportunity for companies developing elderly care solutions as well as new therapies in oncology, cardiovascular conditions, diabetes, and more. These demographic shifts will also provide a strong tailwind for continued growth in the sector. 
   

4. Sub-segments of the healthcare market offer a sliding scale of risk-return profiles to fit your investment goals and risk appetite
   While the width and diversity of the healthcare industry can make it initially daunting to pick apart and understand, it also offers a wide range of investment profiles. Investing seed capital into an early stage biopharma program can offer a high risk, high reward opportunity with a 5 – 10 year runway before positive cash flows. However, there are also plenty of more cash-generative segments of healthcare with less binary regulatory risk, such as dental and care provider clinics. The growing convergence of health and tech also offers many opportunities for more tech-minded investors with the rise of telehealth, digital therapeutics, surgical robots, and more.
   

5. Healthcare is an exciting, highly innovative industry with personal ties
   Aside from the potential financial benefits, learning about different aspects of the industry and following your investments can also improve overall health literacy and make you a more informed consumer of healthcare. Whether you are managing a health condition yourself or helping care for a family member, being a well-informed patient or caregiver can make you better positioned to navigate the healthcare system and to understand the options or decisions before you.

What are the risks?

While healthcare certainly has many positives, it is also vital to evaluate the potential risks to any investment. On a macro level, one of the primary risks is changes to the regulatory or political environment which may translate to changes to prescription drug controls. This is especially the case in single payer markets, as we have in Norway and across Europe. On a more company-specific level, many biopharma and medical device companies will face a somewhat unique binary risk related to clinical trial success and regulatory approval. 

Due to the high degree of specialization, professional investors such as institutional investors and larger private investors, often access earlier stage, private market opportunities by placing funds as a limited partner (LP) in a specialist healthcare fund and invest in listed companies. This includes focused actively managed public funds or exchange traded funds (ETFs), offering bets in the public markets.

Contribution by
Katherine Mellis, Hadean Ventures