Benjamin Franklin said there were only two things certain in life: death and taxes. If we were adding a third certainty it would be illness. At some point, we will all need to access some aspect of the healthcare industry.
Everyone gets sick and no amount of fluctuation to the global economy will change this. For this reason, the health sector is largely regarded as both a stable and defensive investment option.
Consistently one of the best-performing sectors in terms of growth, it is made up of diverse, separate industries; all united by the same goal of helping to improve the health and wellbeing of its customers.
Big pharma might be the first industry to spring to mind, but medical devices, hospitals, healthcare services and biotechnology all fall under the vast umbrella of the healthcare sector.
The UK National Health Service
One of the most heated debates, and a political hot potato, is the UK health industry and the greater involvement of for-profit companies in the NHS. Outsourcing of services to private companies is not something new, but post-Brexit the door is open for insurers and private health companies to provide NHS services.
A Health Foundation report found that £1 in every £8 of local commissioner's budgets in England is now spent on care provided by non-NHS organisations.
Anita Charlesworth, director of research and economics at the Health Foundation, said rising demand for emergency care meant “NHS providers haven't had the capacity to deliver planned care and patients had to be diverted outside the NHS.”
Giant multinationals started circling years ago. The Hospital Corporation of America (HCA) has been forging a partnership with the NHS since 2006. With a market capitalisation of more than $28bn, the UK arm is part of the Private Hospitals Alliance, a lobbying group that supports the role of private company participation in NHS services.
US companies Tenet Healthcare and UnitedHealth Group have also built relationships within the NHS. Tenet noted to investors in 2015 that “privatisation of UK marketplace, given market inefficiencies and pressures on the National Health Service, should create organic and de novo opportunities” for the US company.
This year private-sector companies were invited to bid for 14% more NHS contracts than last year and winners included VirginCare, Care UK, Acadia Healthcare, Circle, Capita and Interserve.
LaingBuisson, the industry analysts, put the figure for the market for primary and community care in the NHS at £10 to £20bn a year.
Growth in the health sector has been facilitated by the ageing of the population and because more people are living longer with chronic diseases.
There was concern that the baby boomer ‘time bomb’ would change the shape of investment as they sell off their portfolios as they retire. Now, though, investors are waking up to the potential growing customer base this ageing population creates, especially for sectors such as healthcare, technology and insurance.
In the US, the cost of many medical equipment products are covered by a policyholder’s health insurance and, like so many industries in this sector, they are not affected by economic downturns.
Unique patented products usually quickly gain a large market share so come with higher price tags. This gives investors a good return on their money.
AxoGen, for example, offers patients surgical solutions for peripheral nerve injuries. Potentially a $1.6bn market, the company reported $12.2m in sales for the first quarter of the year.
Edwards Lifesciences Corporation’s history dates back to 1958 when it developed the world’s first replacement heart valve. Today they corner the market for tissue replacement heart valves and repair products. Projected global sales this year are $3 to $3.4bn, representing underlying growth of 10 to 14%.
The company estimates that the total market for its device will double to $5 billion in 2021.