Why Invest in the Healthcare Sector Post-Pandemic?
As nationwide vaccine rollout continues across the United States, attention on the healthcare industry has not faltered—neither has that of investors. While a majority of sectors in the private equity industry have observed significant downturns since the start of the pandemic last March, three notable private equity sectors have experienced promising growth: healthcare, software, and biotech/pharmaceutical companies.
But why invest in healthcare sector now that the “new normal” is almost behind us? The pandemic may be ending, but its societal aftereffects are not.
Why is Investing in Healthcare Sector Important?
To answer the question in hand – why invest in healthcare sector – we need to understand that investing in the healthcare sector is an investment in our communities and shared futures. The COVID-19 pandemic has spurred widespread innovation across the diverse subsectors of the healthcare industry over the past 18 months, making this an attractive industry for investors.
Innovations include a 600% increase in the availability of telemedicine and home healthcare services observed within the initial stages of lockdown, a trend investors see enduring beyond the pandemic’s end.
By investing in healthcare models that are non-traditional, investors will observe a decrease in operational costs. In turn, this will make healthcare more affordable for patients and provide the opportunity for investors to generate more substantial long-term returns.
Healthcare Investment Opportunities
Public health and safety are currently at the forefront of our collective conscience. As national healthcare costs are projected to reach $6.2 trillion by 2028, accelerating innovation should be a top priority for investors.
Focusing on driving innovation and improving upon industry fundamentals will provide attractive opportunities for strategic investors looking to diversify their portfolios in the healthcare sector. As the COVID-19 pandemic has illustrated, the healthcare industry can advance quickly and adapt to societal demands:
Pharmaceuticals & Biotechnology
Drug manufacturing can be tempting for those looking to acquire a high-return investment, especially since a good run can skyrocket returns by over 1,000%. A 9.1% annualized rate increase for prescription drug spending, coupled with the nonstop dirge of vaccine updates in the news, highlights the rising demand for healthcare services. This sector, however, should be considered with restraint as FDA approval and clinical trial news can largely determine the direction of a company’s value.
Novices looking to invest in healthcare stocks would be wise to exercise caution in these areas of the stock market, but seasoned investors working alongside a strong team with extensive knowledge of pharma and biotech trends have the potential to see exceptional returns.
MedTech and equipment companies manufacture a diverse offering of products, ranging from bandages to robotic surgical instruments. Much like pharma and biotech companies, entities in the MedTech sector will sometimes need to await clinical trial results before their products are released, which poses the same risks associated with drug manufacturing.
Despite the risks, an increasingly digitized medical field requires constant innovation to meet consumer and provider demands, signaling rapid growth across the industry—and solid returns for investors with strong knowledge of trends within the healthcare system.
Sales & Distribution
Sales and distribution teams act as intermediaries between medical manufacturers and providers, earning their profits by handling supply chain logistics, including the packaging and distribution of prescription drugs and specialty medical equipment. As the COVID-19 vaccine’s extreme temperature requirements have illustrated, investing in medical supply chains is proving to be more important and in-demand than ever before. According to 98% of healthcare C-suite and supply chain leaders surveyed, bolstering advancements in supply chain management is a top priority.
Companies within the sales and distribution networks across the healthcare industry are also subject to healthcare regulations and consumer demand for medical products. Wise investors will keep this in mind as more individuals gain access to healthcare and the market begins to see a steeper uptick in the production and use of drugs and other healthcare goods. And with a forecasted healthcare distribution market value of nearly $1.4 billion by 2025, the increasing need to invest in more robust distribution networks only becomes more apparent.
Managed healthcare refers to companies within the healthcare industry that provide individuals with health insurance policies. This includes private and employer-sponsored insurance and healthcare reform bills like the Affordable Care Act, as well as social initiatives like Medicare and Medicaid. Since everyone needs health insurance and there are few disruptors and competitors in this sector, returns tend to be steady for investors seeking to diversify their portfolios by investing in health insurance companies.
Healthcare real estate is considered to be a low-risk investment with a high potential for returns. They’re also helpful in diversifying your portfolio across the overall healthcare sector since healthcare facilities span much wider than doctor’s offices and hospitals, encompassing skilled nursing facilities, wellness centers, and senior living communities.
And with an estimation that nearly 25% of the United States’ population will be 65 or older by 2050, up from just 8% the century before, the potential for massive healthcare facility expansion in the coming years is strong.
Is the Healthcare Sector a Good Investment?
As the global population is aging, obesity rates are climbing, and the wealth effect is increasing healthcare spending, investors can expect to see a rise in healthcare demand. And with healthcare innovation keeping pace with that of the information technology sector, the possibilities for ground-breaking improvements are just on the horizon.
Performance in the healthcare equity sector is outpacing the broader market, but determining which ventures will prove the most successful as long-term investments requires a keen eye and a strong sense of healthcare industry knowledge. Investors should partner with a trusted team of healthcare experts who take ample time to perform their due diligence in order to see the most significant returns.
So why invest in the healthcare sector now that the “new normal” is almost behind us? Because the “next normal” is right around the corner.
Azhar Hirani manages the private equity sales team, which involves relationship management, advising and educating retail clients on new private investments, analyzing private equity portfolios, and oversight of clients’ invested capital in internal private projects. Passionate about business, marketing, and sales, Mr. Hirani maintains deep expertise in high ticket sales and has a record of success in sourcing capital and acquiring new customers.