Healthcare Investing: Why the Names You Know Are the Names That Look to Grow
It was household names in the healthcare industry that gave us COVID-19 vaccines. Pfizer, the makers of common anticoagulant and cancer drugs, led the charge. AstraZeneca, producers of prescription-strength antacids, did some heavy lifting across the globe. Johnson & Johnson, owners of skincare and dental brands like Neutrogena and Listerine, has been a major player in the fight to end the pandemic.
The best weapons against a global pandemic have come from companies that make the drugs we take for cholesterol, anxiety, or acid reflux. They have even come from the companies that make our toothpaste and deodorant. Strange as that might seem, the fact that vaccines came from names we know teaches investors a lesson about the healthcare sector that goes beyond the pandemic: bigger companies have better prospects.
That size principle applies to biotech companies, med-tech firms, healthcare service providers and pharma companies.
Size is so important in healthcare because it’s key to successful innovation, to meeting the demands of aging populations, and to capturing new and growing markets.
New healthcare markets are growing fast. The developing world is spending more on healthcare every year. According to the WHO, healthcare spending between 2000 and 2017 grew at a rate of 6.3% per year in middle-income countries and a whopping 7.8% per year in low-income countries. Both groups of countries saw their healthcare spending grow faster than their economies.
So why are big healthcare companies better suited to meet that demand? Simply put, it’s because many of them already have a global reach. They can move into new markets quickly, compete efficiently, and make use of the best technologies in the globe to capture the next great opportunities.
The biggest healthcare names have this scale and reach because they already dominate so much of the developed world. Health care providers like UnitedHealth are providing service and insurance to millions. Companies like Stryker and Boston Scientific make the hip replacements and pacemakers enabling longer, higher-quality lives. Biotech firms like AbbVie have developed drugs for arthritis and inflammatory diseases that are among the best-selling in the world.
Demand for all these products and services will continue to boom in countries like Canada and the USA because of one simple fact: our populations are aging. As we get older we need more healthcare.
As for innovation, our COVID-19 vaccines can tell the tale. Developing innovative drugs, treatments, therapies or products is incredibly expensive. If a trial doesn’t work out, that could torpedo a smaller company. Large-scale companies have huge, diverse R&D departments, offsetting that risk. At the same time, when smaller companies come up with a new idea, they often need to partner with a large-scale company to get it over the finish line. Think about how the Pfizer vaccine came from a partnership with the much smaller BioNTech. If you want to innovate in healthcare, you need to either be big or partner with the big players.
Size is at the core of the Harvest Healthcare Leaders Income ETF (HHL:TSX). Canada’s largest healthcare ETF, HHL owns a set of 20 of the largest companies in the pharma, biotech, med-tech, and service subsectors. In a sector where the largest players have the best prospects, it offers an investor a seat at the big kids’ table.
Talk to your financial advisor for more information and visit Harvest at
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