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by Cyrill Zimmermann, guest author of Euro am Sonntag
Dhe health sector will also be dominated by the corona pandemic in 2021. The billions in revenue from vaccines against Covid-19 will make a significant contribution to the fact that the companies included in the MSCI World Healthcare are estimated to deliver a sales growth of 14.2 percent this year. In the next year, growth will level off again within the range of the expected average value of 7.7 percent for the period 2019 to 2023. For investors, the healthcare industry continues to offer attractive valuation levels compared to the overall market. Investors should approach stock selection with a global perspective and, above all, keep an eye on developments in health policy, including in the USA.
After the change of government, the USA is faced with the task of keeping economic growth high in the period after the corona pandemic and at the same time not letting the continuously increasing expenditure in the health system get out of hand. Current estimates assume that the share of health expenditure in the US budget will exceed 18 percent in the next year. The main focus of the discussion is the public health insurance Medicare, which received 776 billion dollars from the budget of the federal government in Washington in 2020. Should the future plans of the Biden government be implemented, billions of dollars will be incurred here in the future.
The Infrastructure Act 2 introduced by the US government provides for Medicare to extend the reimbursements from statutory health insurance physicians to dentists, ophthalmologists and ear, nose and throat specialists as well as to domestic medical services. At the same time, the American Rescue Plan, approved in March 2021 to repair the economic damage caused by the corona pandemic, in the amount of 1.9 trillion dollars, provides for 165 billion dollars to be allocated to health care.
In contrast, the inefficiency of health care is currently less discussed. A look at the distribution of expenses shows that the treatment costs inside and outside the clinic are by far the largest cost item at 62 percent. In contrast, the drug prices discussed during the election campaigns represent only 13 percent of health expenditure. If the economic recovery in the USA weakens – and the latest figures for 2021 suggest this – the discussion about the financial viability of the health system, including a debate about capping drug prices, will gain in intensity again.
USA: High level of innovation, rising costs
A fundamental problem is that medical services are billed differently in different states. The development in Maryland is a positive example of how health care costs can be contained at the US state level. In 2019, cost caps saved $ 365 million and over four years saved more than $ 1 billion. The corona pandemic, on the other hand, has led to a significant increase in health expenditure. For example, the US state raised the self-imposed limit for annual cost increases by 2022 from 3.6 to five percent, after this threshold had already been exceeded in 2018. In the period from 2012 to 2019, the annual cost increases averaged 3.6 percent. That is, a family of four spent $ 2,242 a month on health care expenses.
Corona pandemic catalyst
At the same time, the corona pandemic is proving to be a catalyst for innovations in vaccines and drugs. The Warp Speed project for the development of vaccines against Covid-19 has shown how regulatory processes for the development of prescription drugs can be accelerated. The approval of Covid-19 vaccines based on the new mRNA technology in less than twelve months after the start of the clinical studies is certainly one of the great moments in medicine. At the same time, the US companies Merck, Pfizer and Regeneron are pioneers in the newly approved drugs for the treatment of Covid-19.
Alzheimer’s research received a powerful impetus with the approval of Adecanumab / Aduhelm from Biogen. In the next few years, science and the financial world will be increasingly observing the outcome of the clinical efficacy studies, which start with the amyloid beta plaques as well as the tau fibrils as disease triggers in the nerve cells. The growth in investor interest is shown by the transactions achieved in 2020: $ 115 billion, the highest amount since 2015, was achieved through initial public offerings, secondary listings and follow-up financing rounds.
Head of Healthcare Funds, Bellevue Asset Management
Zimmerman holds a doctorate in economics from the University of Zurich. In 2001 he founded Adamant Biomedical Investments and headed the investment boutique until it was taken over by Bellevue in 2014.
Bellevue, based in Switzerland and founded in 1993, is a pure, specialized asset manager with a particular focus on the healthcare sector and other promising growth strategies.
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Image sources: Bellevue Asset Management, Lightspring / Shutterstock.com