Increase in R&D spend
from 15% to 20%
Thematic Insights: Healthcare Highlights
26/04/2022
The Global healthcare industry is a 10 trillion USD sector1 with the global medicine market alone set to reach $1.6 trillion by 20252.
In 2020, healthcare spending in the United States accounted for 18.4% of its GDP3. Fast forward and healthcare is a critical and integral part of any developed nation's government spending. The top 10 nations in terms of spending on healthcare per capita is listed in USD below:
Healthcare is a multi-faceted industry which can be broken down into various segments, the top three of which are Pharmaceuticals followed by Healthcare Equipment and Biotechnology.
Sub-industry weights
What's in a segment?
Picking out 3-4 key segments, we look at some of the active players in these markets whilst remembering that many healthcare businesses are in fact diversified across multiple segments.
Pharmaceuticals: Central to the response to Covid-19, leading pharmaceutical companies such as Roche, Pfizer and Johnson & Johnson have been key to both vaccine development and diagnostic campaigns (read here). Major players in Switzerland also include Novartis.
Healthcare Equipment: A critical part of supporting long-term demographic trends surrounding the Silver Economy (read here) as well as the shift to specialised medical treatments. With Medtech being a part of this space, the global healthcare equipment market is valued at roughly USD $453 Billion in 2021. Key players in Switzerland include, Sonova, Alcon, Straumann and further afield Philips, Intuitive Surgical and Danaher.
Life Science Tools & Managed Healthcare: Covering a broad spectrum from analytical tools, instruments, consumables and clinical trial services to healthcare delivery systems, these two sectors combined make up close to 20% of the healthcare market. Key players in this space include Thermo Fisher (American supplier of scientific instrumentation, reagents, consumables as well as software services) and UnitedHealth Group (American multinational managed healthcare and insurance company) amongst others.
After Covid-19
The healthcare Sector's critical role in the fight against Covid-19 has contributed positively towards the public's perception of the sector. With pharmaceutical businesses at the forefront of developing vaccines and diagnostics that keep people out of hospital, the last two years have shown the innovative power of the healthcare sector and the importance of proper funding for Research & Development (R&D) in fighting new diseases. Simply put, government price controls and the detrimental impact this has on R&D capabilities will be a harder political message to sell in the wake of the pandemic.
This focus on R&D is reflected in large cap pharmaceutical companies' R&D spend as a % of sales. 15 years ago these companies on average pledged circa 15% of sales to R&D, this has increased to nearly 20% of sales – a good sign that the sector is investing for the long-term.
Healthcare & the Markets
Historically the healthcare industry has shown itself to be relatively agnostic to shorter-term changes in macro-economic sentiment. Its resilience is illustrated in a look at its historical returns vs other sectors during periods where macro-economic surveys such as purchasing manufacturing indices (PMIs) have been positive or negative. This analysis shows that during historical periods of pessimism (when PMI surveys were below 50 and falling) healthcare actually outperformed its sector peers. Conversely in periods of optimism (when PMI surveys were above 50 but falling) the healthcare sector was still a top three performing sector in terms of stock-market returns.
Source: Rothschild & Co. Analysis done with Bloomberg data, since 1995 (initiation of MSCI World sector price indices, monthly data & US PMI Manufacturing).
Healthcare Trends
Looking ahead, there are several key trends in the healthcare market. Among them are robotics (e.g. surgical robotic systems) as well as specialty medicines. The latter are high-cost prescription medications used to treat complex, chronic conditions which are expected to represent nearly half of global spending in 2025 and almost 60% of total spending in developed markets. Meanwhile, two leading global therapy areas — oncology and immunology — are forecast to grow by a compound annual growth rate of 9–12% through to 20254.
Underpinning these trends are long-term demographic shifts in developed markets with an ageing population supporting a silver economy over the coming decades (see video).
With one in five people globally projected to be aged 60+ by 2050, this cohort is the fastest-growing consumer market in the world. With most healthcare spending happening in the last 10 years of life be it from spending to interventions, there are clear long-term structural reasons to support the healthcare sector in the years to come.
1 Fitch Solutions, as at January 2022
2 Based on invoice price levels, IQVIA Institute, Outlook 2025
3 Fitch, US Pharma & Healthcare Report, Q2 2022
4 IQVIA Institute, Outlook 2025
To navigate this long-term sector and understand its implications from an investment perspective, our Investment & Portfolio Advisory team has analysed the market and its key players.
For further information, please do not hesitate to contact your Client Adviser.