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Analysing The Healthcare Sector

biochemical research scientist team
The healthcare sector is also known as the medical industry. It is an aggregation and integration of different sectors of the economy, including prescription drugs, medical devices, medical services, hospital supplies manufacturers and biotechnology to name a few. The healthcare industry is responsible for the provision of specific goods and services like curatives, preventatives, palliative, and rehabilitative products. It consumes more than 10 per cent of most country’s gross domestic product. It is, therefore, an essential part of the world’s economy.

Following Covid-19, more interest has been put on biotech companies developing vaccines and some might believe a few of them are overvalued at this point. However, in general it’s dangerous to short sell healthcare companies since they are rather stable and often have more upside than downside. There are probably many other sectors better suited to go short, even if there are always a few companies with high valuation and in the end – only a couple of firms will come up with a vaccination for coronavirus.

GlaxoSmithKline Plc logo

Company Name: GlaxoSmithKline Plc
“GlaxoSmithKline shares are near ATH. Will they be one of the company’s creating a Covid-19 vaccine? Time to go long or short in GSK?”
Ticker: GSK
Primary Exchange: New York Stock Exchange
Latest price: 37.8
p/e Ratio: 15.84

Still, the healthcare industry is one of the largest and fastest-growing sectors in the globe. It is made up of pharmaceutical companies and hospitals, to name a few. Currently, the healthcare industry consists of three main branches, which are services, products, and finance. The branches can be split further into sectors and categories, depending on how they meet the health needs of individuals and the general population. Some of these categories include healthcare services, medical equipment sector, biologics, and veterinary health.

The Future of Healthcare Industry

By the year 2018, the health economy was worth 8.452 billion US dollars in market size, according to The Business Wire. This figure represents a growth of about 7.3% compared to the report of 2014. The sector is expected to reach 11.9 billion US dollars by 2022, as seen in Research & Markets. The fastest-growing sector in the health economy is the biologics sector. The veterinary healthcare sector is also fast-growing because of increased advocacy for animal health and the proper treatment of pets. The industry has experienced a lot of growth in the past several years. Also, the trend doesn’t seem to be coming to an end anytime soon.

Growth in Healthcare Stocks

Drivers of the Growth of the Healthcare Industry

According to Deloitte, below are the main reasons why the industry has experienced significant growth over the past years:
Rapid growth in the elderly population – One of the main reasons why the industry has experienced a lot of growth is the fact that there has been an increase in the population of elderly people in different parts of the world. The growth resulted in the need for proper healthcare because the elderly population is prone to a lot of medical challenges that needed to be addressed.
Global health insurance reforms – Different countries came up with reforms for their health insurance policies. The reforms made it possible for people from all walks of life to access medical care. The fact that more people could access medical assistance saw to the growth of the industry globally.

DexCom, Inc. logo

Company Name: DexCom, Inc.
“Is the industry for healthcare insurance overvalued? With over 200 in P/E, some might wonder if DexCom will be the next short selling target?”
Ticker: DXCM
Primary Exchange: NASDAQ
Latest price: 402.36
p/e Ratio: 180.92

Economic growth in emerging markets – The global economy works in such a way that the growth of one industry results in the growth of other industries that are related to it. The growth of emerging industries results in the development of the overall economy, including the health economy.

Teleflex, Inc. logo

Company Name: Teleflex, Inc.
“Can the share price of fast growing, emerging markets focused Teleflex be justified? Short sellers tend to be convinced TFX is overvalued.”
Ticker: TFX
Primary Exchange: New York Stock Exchange
Latest price: 335.81
p/e Ratio: 32.41

Growth of the education sector – The growth of the education sector resulted in increased workforce and health professionals. It, therefore, led to the growth of the sector.
The decline in oil prices – The healthcare sector involves the use of different kinds of machines. Most of these machines are run by electricity, but others use oil. Additionally, the decline in oil prices resulted in inaccessibility to healthcare facilities. This means that more people can travel cheaply to healthcare centres. This has significantly resulted in the growth of the sector.
Increasing prevalence of diseases – The increase in busy schedules and sedentary lifestyles has resulted in an increased prevalence of diseases.

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Illnesses like diabetes and a wide variety of weight and diet-related illnesses have become very common in this current era. This is one of the main drivers of the growth of the health economy. Many successful trials with islet cell transplants that may fully cure diabetes type one are in clinical trials right now. It would drastically decline profits of some major pharmaceutical companies such as Eli Lilly and Medtronic, but would obviously make life easier for type 1 diabetics like myself. If cell transplants into the liver gets approved in the coming years, expect aggressive short selling in multiple healthcare firms producing insulin and insulinpumps.

Eli Lilly & Co. logo

Company Name: Eli Lilly & Co.
“One of the leaders in treatment of diabetes type 1 with insulin. How will the market decline when a cure for diabetes is ready in perhaps 1-3 years? It might be a big short in Eli Lilly shares when islet cell transplants are approved.”
Ticker: LLY
Primary Exchange: New York Stock Exchange
Latest price: 150.26
p/e Ratio: 24.36

As much as the above factors have driven the growth of the sector, others threaten to hinder the future of the healthcare market and its development. They include:

Increasing awareness of alternative treatments – The population is fast becoming more aware of alternative therapies like natural treatments. The growth of such knowledge among the population could hinder further growth of the industry in the future.
Stringent regulation – Stringent government regulations in the future also threaten the growth of the industry. For instance, government provisions in healthcare services could lead to the failure of the growth of the industry.
Regardless of the threats mentioned above to the industry, there is still a high chance that the industry will thrive. One of the main comforters is that the industry was able to grow up to where it is despite the past threats. These threats were:
Low health access – Historically, with high oil prices and stringent healthcare regulations as well as lack of health insurance, there wasn’t much access to healthcare facilities.
Shortage of skilled human resources – The lack of proper education and access to it has resulted in shortages of skilled human resources, which threatened the growth of the health economy.

Trends in the Healthcare Industry

Stakeholders in the healthcare industry are implementing reforms in payment methods. Such reforms include the introduction of value-based payment models. These models will help all the payers, providers, and patients to get the best outcomes at more affordable costs.

Technology is also playing a significant part in the growth and sustainability of the health economy. For instance, technology-enabled patient engagement strategies are making it possible for increased financial independence of patients. The patients can make their own healthcare decisions. Technology is also improving interactions between patients and their healthcare systems. It also has an impact on the development of new treatments for illnesses like cancer and diabetes.

Alexion Pharmaceuticals, Inc. logo

Company Name: Alexion Pharmaceuticals, Inc.
“After the merger with Portola, Alexion Pharmaceuticals need to prove themselves. What can the two companies create together to improve the life of people with cardiovascular disease?”
Ticker: ALXN
Primary Exchange: NASDAQ
Latest price: 114.43
p/e Ratio: 30.23

Governments in different parts of the world are also moving towards adopting Universal Health Coverage. Price control systems are being introduced in different countries on both pharmaceuticals and medical technology devices. Additionally, population health management is being used as a means to identify the different healthcare needs of various clients and come up with the most appropriate services to offer.

Care model innovations are expected to manifest themselves in several ways in 2020. The innovation is set to leverage people, processes, and technologies that will address the evolving healthcare needs of different groups in the population.

Perhaps the most significant trend in the health economy is the fact that patients are no longer passive participants in the sector. Patients are now demanding transparency, convenience, more access, and personalised products and services.

What Are the Winning Trends of 2020-21?

1. AI-Powered Tools
Artificial Intelligence tools have positively impacted different industries around the globe. In the medical sector, the tools help healthcare providers to make faster clinical decisions. For instance, according to Forbes, there is a specific tool in the works that could help make examinations more efficient and faster. Another tool that is creating a difference in the sector is the Aidoc, which uses AI to look for abnormalities in scans. The tool is currently being used in more than 100 sites.

Health Catalyst, Inc. logo

Company Name: Health Catalyst, Inc.
“Health Catalyst are working on lowering costs for healthcare industry with help of big data. Still haven’t lost a all-access client, but still don’t make a decent profit either. Long or short? You decide!”
Ticker: HCAT
Primary Exchange: NASDAQ
Latest price: 36.03
p/e Ratio: -12.1

2. Homebased Healthcare
The need for home-based healthcare and the number of outpatient-based care are continuing to increase significantly. The growth is influenced by the fact that traditional systems of healthcare providers are becoming extremely overwhelmed, hence bringing forth the need for change. The home-based healthcare system is also supported by the fact that it has become easier to transport medical devices from one place to another. This fact makes it easier for practitioners to provide different kinds of medical services to clients.

3. Applications of the Cloud for Breaking Down Silos and Moving Data Faster
One of the most significant issues in the health economy is that multiple pathways and data silos make it hard for practitioners to connect and communicate with each other. Applications of the cloud are currently being used to resolve the issue. Cloud-based solutions are also helping to make specific processes easier. They have also helped medical professions from different parts of the world to communicate quickly and share beneficial information. The tools also help to promote better communication between doctors and their patients.

Medtronic Plc logo

Company Name: Medtronic Plc
“Medtronic makes insulin pumps and continuous blood glucose monitoring. If insulin isle transplants soon gets approved by FDA and NHS, the long-term shareholder value of Medtronic will sink drastically and many shorting entusiasts will go into MDT, expecting the share price to sink.”
Ticker: MDT
Primary Exchange: New York Stock Exchange
Latest price: 103.16
p/e Ratio: 31.35

glaxo smith kline logo

The Healthcare Stock Market

The life science sector is one of the most complicated in existence. It is made up of a wide range of companies. Some of these companies are those that sell medical products, research, develop, and provide healthcare services like hospitals and clinics. The largest companies in the sector include CVS Health, Eli Lilly, Medtronic, Merck, GlaxoSmithKline and Abbott. In 2020, the life sciences sector stocks have recouped all their losses since the previous plunge as other sectors continue to suffer significant losses from the pandemic.

Stock-listed companies in the healthcare market, with the best margins in the stock market, include those 3 shares:
Align Technology Inc shares – This company manufactures the Invisalign system. This is a method that is used to treat the misalignment of teeth. The most recent news about the company is the fact that it recently acquired Global Holdings Inc.
Alexion Pharmaceuticals Inc shares – This is a biopharmaceutical company that conducts research and develops treatments for autoimmune and cardiovascular illnesses. The company recently entered a merger agreement to acquire Portola Pharmaceuticals Inc.
Biogen Inc shares – This company focuses on the discovery, development, and commercialisation of pharmaceutical remedies. The firm strongly focuses on the areas of neurology, immunology, and oncology.

Merck & Co., Inc. logo

Company Name: Merck & Co., Inc.
“Merck shares got a high valuation, but are they worth it? You decide. Time to go short or long?”
Ticker: MRK
Primary Exchange: New York Stock Exchange
Latest price: 82.93
p/e Ratio: 20.11

In addition to the three companies mentioned above, the following companies have the most promise in the healthcare stock market with incredible margins:
Amerisource Bergen Corp shares – This company provides generic pharmaceuticals. It also provides over-the-counter healthcare products, supplies, equipment, and several other products and services in the healthcare sector. The company has recorded the highest revenue growth in the market.
Teleflex Inc shares – This company is a provider of medical technology products. It supplies products to hospitals and healthcare providers for diagnostic and therapeutic procedures. The company has registered a growth of more than 200 per cent in revenue for the first quarter of 2020 only.

Regeneron Pharmaceuticals Inc shares – This is a medical device company that focuses on the development and design of continuous glucose monitoring systems. The company, therefore, caters majorly for people with diabetes. With revenue growth of more than 44 per cent, the company is moving ahead in the stock market. Meanwhile, the risk is increasing with pressure on governments to accept the breakthrough in turning stem cells into insulin producing cells in trials from 2019.

Regeneron Pharmaceuticals, Inc. logo

Company Name: Regeneron Pharmaceuticals, Inc.
“Regeneron Pharmaceuticals got a rather high valuation for an industri with high risk of finding cure for diabetes type 1. Will REGN be on short sellers top list in the year to come?”
Ticker: REGN
Primary Exchange: NASDAQ
Latest price: 574.06
p/e Ratio: 21.07

The Most Popular Healthcare Products

Below are some of the most popular products in the health economy:
Ventilators – These are the most popular healthcare products currently. With the increase in the number of COVID-19 cases all across the world, there’s also an increased need for these products.
Surgical face masks – The COVID-19 pandemic has also led to increased demand for surgical face masks in different parts of the world.
Protective gear – Protective gear like gloves are also selling fast at the moment.

Allied Healthcare Products, Inc. logo

Company Name: Allied Healthcare Products, Inc.
“Looking for a company that produce approved masks? Then Allied Healthcare Products might be of interesting!”
Ticker: AHPI
Primary Exchange: NASDAQ
Latest price: 5.7
p/e Ratio: -7.75

Impact of Covid-19 on the Healthcare Market

Medgadget writes about how the Covid-19 pandemic has severely influenced the whole supply chain in the health sector. From the procurement of raw materials to production and distribution (both online and offline), the impacts are significant and severe. For instance, there has been an increase in the production of ventilators because of the increased need. The need for hospital beds has also increased rapidly.

There has also been an increase in the need for surgical masks. Although manufacturers are working hard to meet the needs in the sector, issues like social distancing are making it hard. Manufacturers have had to cut down on the number of employees and working hours because of different restrictions in varying parts of the world.

The impacts of the pandemic vary from one region to the other. It all depends on the severity of the pandemic in the region. For instance, countries like France, Spain, and Italy are facing the worst consequences of the virus. The virus has both negative and positive impacts on the industry, depending on how you look at it. For instance, the healthcare production industry is experiencing a lot of growth, while the expenditure sector is experiencing a lot of burdens.