A complex and
constantly evolving sector
The healthcare sector is constantly evolving and is facing major challenges where a deep scientific understanding and strategic investments from both the private sector and society will be key.
The healthcare sector accounts for a large part of countries’ spending. The US spends around 17 percent of the country’s GDP on healthcare, and within the OECD countries the average spending is around 13 percent of GDP. In emerging markets / developing countries, like China and India, the share is significantly lower at 5 and 3 percent respectively. There is a clear connection between the prosperity of a country and its healthcare spending, with richer countries tending to spend more on healthcare, both in absolute numbers and as a share of GDP.
Rising standards of living and an ageing global population, speaks for continued growth of the healthcare sector. These mega trends tend to involve a higher degree of ‘diseases of affluence’ such as obesity and diabetes.
Sub-sector focus
At Rhenman & Partners we have chosen to divide the sector into four sub-sectors: pharmaceuticals, biotech, medical technology and healthcare services. Our portfolio managers are specialists in one or two of these sub-sectors, which means that they have a deep level of understanding of both of the companies and the drivers of the sub-sectors.
Pharmaceuticals
Our focus is on companies with meaningful, effective treatments.
Biotech
Companies at the cutting edge of medical research and development.
Medical technology
Technology which is revolutionizing patient care.
Healthcare services
Services which help improve and make care more efficient.
Acquisitions play an important role for the larger companies within the healthcare sector, not least for the pharmaceutical companies. One particularly important reason for this is that pharmaceuticals are covered by patents and hence benefit from market exclusivity once the product has reached the market. After these patents expire, it is open for other players in the sector to start producing copies of the product. This life-cycle is approximately 20 years, and it forces companies to continuously restock their pipeline to replace the older products which have lost their patents. This is done partly through in-house research and development, but often through acquiring promising projects.
The patent cliff
The large pharmaceutical companies are currently facing a cycle with the greatest number of patent losses ever. In the coming five years, pharmaceuticals products generating $180 billion worth of revenue will lose their patent protection. This creates an urgent need for them to acquire smaller biotech companies, because the in-house R&D engines of pharmaceutical companies do not take them far enough.