Why the Healthtech sector is set to defy market expectations in the coming year
By Mike Hoey, President of Source Meridian
It’s strange to think that just a year ago the S&P 500 was kicking off yet another month of solid growth. Fuelled by strong corporate earrings reports, particularly in the tech sector, the Nasdaq composite and the Dow Jones Industrial Average were set to rise 1.4% and 4% respectively by the end of the month.
Fast forward a year and the transition has been remarkable. Despite recent confusion over its definition, the US economy just experienced two consecutive quarters of negative GDP growth, signaling a recession.
At the same time, while there remain challenges, enterprises and investors should be aware that there are still sectors that are performing well despite the downturn.
Healthcare: Is it really ‘Recession Proof?’
Historically, healthcare has been one most stable and consistent performer in the US economy both in boom times and during recessions. And as the Baby Boomer generation progresses into retirement and geriatric care, we can expect to witness expenditure in the sector increase from where it stands today at 19.7% of GDP.
Given that healthcare accounts for 1 in 5 dollars in terms of economic activity, in a country where the number of older patients increased by 14.4 million (or 36%) between 2009 and 2021 (compared to an increase of 3% for the under-65 population), it’s safe to assume that demand for medications and healthcare procedures will increase in the coming decade.
Additionally, McKinsey reports that when it comes to the ongoing tech talent scarcity, the healthtech market holds a substantial advantage over traditional tech companies due to salaries they are able to offer top-performing jobseekers. This means that even if there is a hiring slowdown across the entire tech sector as a whole, the best and brightest will likely flow into healthtech firms.
Finally, taking a macro perspective, the stock market may be performing poorly, however mass layoffs haven’t occurred yet. Employment remains high, which means more people have health insurance than they would during a ‘normal’ recession. This is good news for the healthcare industry and for a nation at the tail-end of a prolonged public health crisis.
Playing the long game
During the pandemic we saw multiple COVID vaccines developed in the span of a short period. It truly was a miracle of modern science and innovation. We are still seeing benefits to the amazing scientific innovations and breakthroughs achieved worldwide during the early days of the pandemic.
With that in mind, we should not expect clinical research to change due to a recession. What we can expect, however, is a more accelerated pace to the research and develop aspect of each new drug’s lifecycle. Traditionally, most pharmaceutical companies take an average of 10 to 15 years to develop and release a new drug. This is due to two main factors:
1) The sheer amount of time and money required to roll out full-scale clinical drug trials.
2) The lengthy federal approval process that all new drugs are required to go through.
Since the pandemic these two factors have decreased significantly in terms of their severity. The first major leap forward comes from how AI can be applied to this process to streamline and organize the huge amount of data generated by clinical trials. Second, new technologies now exist that can simulate the way a hypothetical drug will interact in the human body.
By digitizing the process end-to-end and accelerating it with machine learning, the healthtech industry is poised to bring the entire process of bringing new drugs to market out of 1972 and into 2022, according to Deloitte. Paired with recent legislation such as the 21st Century Cures Act, which is designed to speed up the approval timeframe and rmeoveroadblacks, we should expect to see even more breakthroughs.
Forever on guard against new diseases
As climate change and habitat destruction accelerates the frequency with which humans encounter novel animal-born viruses, it’s clear to see that pandemics aren’t going away.
Prior to the pandemic we saw outbreaks of mosquito-borne Zika virus in the Americas, and with current reports of monkeypox circulating in 42 countries, the need for the healthtech industry to rapidly innovate on the new mRNA vaccine platform developed to combat Covid is greater than ever before.
The CDC expects this new platform to hold the potential to cure some of the most devastating diseases that plague mankind, including rabies, Zika, cytomegalovirus, and HIV. It’s not farfetched to think that within the next two decades even common illnesses like the seasonal flu will either be a thing of the past or be much better managed due to this new class of vaccine.
One thing we learned during the pandemic was that our geopolitical relationships seldom have an impact on innovation. Despite the West’s increasingly pronounced rivalries with China and Russia, the global scientific community truly can work together to overcome the biggest problems facing humanity.
It’s remarkable what this recession-proof industry has been able to accomplish in recent years. In the past 24 months we’ve truly seen what this sector can do in terms of innovation and scale, and in those two short years are layers of insights and innovation yet to be fully unleashed.
And so, with a spree of trends and new technologies on the horizon, it pays to be bullish on healthcare in 2022.