You are here
Home > Health > Conduct Research Before Investing In The Healthcare Sector

Conduct Research Before Investing In The Healthcare Sector

Why park your extra money in the bank when you can easily get a higher return on investment by investing your money on the derivative industry? You can invest in precious metals such as platinum, gold, and silver, or you can invest in mutual funds or in the stock market. These typically offer higher ROI. If case you are planning to invest in stocks of a specific industry, go for the healthcare industry, which was, is, and will continue to boom, as there is always a demand for drugs and healthcare equipment, such as diagnostic tools. However, it is better to have full knowledge about the industry you plan to invest your money in and evaluate its pros and cons.

Healthcare investment research

The healthcare sector comprises of numerous different industries such as diagnostic devices, pharmaceuticals, hospitals, and health insurers… each one of them having its different dynamics. Thanks to this diversity, many variables affect the investments you make in this sector, which includes negative trend associated to reimbursement as well as positive trends associated to demographics. Investing in this sector needs a multifarious approach so that you can understand the underlying drivers. As an investor, you stand to profit from the investments you make in both the overall sector as well as its ancillary industries. You should also check for trends in this industry before you invest your hard earned money into it.

Healthcare sector trends

Before deciding to invest on a healthcare company, you need to keep the following prevailing trends in your mind. Continuations of or changes to these trends can well have effects for various areas within this sector.

Positive trends are inclusive of:
• People with chronic diseases living longer
• The baby boomers and the ageing population
• Diabetes and obesity epidemics
• Global reach of diseases
• Technological advantages
• Personalized medicine

Negative trends are inclusive of:
• Single payer system (U.S. Government/ Medicare)
• The uninsured
• Expenditure as a growing share of GDP (gross domestic product)
• Consumerism
• Cost controls

Both are pills but are different

Both biotech and pharmaceutical companies manufacture medicines, but both of them differ in the manner in which these medicines are manufactured. On the one hand, pharmaceuticals are typically considered as small chemical compounds, which pass easily through membranes and barriers in the human body. On the other hand, biotechs are generally deemed as large sized protein compounds, which have problems when passing through membranes. Companies manufacturing pharmaceutical and biotech products typically spend a significant percentage of their revenue on R&D (research and development) in order to discover the latest compounds. As discovery of such compounds is an extremely tedious and difficult process, their hit ratio is quite low. Therefore, you might not earn sufficient ROI when investing in such companies. Investing in the drug sector requires you to have some knowledge of:

The underlying condition or disease that a specific medicine treats
The number of individuals affected by such diseases
The number of currently available drugs to treat those diseases
The process and time period required to discovering, and the rigorous clinically trials of such new drugs, as required by the FDA, before they are released in the market
Whether substitutes or generic versions of such drugs are available in the market
The general marketing system that may include agreements about profit sharing with other companies.

While conducting healthcare investment research, remember that this industry if affected to a great extent by data related to clinical trials. The surprises about the result of this data can tremendously affect the stock price of the company. No doubt, there are positive surprises too, such as when the result of the clinical data is better than expected. The prices of stock are also affected by factors such as the time required to market the drug. If the manufacturer manages to market the drug quickly, it can significantly boost the price of its shares.

Leave a Reply


WordPress Theme downloaded by and Powered by