Healthcare might be best known for its resiliency during market drawdowns, thanks to steady demand for medical care. That certainly was the case in 2022, when the MSCI World Health Care IndexSM returned 5.4% compared to the -17.7% decline for the MSCI World IndexSM. But the sector is also increasingly experiencing rapid growth, offering another potential source of diversified returns for investors.
One side: Rapid innovation and growth
Advances in genomic sequencing and other biomedical tools over the past two decades have unlocked new methods for targeting and treating disease. Many of these methods – from antibody drug conjugates and gene therapies to remote glucose monitors – have the potential to dramatically improve the standard of care for patients and, in some cases, address rare diseases once thought untreatable. Consider spinal muscular atrophy (SMA), an inherited disorder that typically manifests in young children and causes the breakdown of muscle strength and movement. For decades, treatments could only manage symptoms, with an average life expectancy of under two years for infants with severe cases. But starting in 2016, regulators approved the first disease-modifying therapy for SMA, followed by a gene therapy in 2019. Both help replace the missing protein that causes SMA, leading to dramatic improvements in motor function and survival rates for patients.
To encourage this type of research, regulators have created pathways that accelerate the review process for medicines targeting high unmet medical needs. The result has been a dramatic jump in new drug approvals. From 2018 to 2022, the Food and Drug Administration (FDA) greenlighted nearly 250 novel drugs, up 100% from 15 years ago (Figure 1). Similarly, over the same five-year period, the European Medicines Agency (EMA) approved more than 200 therapies.
Just as new therapies are emerging, demand for medical care is exploding. Rising household wealth and the expansion of public and private insurance coverage are two drivers. In China, for example, 95% of the population is now covered by the country’s basic insurance program, thanks to government reforms over the past decade. Reimbursement for pharmaceuticals in China is also expanding: Since 2017, the government has made annual updates to the National Reimbursement Drug List, with more than 100 therapies added in 2022.