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The worldwide population growth over the past few decades has been nothing short of explosive: there were more than three times as many humans alive in 2010 as there were in 1950. While population growth in general is expected to slow over the coming decades, the global population is poised to get older and wealthier, which should combine to increase the demand for healthcare services for decades into the future. With a megatrend like that in place there are also bound to be dozens of smaller trends at play in the healthcare sector, so investors in the space should be aware of them and looking for ways to position their portfolios to take advantage.
We asked our team of Motley Fool contributors to share a trend in healthcare that is here to stay and could make for a great investing idea for at least 20 years into the future.
Dan Caplinger: One of the most important parts of Medicare reform over the past several years has been the shift away from service-based payments toward more of a quality-based payment model. In effect, Medicare is looking to reward those hospitals and healthcare facilities that offer high-quality care in a way that reduces the need for subsequent readmissions. By doing so, Medicare gives an incentive for healthcare providers to get things right the first time rather than plan for a return trip to a hospital.
The system is still new enough that investors shouldn't draw any firm conclusions from the ratings. However, it's clear that hospitals and other healthcare facilities -- both nonprofit and for-profit -- will need to watch closely to make sure that their quality levels allow them to get the maximum reimbursements possible from Medicare. Going forward, it seems likely that this trend will gain momentum, and hospital organizations will have to work increasingly hard in order to sustain and build on their reputations for quality service.
Investors should also watch closely to see what kinds of innovations hospital companies come up with, as the moves they make now could result in competitive advantages down the road that could generate stronger returns.
Brian Feroldi: While the rising costs of drugs have grabbed headlines recently, it's likely that the government will look for ways to help rein in the cost increases. One way they may do just that is making it easier for biosimilar drugs, which are generic version of biologics, to find their way to market.
Most drugs fall into one of two categories: chemical and biologic. Chemical drugs have faced generic competition for years once they lose patent protection, as manufacturers can easily flood the market with generic alternatives that dramatically reduce prices.
That hasn't happened with biologic drugs: since they are produced from living organisms, they are susceptible to heat and microbial contamination, which makes manufacturing copycats far more difficult. Up until recently the regulatory pathway for biologic drugs was unclear, but that all changed earlier this year when the FDA approved its first biosimilar.
Now that the door has been busted open, it's likely that we will see a flood of biosimilars hit the market over the coming decades, which could go a long way toward reining in drug prices. While this is a win for consumers, it could spell trouble for big pharma companies like Eli Lilly and even blue-chip biotechs like Amgen, which depend on revenue from biologic drugs that have already lost or will soon lose patent protection.
Of course, one company's loss is another's gain, so investors can put the trend on their side in a number of ways. Pharma giant Pfizer (PFE 0.55%) purchased Hospira to help build up its biosimilar presence, and Novartis' (NVS -1.64%) Sandoz could also be a big player in the biologic market. For those interested in a smaller biosimilar pure-play, Coherus Biosciences (CHRS 5.70%) already has three biosimilars in advanced trials.
No matter how this story plays out, biosimilars represent both a huge threat and a huge opportunity, making this an important trend to watch over the coming 20 years.
Selena Maranjian: One trend in healthcare that's likely to be a boon to doctors, patients, and some investors is the growth in electronic health records, or EHRs. An increasingly busy corner of the software world is devoted to healthcare-oriented information technology, and many are focused on EHRs.
Imagine going to your primary care physician, a specialist, or an emergency room, with whoever examines you having access to your records electronically. They'll be able to see your prescriptions, health issues, treatments, immunizations, lab results, and more. That's a prescription for better care, as doctors can make more informed decisions.
It's a relatively new concept, and many in the healthcare community are not embracing it, as it's costly and not a simple thing to implement. But there's an important catalyst giving growth traction now: the U.S. government, which enacted the Health Information Technology for Economic and Clinical Health (HITECH) Act as part of the American Recovery and Reinvestment Act of 2009, promoting the adoption of health information technology. It offered both financial carrots and sticks to spur adoption (such as offering billions of dollars in incentive money for providers to use EHRs in "meaningful" ways), which has helped companies in the EHR business grow.
One such company to consider for your portfolio is Cerner (CERN), which offers integrated systems that can help medical practices not only with EHRs but with scheduling, payments, and more. The company received a $4.3 billion contract this summer from the U.S. military, which will provide more wind in its sails. It pays no dividend at the moment, but is free-cash-flow positive and has double-digit net margins, which suggests that this could be a great company to play on the trend of EHRs.
Cheryl Swanson: Every day almost 10,000 baby boomers turn 65 in the U.S. -- that's one every nine seconds. Boomers, who made political and social protests the norm in their youth, will demand control over their healthcare -- something we haven't seen in previous generations. In addition, thanks to medical advances over their lifetime, boomers will live longer.
So what stocks or healthcare industries are boomers likely to put on the fast lane to continued success?
Let's start with wearables, in the form of monitoring devices for people with chronic medical illnesses. I'm talking about innovations from companies like Abbott Laboratories (ABT 0.63%), with its pain-free wearable for monitoring glucose, or Fitbit (FIT), whose wristbands are being used by cardiac-surgeons to track activity in their patients. Medical wearables could provide colossal opportunities in the coming decades.
What about Big Pharma? The average 70-year-old takes three times more prescription drugs than the typical 40-year-old does, so this sub-sector looks set for multi-decade gains. Oncology titan Roche Holding (RHHBY 0.77%) could be a particularly good bet. Roche has one of the most robust drug pipelines in Big Pharma, and its strong diagnostics business provides a unique edge. Combining diagnostics tools with treatment means more integrated, personalized healthcare solutions -- exactly what this demanding generation will expect.
Sean Williams: The next big thing in healthcare is actually here already, but you're probably going to witness it evolve slowly over the next 10 to 20 years.
Personalized medicine, or the idea of throwing out the one-size-fits-all cures for certain diseases, such as cancer, is one way I believe you could find substantial profits and improved quality of life for many years to come. Personalized medicine focuses on the idea of targeting specific genes or proteins within a person's body to effect positive biologic change.
Two ways to consider taking advantage of personalized medicine is through diagnostics and drug developers themselves.
Within diagnostics, a company like Myriad Genetics (MYGN 1.11%) with its BRACAnalysis test has spearheaded the campaign to identify women who have a much higher risk factor for breast and ovarian cancer. The test analyzes whether or not the patient is a BRCA1 or BRCA2 gene mutation carrier. Some patients, like Angelina Jolie, took the pre-emptive measure of getting a mastectomy to substantially lower their risks. Others can use the test as a cue to be screened for breast and ovarian cancer early and often.
Another approach is to consider cancer drug developers focused on specific genes, or on enhancing the way your body fights disease. Cancer immunotherapy vaccines are a great example of a medicine designed to teach your immune system how to more effectively and efficiently locate and destroy cancer cells. For instance, Bristol-Myers Squibb's (BMY 0.34%) Opdivo demonstrated a response rate of around 60% in patients expressing high levels of PD-L1 in advanced non-small cell lung cancer patients. It also boosted survival times by a whopping eight months, which is impressive for NSCLC patients who've progressed on prior therapies.
The future is now when it comes to personalized medicine, and you should consider examining ways to incorporate this huge growth potential into your portfolio.
