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Key themes shaping the healthcare industry

08 September 2022

Adam Barker is a Healthcare Equity Research Analyst at Goodbody. He is responsible for producing equity research on pharmaceutical, biotech, medtech, and healthcare services companies and for helping to facilitate investment in companies delivering medical innovation. Adam holds a Masters in Biochemistry from Oxford University and a Masters in Epidemiology and a PhD in Epidemiology from Cambridge University. He is also an ACA chartered accountant. Recently, we sat down with Adam, to discuss the key themes and trends shaping the healthcare industry. 


COVID-19 was arguably a watershed moment for the pharmaceutical (pharma) and biotechnology industry – what challenges did it create for the industry?

Well, the biggest challenge was simply the pace at which a solution to the pandemic was required. It usually takes up to 10 years to develop new vaccines and the industry delivered one in 11 months. This took a lot of innovative thinking and different ways of working together. But it is also important to remember that this unprecedented pace of delivery came in the context of the industry also having to restructure its workforce and way of working because of the virus itself. Running clinical trials and overseeing large-scale manufacturing is no simple task in normal times and so, doing it whilst also maintaining employee safety in the face of the virus was challenging. So, the industry had the double challenge of finding rapid solutions to COVID-19, whilst also maintaining day-to-day operations to make sure that the many other lifesaving medicines it produces kept being delivered to patients.

What are the main investment themes of the pharma sector at present?

From a macro perspective, large healthcare stocks are often seen as “defensive” meaning they are more resilient in times of economic difficulty and so, can be seen favourably for that reason. In contrast, many biotech companies do not generate cash for many years into the future and so, tend to suffer when interest rates rise as we’ve seen this year. From a fundamental perspective, the underlying drivers of healthcare stocks remain robust (e.g., aging populations and growing access to healthcare) and the investment themes are largely consistent with recent years including the pace of innovation and behaviour of regulatory bodies, a focus on price sustainability and value-based care models, and the potential for drug price reform (particularly in the US). Most recently, we’ve also seen the issue of drug safety come well into view with investors focusing on upcoming litigation surrounding a drug called Zantac and its potential cancer risk. This is a timely reminder that drug safety and the highest quality controls remain very important for the industry.

The issue of drug pricing reform in the US continues to be a topic that generates plenty of debate, do you see any chance of reform? 

There tends to be a lot of noise around US drug pricing reform because prices in the country remain elevated relative to peers. So, I have no doubt that noise will continue. I think you will see a lot of suggestions on improving competition, increasing transparency on pricing and initiatives to get cheaper medicines (generics/biosimilars) to market quicker. However, the most significant change recently has been surprise progress made by US Democrats in passing a bill that would allow Medicare to directly negotiate US drug prices. This is the most significant change in some time and although I do think the industry can manage the consequences, there will be a lot of discussion around this issue and particularly what precedent it could set with respect to getting the balance right between drug prices and innovation.

What is your outlook for the healthcare and pharma industry?

It is a very interesting time ahead. The pandemic has reminded people of how critical a vibrant life sciences sector is for all of us. It has also shown people what is possible when the industry uses innovative ways of working. I think there will be higher expectations on the industry now to deliver solutions to problems in a much quicker time frame and I’d assume that will include both previous areas of concern (e.g., antimicrobial resistance) and new areas highlighted because of COVID-19 (e.g., infectious disease). I do expect to continue to see huge innovation from the sector and I am hopeful that will mean even more effective medicines over time. However, the issue of sustainability will be very much in focus. The question of how to ensure equitable access to new and expensive medicines, in the face of aging populations, is one that the industry will have to grapple with for some time. 

 

For more information on our coverage of the healthcare sector, visit: https://www.goodbody.ie/for-corporates-and-institutions/investment-banking/equity-research/healthcare.  


This Q&A was originally published in the  Corporate Advisory Newsletter, Q3 2022 on 18 August 2022.

 

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