Population growth and M&A activity make this sector a winner

image credit: 401(K) 2012

Recently I spoke with John Derrick, director of research at U.S. Global, to pick his brain about what he thought was the most interesting sector right now. You might expect him to have said energy, perhaps because of the intensifying violence in Kurdistan, Iraq, a major oil producer. But instead, he said that he had his eyes on health care.

This might raise some eyebrows since health care has slightly underperformed in the last three months compared to some of the other sectors such as energy and utilities. But health care does appear to be due for a major rotation, fueled by a number of reasons: dramatically changing global demographics, the recent rise in biotech and pharmaceutical mergers and acquisitions (M&As) and companies’ relocations to more tax-friendly countries.

As you can see in the bar graph below, health care, while still reliable, has much room to grow.
 

 

A rapidly growing and aging world population

By 2030, a mere decade and a half from now, the world population is expected to grow 16 percent to 8.3 billion. And because we’re living longer, a greater number of people will fall into the 60-and-above age bracket, when chronic diseases such as stroke, cancer, diabetes and heart disease become more pronounced. Life expectancy is expected to rise to 73.7 by 2017. Two billion of us—that’s the equivalent of more than six times the U.S.’s population—will be over the age of 60 by 2050, a whopping 233 percent increase from 2000.
 

Meeting the demands of such a staggering number of people, many of them at advanced ages, will require unprecedented innovation in key areas such as energy, food production, housing and especially health care. We’re already seeing practical applications of advanced biotechnology that blur the line separating sci-fi and reality—3D printing, bionic eyes and limbs, face transplants—but better and more efficient treatments are needed to confront the unique challenges that accompany an overcrowded planet.

Average global spending on health care as a percentage of gross domestic product (GDP) is currently above 10 percent. The U.S. alone spends over $8,000 annually per person on health care, more than any other country. Even so, these figures are expected to rise over the coming months and years as our population matures and, unfortunately, we become more accustomed to unhealthy diets and sedentary lifestyles.

In emerging countries, health care infrastructure is in desperate need of improvement. Many parts of the fastest growing regions, such as the Middle East and Africa, sorely lack caregivers, surgeons, hospital beds and easy access to health care in general. These are areas where global health care providers, drugmakers and biotech firms can realize huge growth potential by entering historically underserved markets.

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