The politics of debt [PODCAST]
Who will win the debate about federal debt, and will it even matter?
Who will win the debate about federal debt, and will it even matter?
Even with COVID-19 cases surging recently, public health officials have been cheering the unprecedented rush of multiple vaccines and therapeutics into the marketplace.
But while COVID-19 therapies have taken center stage in the medical and biotechnology sector, many other areas of innovation are emerging in the shadows. “The first half of 2021 will still be fairly COVID-intensive in terms of the impact it will have, but we should begin to finally start thinking about a return to a more normal environment,” says David Heupel, senior healthcare analyst, Thrivent Asset Management.
Already buoyed by secular trends, such as the aging population, the healthcare and biotechnology sector seems likely to continue above-market growth for the foreseeable future, according to J.P. McKim, senior healthcare analyst, Thrivent Asset Management. “Healthcare is vital to our country in so many ways.”
The proliferation of advanced medical treatments not only contributes to the health of the population, it also provides a fertile opportunity for investment, says Heupel. “Innovation gets paid for.”
Heupel and McKim identify three themes that have shaped Thrivent’s healthcare investment strategy:
Although the profit potential of COVID-19 vaccines is low, much of the research and development has been funded by the federal government. The pharmaceutical industry has been under pressure worldwide to offer vaccines at or below cost. So, the timely investment opportunities in this area are found beyond the big vaccine names.
For instance, Johnson & Johnson (JNJ), is among the leaders in developing a COVID-19 vaccine, but it also has investment appeal for other reasons. “Its core business is underappreciated,” says Heupel. “The pharmaceutical segment within JNJ has strong products in oncology and immunology (treating auto-immune diseases).” The company is also a global leader in medical devices for orthopedics, surgery and vision.
Another leader in the sector, Quidel (QDEL), a diagnostic healthcare manufacturer, offers a host of products, including rapid testing for COVID-19. It is also strong in automated manufacturing and has market-leading products in infectious diseases and reproductive health.
The international market is also a fertile area for investment in the medical sector. “These markets are growing at two to three times the corporate average in the United States,” Heupel says. Medtronic PLC (MDT), which offers products for a range of serious medical conditions, has its own employees in fast-growing developing markets – a huge advantage over rivals who have to deliver products and services through third parties.
Because of the high infection rate of COVID-19, the pandemic has driven patients away from doctors’ offices, as well as hospitals. “The three important ‘Ps’ of healthcare – physician, payer and patient – all prefer care outside the hospital,” explains McKim. “Obviously, it’s much cheaper to get healthcare done in the home than in the hospital and, for the most part, preferred by patients as well.”
Among the beneficiaries of that trend is Teledoc Health (TDOC), which links patients to its own network of doctors, therapists and other medical professionals by phone or video. Others include LHC Group (LHCG), which specializes in home nursing, hospices and long-term care hospitals, and Amedisys (AMED), which offers a range of home healthcare services, including the management of long-term conditions.
One of the most significant trends in healthcare is providing for an aging population, particularly Baby Boomers, the huge group born after World War II. According to the U.S. Census Bureau, every member of this generation will reach the age of 65 by 2030, fueling unprecedented demand for healthcare.
According to Heupel, “Humana (HUM) is probably the best operator in Medicare Advantage area” [a Medicare Part C all-in-one program that combines A (hospitalization), B (doctor visits) and D (drug coverage)]. It is an HMO-like product that offers fewer choices than fee-for-service or traditional Medicare, but costs much less.
Other leaders in this area include Zimmer Biomet Holdings (ZBH), a broad-based medical device company with a growing footprint in robotic surgery, such as knee and other joint replacements; Edwards LifeSciences (EW), which offers therapies for a variety of heart conditions, such as aortic valve replacement; and Silk Road Medical (SILK), which specializes in artery and vascular therapies.
A global leader in the arthritis market with its Humira medication, Abbvie (ABBV) may face a revenue challenge in 2023 when Humira loses patent protection. Heupel contends, however, that Abbvie’s story “is not as bad as some people think. They have two new drugs in the same category, Rinvoq and Skyrizi, that have clinical data showing superiority to Humira in certain indications.”
Three other companies playing significant roles in the treatment of chronic disease include ResMed (RMD) and Inspire Medical Systems (INSP), both of which provide therapies and equipment for the treatment of sleep apnea and similar breathing conditions, and DexCom (DXCM), which manufactures continuous glucose monitoring systems for diabetes management.
COVID-19 vaccines are probably the most widely publicized product of biotechnology, but the influence of biotechnology has spread throughout the medical universe, which is an area of special interest to McKim. “We are very interested in this liquid biopsy space because of the cost savings over surgical biopsies,” he says.
For instance, Natera (NTRA) specializes in cancer-care management (as well as pre-natal testing and screening), and Gaurdant Health (GH) is developing tests to detect cancerous tumors in the bloodstream. One of the oldest and most familiar names in pharmaceuticals, Merck (MRK), has developed a treatment called Keytruda, which can be used by physicians as an injection to treat a range of cancers, including melanoma, Hodgkin lymphoma and lung cancer.
As the world adapts to the shifting nature of healthcare, Heupel believes that “some changes are never going back to normal.” While COVID-19 may ultimately become a preventable disease, biotechnology will continue to spawn an increasing array of medical innovations.
All information and representations herein are as of 12/15/2020, unless otherwise noted.
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Thrivent Asset Management, LLC associates. Actual investment decisions made by Thrivent Asset Management, LLC will not necessarily reflect the views expressed. This information should not be considered investment advice or a recommendation of any particular security, strategy or product. Investment decisions should always be made based on an investor's specific financial needs, objectives, goals, time horizon, and risk tolerance.
This article refers to specific securities which Thrivent Mutual Funds may own. A complete listing of the holdings for each of the Thrivent Mutual Funds is available on thriventfunds.com.