
By Ambrose O’Callaghan, Harvest ETFs
(Sponsor Blog)
The healthcare space entered 2024 with new growth drivers and the COVID-19 pandemic firmly in the rear-view mirror.
Today, we want to explore how the healthcare sector has progressed in the opening quarter of 2024. Moreover, we’ll look at valuations in this sector, drivers for innovation, and the largest healthcare exchange-traded fund (ETF) currently operating in Canada.
How has the healthcare sector performed in the first quarter of 2024?
Healthcare continues to be a vital sector that is in constant demand in the developed and developing world. The permanent and non-cyclical drivers of aging populations, spending in developing nations, and technological innovations, remain constant in the short term and drive the long-term positive outlook for the broader sector. While healthcare has been a consistent sector for growth, just behind high-performing sectors like technology, it has lagged the broader market since the start of 2023.
In the short term, from a macroeconomic perspective, the U.S. economy has shifted from certain interest rate cuts to relatively sticky inflation. That has prompted concerns that interest rates will stay high or even move higher. That has spurred volatility across markets and asset classes since the beginning of March 2024. Ultimately, it serves investors to look more at sector-level drivers in the near term.
How healthcare valuations measure up right now
Healthcare has held out relatively well in the midst of a broad market sell-off that started in early April. Within the sub-sectors there is a wide bifurcation in the very short term.
For example, in the healthcare sector there are big differences in sub-sectors that are working and those that aren’t. The managed care segment – companies that provide insurance and administer healthcare for individual plans and government programs, like UnitedHealth and Humana – is down mid-double digits in 2024. Meanwhile, Tools and Diagnostics is up double digits: Tools and Diagnostics are companies that make the lab and biologic drug equipment and various testing consumables, like Abbott Laboratories.
The bifurcation within healthcare sub-sectors illustrates why diversification is so important within this space.
On the valuations front, positive results are being rewarded. Tools and Diagnostics and Medical Devices have both seen better healthcare utilization. This, in turn, has led to strong corporate results. For example, Bristol Myers unveiled its first quarter (Q1) fiscal 2024 earnings on April 25. Revenues rose 5% year-over-year to US$11.9 billion. Meanwhile, its growth portfolios rose 11% on an adjusted basis to $4.8 billion. Merck bolstered its full-year guidance after posting revenues of US$15.78 billion in Q1 2024 and adjusted earnings per share (EPS) of US$2.07 – both beating expectations.
Drivers for innovation in the healthcare space
There are still many reasons to be excited about growth and innovation in the healthcare sector.
The GLP-1 drug class, frequently referred to as “weight-loss drugs.” continues to be an exciting growth driver as we look ahead. Indeed, this space has expanded from diabetes and weight loss through to sleep apnea trial results that have validated the optimism for this class of drugs. According to Goldman Sachs, the broader market for anti-obesity medications could grow by more than 16 times from $6 billion in early 2024 to $100 billion by 2030.
Eli Lilly has benefited with the weight-loss drug Zepbound gaining considerable momentum in the opening quarter of 2024. Zepbound blew past sales expectations in the March quarter, brining in US$517 million in revenues. That spurred Eli Lilly to bolster its sales outlook for the full year by US$2 billion. Continue Reading…