How to invest in healthcare and biotech companies

TL;DR

  • Healthcare represented an $8.5 trillion industry worldwide in 2018 and is expected to grow to $11.9 trillion by 2022, according to Research and Markets.
  • On average, Americans are expected to spend more than $10,000 on health-related costs in 2020.
  • Healthcare is the providers, payers, and the supplier of products and services in the industry.
  • Biotech is a trending sector for investors, especially during COVID-19. Biotech companies use live organisms, such as bacteria or enzymes, to manufacture drugs.

Protecting our health is one of the basic tenets of human life. The foods we eat, the choices we make, and even the jobs we choose can ultimately revolve around our health. So it’s no surprise that the companies that provide healthcare solutions and medicines to keep us well are popular picks for some investors.

With the healthcare and biotech industries so heavily scrutinized and regulated, the information that is readily available to us can often be confusing. Apps like Public make it possible to dig deeper behind the headlines and reports, seek out new information, and connect with other investors to share knowledge and insights.

According to the World Health Organization, the annual healthcare and biotech spending tops $6.5 trillion, with 99.9% of that in publicly traded companies. There are thousands of publicly-traded companies in the U.S. healthcare sector alone, and many are priced at more than $100 per share.

As these companies ask for a higher cost per share, people with low investment budgets might not have enough money to invest in these companies flexibly. This leads to the common perception that only the wealthiest can capitalize on long-term investing.

Fractional shares, aka slices, change all of that. Thanks to slices, investors can buy stocks without having to purchase the whole share. Now, you can invest in your dream companies with whatever dollar amount you have. For example, if a company you like is trading at $100, but you have only $20 to invest, you could now buy 20% (or 1/5) of a share of the company. Should the price of that stock rise and you decide to sell, you would earn a return in proportion to your original slice.

This is helpful if you want to buy a stock that is more expensive than what you have budgeted. Buying slices of shares in different companies can enable portfolio diversification, and potentially lower your portfolio risk exposure to one single stock. In other words, instead of having all your money tied up with one share of a pricey stock, you can now buy slices of one share in multiple stocks. Buying slices of shares in different stocks can help diversify your investments and potentially reduce your risk.

What qualifies as a healthcare company?

The industry includes an enormous assortment of companies that can all be classified into one of these three categories: Healthcare providers, payers, and the supplier of products and services in the industry.

What qualifies as a biotech company?

Any company that uses live organisms in their products, such as bacteria or enzymes, to manufacture drugs can be considered as a biotech company. This is different from pharmaceutical companies as they only use only chemical (and generally artificial) materials to create their products. The terms are often used in place of each other or as the combined term like “biopharmaceuticals,” but it’s important to note that when the businesses themselves are being compared, it’s really about the difference between an established legacy company (pharma) and a startup (bio).

Why do some people invest in healthcare and biotech?

For countries around the world, most spend an average of about 10 percent of their gross domestic product—in the U.S., it’s nearly double that. The U.S. has the greatest healthcare spending, sitting at $10,224 per capita. That means that each person will spend more than $10,000 this year just taking care of themselves.

About 10,000 people turn 65 every day, according to the AARP. An older population is driving demand for healthcare could boost revenue for companies throughout the healthcare sector. Conversely, it’s also likely to encourage efforts to put the clamps on rising healthcare costs, which could spell good news for the companies that offer products and services that help to contain or reduce costs.

Healthcare stocks could be dramatically impacted if the U.S. switches to a single-payer system because most globally-operating healthcare companies rely on us for the lion’s share of their revenue and profits. A single-payer system could limit prices for companies’ products and services. Because of this risk, product- and service-based healthcare companies could perform better than others.

The biotech industry is also a big part of this conversation. Companies that produce genetically modified foods fall into this category, as do drugmakers that develop biologic drugs—large, complex molecules that are manufactured within a living organism. These drugs, like all drugs, have to undergo an intense series of regulatory steps that come with some extra risks that other companies do not have to deal with: clinical failures, approval setbacks, commercialization problems, and loss of exclusivity/patent expiration.

Most biotech companies have a few drugs in the approval pipeline, all in varying stages of the process. Biotech plays a major role in the development of precision medicine and its implementation. Precision medicine, sometimes called personalized medicine, involves the tailoring of medications to the individual genetic characteristics of a patient.

How do you find healthcare and biotech companies to invest in?

When you’re still finding your bearings as an investor, sometimes it’s helpful to stay on the sideline as you learn more and do your homework. Before you dive in, you can create a watchlist of stocks and ETFs in the healthcare sector and get used to the theme. On the Public app, you can start with any stocks and ETFs that interest you, marking them as favorites without investing and keeping an eye on them as part of your daily or weekly routine. There is also a Fighting Disease theme to explore.

Following news and updates from companies and ETFs you are interested in can help you stay up to date. You can learn a lot about them every day by keeping an eye on relevant market news. For all of the same reasons that a big part of being a good writer involves reading, being a great investor means researching. Learning, tracking, and staying engaged is helpful when building your knowledge.

The bottom line

With aging populations, novel diseases, new technology advancement, and increasing healthcare spending, healthcare and biotech companies are becoming increasingly attractive for investors. When investing in healthcare companies, keep in mind that investing in early-stage healthcare companies involves risks that other companies don’t have: clinical failures, approval setbacks, commercialization problems, and patent expiration. And the bright side, an investment in biotech and healthcare companies provides a greater good by enhancing lives and benefiting communities.

The above content is provided is paid for by Public and is for general informational purposes only. It is not intended to constitute investment advice or any other kind of professional advice and should not be relied upon as such. Before taking action based on any such information, we encourage you to consult with the appropriate professionals. We do not endorse any third parties referenced within the article. Market and economic views are subject to change without notice and may be untimely when presented here. Do not infer or assume that any securities, sectors or markets described in this article were or will be profitable. Past performance is no guarantee of future results. There is a possibility of loss. Historical or hypothetical performance results are presented for illustrative purposes only.

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