How Covid-19 is attracting investors to US health ventures
Healthcare is already familiar territory to many. The sector has been a popular trade in the past decade, outpacing even the strong bull market for US stocks. Healthcare companies in the S&P 500 index rose 240 per cent in the decade to mid-May 2020, compared with 140 per cent for the index as a whole.
Ageing populations in the developed world, advances in medical technology and expensive blockbuster drugs targeting cancer and other diseases have all drawn investor attention, both to listed companies and risky start-ups.
In the first quarter of this year alone, healthcare start-ups raised more than $14.6bn globally — the highest levels since 2018, according to the data provider CB Insights. Total healthcare funding reached almost $54.7bn last year.
The healthcare sector has held up even as the pandemic triggered shocks in financial markets. By late May, healthcare stocks in the S&P 500 were up almost 6 per cent on the year, compared with a slight drop in the broader index. Meanwhile, companies with promising products linked to Covid-19 have soared, including biotech groups such as Gilead Sciences and Moderna, which have announced positive news on vaccine developments.
Their popularity is fuelled by the overwhelming drive to tackle Covid-19, combined with a huge increase in government healthcare spending. Even before the pandemic, consultancy Deloitte forecast a 5 per cent annual increase in global health spending in the years to 2023.
But some investors warn that new ventures such as vaccine developers are risky bets, and start-ups aimed at preventing diseases such as the new coronavirus have so far produced little financial return.
May 27, 2020