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What is happening in healthcare?

randynevinrandynevin
in Fund Discussions
First, apologies as I am not an 'active' investor. I tend to set it and forget it, so I'm usually late to the party.

I have been noticing over the last few years that investing in healthcare (for example PRHSX T Rowe Price Health Sciences, which we are in) has really sucked (relative to the market as a whole). From 2000 to mid-2015 it consistently outperformed the s&p500. That all turned around in mid-2015 and it has been underperforming ever since. I've been patiently waiting for the worm to turn. (Did some seismic event happen in mid-2015 to damage this whole sector?)

Lately I've noticed FSMEX Fidelity Select Med Tech & Devices, a real world-beater from 2000 to late-2021 has gotten hit. Flat in 2022 relative to the market, and in a real nosedive in 2023.

What is going on in this sector, and is it something that will eventually reverse?

Thanks for your thoughts on this.

Comments

  • BenWPBenWP
    @randynevin: You raise an important issue. I had been a long-time investor in healthcare stocks and CEFs. I have but one token MF holding now. As you rightly point out, the top of the market was in 2015 and this was particularly true for biotech which, I believe, was fueling much of the performance. Just yesterday I read that PrimeCap funds’ performance has suffered in recent years because of their continued over allocation to healthcare. It may be that big pharmaceutical stocks have suffered of late, say since the 2020 election, because there are serious efforts to force the manufacturers to negotiate drug prices with MediCare. Investors don’t like uncertainty, as the saying goes. Certainly there was speculative money to be made on COVID vaccine makers, but that did not represent a bump in the entire sector.
  • MarkMark
    Maybe some insight here in this September article from Reuters. Healthcare Lagging
  • hank
    edited October 2023
    I’ve never dealt with the sector. On a broader note, the near obsession with weight reducing drug ozempic is having far reaching effects on businesses, including the health care industry. To be sure, the medication is intended for specific medical conditions (like diabetes), but its success at lowering appetite / weight is receiving a lot of attention. It’s quite expensive and insurers have balked at covering it. But that is expected to change as health benefits become clearer. (There are other similar / competing drugs.)

    An excerpt from the linked article shows how a medication that’s healthy for consumers might turn out to be unhealthy for certain health care providers.

    “The news from Novo Nordisk wasn't as well received by shareholders of dialysis treatment companies. Shares of DaVita dropped 17% in premarket trading, while Fresenius Medical Care's stock was down 16% before the market opened Wednesday morning … Dialysis stocks have already been under pressure from advances related to Ozempic and similar drugs. To the extent that treatments are effective in halting the progression of kidney diseases and avoiding renal failure, fewer patients might need to get regular dialysis treatment. DaVita and Fresenius are among the top providers of dialysis services, so it's understandable that they're taking sizable hits on the news.
    https://www.fool.com/investing/2023/10/11/ozempic-is-moving-a-bunch-of-stocks-wednesday-morn/

    It goes way beyond the example cited. I’m riding a large food conglomerate I think is a good long term play. But like other food providers, it’s been taken to the woodshed lately based at least in part on the ozempic hysteria. (Walmart has documented that people picking up the drug at their pharmacies are buying less food / with fewer calories.)

    Other potential effects as the global population slims down:

    - Airlines should profit as passenger’s average weights fall leading to fuel savings

    - Hospitalization and care for cardiovascular health issues should see a sharp decrease, affecting health care providers. The drug(s) have been shown to lower the incidence of such diseases.

    - Health insurance companies should benefit from fewer serious medical claims. On the other hand, they may be saddled in paying for these expensive drugs.

    - Agriculture could suffer and, correspondingly, agricultural land prices might fall..

    - John Deere? I just checked. It’s off 11.5% YTD. Wouldn’t ya know? :)

    It gets really silly. The real impact remains to be seen.


    Here’s some related articles. Unfortunately, not all are accessible without subscription.

    https://www.nytimes.com/2023/09/02/business/dealbook/weight-loss-drugs-diet-companies-ozempic.html?smid=nytcore-ios-share&referringSource=articleShare

    https://www.reuters.com/business/healthcare-pharmaceuticals/corporate-america-weighs-risks-ozempic-effect-2023-10-19/

    https://www.washingtonpost.com/business/2023/10/09/ozempic-weight-loss-drugs-impact/

    https://www.msn.com/en-us/money/companies/it-s-overblown-beer-stocks-take-plunge-after-major-corporation-warns-ozempic-weight-loss-drugs-could-affect-sales/ar-AA1i095V
  • yogibearbullyogibearbull
    In mid-2010, there was a great rally in biotechs but then there were huge numbers of biotech IPOs. That basically was a big negative as many hyped and unprofitable IPOs flamed out.

    It is notable that NVO is so crazy now that it has market-cap larger than its home country - Denmark. Moreover, it has the largest market-cap in Europe. Imagine if something like that happened to the US LLY.
  • WABACWABAC
    Airlines will use Ozempic as an excuse to make seats smaller.
  • BenWPBenWP
    One aspect is clear to me, at least. If there's a drug to be sold, the American healthcare system will address the problem of obesity. Otherwise, it's a moral issue and neither doctors nor big pharma want to be involved. No one wants to take on the food industry whose products are one of the main causes of the obesity crisis.
  • rforno
    edited October 2023
    Big Pharma is probably quaking violently about Ozempic/Mounjaro/etc drugs' impact long-term. If these drugs indeed prove to fundamentally help treat the ROOT CAUSE of many 'traditional' or common/routine conditions, the industry will lose billions on the drugs it hawks that only treat the SYMPTOMS of those conditions or side-effects of other symptom-treating drugs .... in other words, being "good for your health" is also "bad for our business" b/c the industry thrives on treating recurring symptoms, not causes.

    IMO, I think that outcome will be a good thing for society.
  • yogibearbullyogibearbull
    New diabetes/obesity drug prices per month (image below should open), https://twitter.com/Jason/status/1692641465363493146

    Only injectables, no oral tabs yet.

    Most insurance cover them only for diabetes, not obesity.

    image
  • hank
    edited October 2023
    Here’s another potential lead to “What happening in health care?”

    Title: ”Moderna shaves off $7 billion in value after Pfizer warning”

    https://gulfnews.com/business/markets/moderna-shaves-off-7-billion-in-value-after-pfizer-warning-1.98912855

    Above article relates to shrinking demand for Covid vaccines.
    randynevin said:

    I am not an 'active' investor. I tend to set it and forget it …”

    Sounds right to me. Can’t react to every bit of news. Markets run to extremes. I’ve recently picked up a few additional shares of the food conglomerate I mentioned earlier at lower prices.
  • rforno
    yogibearbull said:

    New diabetes/obesity drug prices per month (image below should open), https://twitter.com/Jason/status/1692641465363493146

    Only injectables, no oral tabs yet.

    Most insurance cover them only for diabetes, not obesity.

    image

    Well, someone has to pay for all the advertising ....
  • hank
    edited October 2023
    Hell, ozempic even made Barron’s this week - not necessarily in a good way:

    Ozempic, a GLP-1 receptor agonist, is a weekly injection aimed at reducing people’s appetite for addictive foods, helping them lose weight. It’s been a problem for many stocks. But GLP-1 drugs were originally designed to treat diabetes, and the market fears they will do such a good job of combating the kind of overeating that causes diabetes that people won’t need to buy DexCom’s (DXCM) continuous glucose monitoring devices, or CGMs, anymore. DexCom stock has dropped 43% during the past three months as a result.

    The “Hits” just keep on rolling!
  • AnnaAnna
    Have they determined that the health benefit outweighs any long-term problems? I remember the hype about amphetamines in the 50s.
  • msf
    edited October 2023
    yogibearbull said:

    New diabetes/obesity drug prices per month (image below should open), https://twitter.com/Jason/status/1692641465363493146

    Only injectables, no oral tabs yet.

    Most insurance cover them only for diabetes, not obesity.

    image

    The key word in the graphic is list, as in list prices. The NYTimes gives a nice summary of an AEI study on what these drugs actually cost, net. That AEI study also notes that Rybelsus - with the same active ingredient (semaglutide) and same manufacturer (Novo Nordisk) as Ozempic and Wegovy - is delivered in tablet form.

    https://www.nytimes.com/2023/10/22/health/ozempic-wegovy-price-cost.html
    https://www.novomedlink.com/semaglutide.html

    https://www.aei.org/wp-content/uploads/2023/09/Estimating-the-Cost-of-New-Treatments-for-Diabetes-and-Obesity.pdf

    Current discounts from list price (from NYTimes reporting on AEI report):
    Net prices, the revenue divided by the number of prescriptions in their analysis, appear to be around $700 every four weeks for Wegovy, or about $650 less than the list price; about $300 for Ozempic, or nearly $650 less than the list price; and approximately $215 for Mounjaro, or about $800 less than its list price.
    The NYTimes quotes "Jalpa Doshi, professor of medicine and director of the economics evaluation unit at the University of Pennsylvania" as speculating that prices will drop as competition increases. I'm not so sure. These will all be patented drugs (high barrier to entry) with a limited number of players, suggesting de facto (implicit collusion) oligopoly pricing.

    OTOH, evidence that competition has at least some impact (again from the NYTimes):
    Wegovy, the same drug as Ozempic, is approved for weight loss. [Ozempic is not, though it also causes weight loss.] But the price of Ozempic is substantially lower than Wegovy’s price.

    The reason may be that Ozempic has a direct competitor in Mounjaro.
    ... and ...
    An effective cure for [hepatitis C] initially cost as much as $84,000, leading to dire warnings that the cost would be comparable to “total spending in the United States on all drugs.”

    The list price of the hepatitis C treatment plunged, as competitors entered the market. Pharmacy benefit managers, which negotiate with drug makers, had more leverage as companies competed. Net prices fell accordingly.
    Actual prices paid and insurance coverage are all over the map. As the NYTimes notes, "Those on Medicare, for instance, have no insurance coverage for Wegovy because Medicare is prevented by law from covering weight-loss drugs."

    Other insurance may cover the drugs but with high co-pays and deductibles that keep them out of reach of many patients.

  • msf
    Anna said:

    Have they determined that the health benefit outweighs any long-term problems? I remember the hype about amphetamines in the 50s.

    From the same NYTimes piece:
    The Institute for Clinical and Economic Review, an influential nonprofit group, asked about a year ago if the new weight-loss drugs are cost-effective, meaning that their value in terms of a better quality of life, a longer life and benefit to society exceeds their cost.

    Wegovy [approved for weight loss], the group reported, was not cost-effective. But the institute relied on an early and less precise estimate of the drug’s net price.

    When shown Wegovy’s estimated net price in the A.E.I. research, the group’s chief medical officer, Dr. David M. Rind, said that if the calculations were correct, Wegovy was cost-effective but “still poses major budget challenges.”
  • hank
    Anna said:

    Have they determined that the health benefit outweighs any long-term problems? I remember the hype about amphetamines in the 50s.

    The NYT notes some potential problems:

    - Malnutrition https://www.nytimes.com/2023/04/21/well/eat/ozempic-side-effects-malnutrition.html?smid=nytcore-ios-share&referringSource=articleShare

    - Facial aging https://www.nytimes.com/2023/01/24/style/ozempic-weight-loss-drugs-aging.html?smid=nytcore-ios-share&referringSource=articleShare

    - You may lose the desire to drink https://www.nytimes.com/2023/02/24/well/eat/ozempic-side-effects-alcohol.html?smid=nytcore-ios-share&referringSource=articleShare
  • BenWPBenWP
    I found the following Wapo guest piece quite enlightening about how the drug companies’ legal strategies and arguments are playing out in the various courts where the challenges to the Inflation Reduction Act are being heard.

    https://www.washingtonpost.com/opinions/2023/10/23/medicare-negotiations-drug-prices-lawsuit/
  • sma3
    As I understand it, the drug companies' legal stance is negotiated lower prices amount to an illegal "taking" of their property because they are forced to sell the drug as lower prices.

    This argument seems to fly in the face of the fact that they are willing to sell the drugs at far lower prices in other countries.

    So far all the non diabetic weight loss studies have been short term. Presumably long term ( ie lifetime?) use will be needed. Those side effects are less known.
  • BenWPBenWP
    The sector continues to suffer, with BMY and GSK down more than 3% today. There may be other examples, but I don’t have the stomach to seek out more carnage.
  • MarkMark
    edited October 2023
    ABBV down 6.27%. No news, no earnings miss, just upped their dividend. Silly me, I added to my position.
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