Morgan Stanley
  • Wealth Management
  • Mar 10, 2023

Megatrends: Health Care Innovation Yields New Opportunities for Investors

Advances in technology and innovation have led to new breakthroughs in health care. Here’s a look at three areas of opportunity for long-term investors.

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The past few years have seen the health care industry roll out vaccines, therapeutics, diagnostics and patient care at breakneck speed, setting the stage for an acceleration in investment and innovation in the years ahead.

My team and I at Morgan Stanley’s Global Investment Office believe these game-changing developments present opportunity for long-term investors. Here’s a look at three areas we find especially compelling:  

1. Genomics

Advances in computing power and machine learning have contributed to gains in genomics—the study of all genes that can be found in an organism—over the past two decades, giving scientists detailed information about the nature of human genes and how human bodies are built. Look no further than the rapid development of messenger RNA (mRNA) COVID-19 vaccines to get a sense of the impact. Increased attention on genomics may be a positive driver for the industry, potentially drawing more aggressive funding from governments and private investors.  

Advances in computing power and machine learning have contributed to gains in genomics.

2. Biotech

Our strategists expect to see more focus on additional mRNA applications, the technology that has driven COVID-19 inoculation in much of the world. One exciting area is hard-to-treat and rare “orphan" diseases, of which there are roughly 10,000 but comparably few treatments. Another is cancer. And yet another: vaccine-elusive viruses like HIV and Zika, plus more common ones like the flu.

Beyond mRNA, better use of data and analytics has already greatly improved drug discovery. In coming years, new treatments in cancer, neurology and gene-based therapies—areas of focus prior to the pandemic—may come to market.

3. Diagnostics and Beyond

Innovation in areas such as diagnostics, detection and patient care has also altered the industry. A growing number of companies are exploring tests that can detect various diseases in the early stages, including cancer, where a late-stage diagnosis is a leading cause of death. New blood tests that can detect early-stage cancer may lead to better patient outcomes, not to mention lower treatment costs.

Increasingly sophisticated and connected medical devices are driving improvements in convenience and care. For example, wire-free adhesive heart monitors can now capture cardiac data and transmit it to a patient’s doctor, and pacemakers can relay data wirelessly to a patient’s smartphone.

Investing in the Future of Health Care

Of course, there are no guarantees when it comes to drug development and medical discoveries. Behind every breakthrough is often a series of failures. Yet, innovation in the pipeline today is hard to ignore. For investors, a few overall considerations:

  • The big picture: The macro environment may be favorable to the health care sector as overall technology costs continue to decline and we transition into a less interconnected world in which the U.S. may need to shore up its own ability to provide access to supplies and treatments. What’s more, the health care sector has a lot of companies with strong balance sheets, high profitability and dividend income.
  • Value: The less-expensive areas of health care such as pharma, biotech and services may present opportunity if innovation continues propelling growth for the sector. But it could vary from company to company based on industry trends, research and development, approvals and other factors—as opposed to broad tailwinds.
Innovation in areas such as diagnostics, detection and patient care has also altered the industry.
  • Growth: In search of potential bargains? Growth-style health care tech stocks have been trading at a premium relative to other sectors in health care, but at a discount compared to other growth-oriented sectors of the broader market, such as pure tech, where stocks have continued to see rich valuations.
  • Risk and reward: Rather than going all-in on value or growth strategies in health care, consider diversifying your exposure to achieve the right balance of risk and reward for your portfolio.

Learn more in our AlphaCurrents report, “2023 Thematic Outlook and Update on Relative Strength.” Connect with your Morgan Stanley Financial Advisor to request a copy of the report or to discuss opportunities in the health care sector that might make sense for you.

Questions to Ask Your Morgan Stanley Financial Advisor:

  • How can my portfolio benefit from recent advances in areas like genomics, biotech and diagnostics?
  • How can I achieve the right balance of risk and reward when investing in the health care sector?

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