Good health is a key human need that will continue to see demand regardless of overall economic conditions. While treatments and health practices may change over time, people will always need some form of medical care.
Investors understand that the health sector goes through its ups and downs, but the consistent need for health care has made the sector one of the best long-term performers. Since 1963, the health sector has been one of the best performers, generating an annualized rate of return of 11%.
Today, the bullish-healthcare investment thesis continues to play out. We have seen several big waves in the biotech industry over the past couple of decades. The first major cycle came in the late 1990s, another in the mid-2000s, and last one occurring between 2012 and 2016, according to Morningstar Investment Research analysts. Furthermore, the S&P 500’s biotechnology subindustry index surged 344%, compared to gains of 102% in the overall market, over the past decade.
What Created The Opportunity In Biotech?
Biotech has seen a bit of a pullback since February 2015, when the industry effectively began to uncharacteristically underperform the market. Market research analysts note that a perfect storm has led to the current period of underperformance: once-hefty valuations, U.S. presidential elections, and the end of drug cycles.
By early 2015, biotech had such a massive run that valuations were extremely overvalued and the rally was becoming increasingly exhausted. However, it was the political election and expiring drug cycles that really drove the underperformance of the industry.
The U.S. presidential election featured a lot of conversation and debate on capping drug prices and making sweeping changes to the nation’s healthcare system. As people brushed off Donald Trump’s chances at the presidency, investors were increasingly focused on Hillary Clinton’s harsh rhetoric and potential massive overhaul to the healthcare system.
“There was a lot of uncertainty, with Clinton proposing some ideas that could have hit the drug industry,” details Karen Andersen, a sector strategist with Morningstar. “People got more comfortable with the idea that Donald Trump wouldn’t make any substantial changes.”
“At around the same time, the drug cycle that helped propel biotech stocks to new heights came to an end. In 2012 and 2013, new medicines were only starting to materialize, with most of those years being focused on innovation. It was only in 2014, 2015, and some of 2016 when companies began generating revenues off their research and development work,” says Eddie Yoon, manager of the Fidelity Select Health Care (MUTF: FSPHX) mutual fund.
Morningstar: Biotech Looks Primed To Begin Outperforming Market Once Again
While biotech has underperformed in recent years, fund managers and market research teams are beginning to see signs of a resurgence within the industry. One of the key factors behind the major turnaround is the development and implementation of revolutionary drugs and treatments, such as cell & gene therapy.
According to demographics, the American population is getting a lot older and will only continue to see demand for treatments and medical needs increase. Furthermore, as emerging market countries continue to gain better and greater access to medication, the health and biotech space are well-positioned for the long-term.
Also aiding the biotech resurgence is the cutting of regulatory tape at the U.S. Food and Drug Administration (FDA). In 2012, the FDA was given the authority to grant expedited reviews of drugs that could be considered a “breakthrough therapy.” This has allowed some new drugs to be approved in as little as three months. In February 2017, shortly after coming to office, President Trump signed an executive order which made even deeper cuts to the FDA and its review process.
However, as biotech starts heating up once again, key fund managers are noting were the opportunities reside: small- and mid-cap stocks. According to Dale Chan, fund manager of Prudential Jennison Health Sciences (MUTF: PHSZX), the most innovation will occur within the small- and mid-cap biotech arena. Mr. Chan notes that large-caps will feature more attractive valuations, but the small space will have some of the greatest innovative breakthroughs.
Mr. Chan notes that as a majority of larger biotech companies continue to face the end of drug cycles and the dreaded patent cliff, “the outlook of the small and mid-cap names is as exciting as it’s ever been.”
A Small-Cap Biotech Stock With Big Potential: Innovest Global, Inc. (OTC Pink: IVST)
Innovest Global, Inc. (OTC Pink: IVST) operates as a diversified holding company, which currently operates within its Commercial Energy & Durable Goods and Biotechnology & Health Sciences divisions.
In March 2018, Innovest Global, Inc. (OTC Pink: IVST) announced the formation of a Biotech & Health Sciences division, which will be headquartered in Los Angeles, CA and led by world-renowned neuroscientist, Dr. Dwain Morris-Irvin.
Dr. Morris-Irvin is very active within the health science and biotech community, as he is also an expert in patent generation for treatment of Parkinson’s, brain cancer, and more. Dr. Morris-Irvin received his PhD from the UCLA School of Medicine and earned his Masters in Public Health from the UCLA School of Public Health. He also has the distinguishing honor of receiving training at The Wallenberg Neuroscience Center at Lund University in Lund, Sweden.
“Dr. Morris-Irvin has a unique combination of subject matter expertise, experience, and business acumen that make him a perfect leader for this division,” said Innovest CEO, Dan Martin. “And he’s one of the most respected professionals and best people you could ever have the pleasure to know. We expect this division to result in ownership of meaningful intellectual property and other progress, without the significant capital costs of traditional biotech initiatives. His relationships, plans, and creativity tell me we will have an exiting path ahead that we are well equipped to execute, and I am thrilled to get started on it with him at the helm.”
Overall, Innovest Global, Inc. (OTC Pink: IVST) continues to be on a very impressive track after its recently announced biotech addition. Management is very excited to join forces with Dr. Morris-Irvin, as it will allow Innovest Global, Inc. (OTC Pink: IVST) to gain major credibility within the industry. Fund managers and market research teams are increasingly seeing signs of a biotech resurgence after a couple of quiet years. As revolutionary treatments continue to be developed and biotech demand is set to rebound, Innovest Global, Inc. (OTC Pink: IVST) is one stock that should be on your watchlist.
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