Health Is Wealth

This story features GLOBAL HEALTH LIMITED, and other companies. For more info SHARE ANALYSIS: GLH

When originally published, this story contained a reference to Japara Healthcare. That reference has now been removed. Japara was delisted late last year.

In times of great uncertainty the Australian healthcare sector can offer investors plenty of choice, with varying degrees of risk and opportunities.

-Australia’s healthcare sector has seen record government investment
-Global pandemic has accelerated changes for healthcare services
-ASX-listed healthcare sector is dominated by international operators
-Next generation of success stories are announcing themselves

By Nikhil Gangaram

With the nasty words of recession, volatility and inflation dominating global headlines, it would be all too easy for investors to miss the fact that a healthcare revolution is bubbling along right beneath our eyes.

In addition to being the nation’s largest employer, the Australian healthcare sector has served as a reliable crux for money managers for an extended period of time.

Companies in the sector benefit from a unique combination of attributes well suited to the current environment.

Healthcare companies in general are not overly impacted by slowing economic activity or higher interest rates.

Additionally, post the general de-rating of higher-multiple Quality companies since the start of 2022, healthcare stocks are now trading at lower valuations, while boasting strong balance sheets accompanied with long-term pipelines of well-funded research and development.

The healthcare sector is also on the precipice of a seismic shift.

The covid-19 global pandemic has served as a catalyst for clinical, financial, and operational transformation of the sector.

Despite its devastating impacts, the pandemic has seen exponential advances in medical science followed by an explosion of digital technologies.

These changes have resulted in better data access and analytics in addition to more informed and empowered consumers.

The pandemic has also accelerated numerous existing and emerging healthcare trends, including new delivery models and clinical innovations.

The most recent example of seismic change for the sector was reflected in the prior Australian Government’s budget.

Record Investment

Earlier this year, the then Coalition Government highlighted its commitment to Australia’s health care system by pledging a record $537bn to the sector over the next four years.

Around $45.5bn will be dedicated to providing access to more affordable medicines through the Pharmaceutical Benefits Scheme (PBS).  In addition, Medicare, hospital and aged care facilities are earmarked for a large chunk of funding.

As per usual, Medicare reimbursements take the lion share of funding, reflecting the increased demand for doctors during the pandemic.

In particular, the emergence and demand for telehealth services presents an intriguing opportunity for investors.

According to a report from consultant Deloitte, more than 100m telehealth services have been delivered since March 2020.

The demand prompted former Federal Treasurer Josh Frydenberg to declare telehealth as one of the most significant reforms to Medicare since its inception.

For those looking to invest in the telehealth sector, the Australian stock market offers a plethora of prospects, albeit they all comprise of micro-cap companies.

Global Health ((GLH)) is one company that offers various telehealth and online services that facilitate patients in obtaining health information directly from their health provider.

Other beneficiaries include the likes of inline health directory 1st Group ((1ST)), Doctor Care Anywhere ((DOC)) and Cloud-based patient management company Oneview Healthcare ((ONE)).

There is also MedAdvisor ((MDR)) whose software system connects patients to tools and education materials from their preferred pharmacy.

Aged care is also poised to be a large beneficiary of the government’s record spending in the healthcare sector.

In response to the Royal Commission, the previous government had just started implementing its five-year aged care reform program estimated at around $18.8bn.

The reforms slated are based on five pillars of residential aged care services, residential quality and safety, home care, workforce and governance.

Stocks in the aged care sector have been trampled on in the last few years, as lack of reform and government underfunding eventually resulted in a Royal Commission that unearthed a barrage in negative news, including revelations about poor service and client-unfriendly contracts.

A general recovery in share prices for pure aged-care plays Regis Healthcare ((REG)) and Estia Health ((EHE)) -from prior lows- signals at least part of the investment community thinks the worst may now be in the past for the local aged care sector.

The ASX offers various peripheral options too with companies like Intellicare Holdings ((ICR)) and HSC Technology Group ((HSC)) assisting seniors with living at home independently.

Healthcare Revolution

In addition to funding traditional parts of the healthcare sector, the previous government also unveiled an exciting new program called ‘Biotechnology in Australia’.

This initiative is designed to support the development of the country’s promising biotechnology sector and encourage the commercialisation of products invented and developed locally.

Over the next 10 years, Biotechnology in Australia aims to create $8bn in gross value added and generate $12bn in manufacturing exports.

Apart from wearable technology and the automation of tedious administrative tasks, technological innovation in the Australian healthcare sector is just starting to scratch the surface.

According to Deloitte, Australian medical science is on the precipice of scientific discoveries that will dramatically advance the way we diagnose and treat different diseases.

The consultant notes breakthroughs in digital medicines, nanomedicine, genomics, and others are occurring at an unprecedented and exponential pace.

Australia’s listed healthcare sector is dominated by CSL ((CSL)), ResMed ((RMD)), Cochlear ((COH)), Ramsay Health Care ((RHC)) and Sonic Healthcare ((SHL)); all successful multi-national operators whose operational outlook is only partially tied-in with what is happening on Australian soil.

Underneath the local Top Five a number of next-generation success stories is already in the making with Pro Medicus ((PME)) commanding global leadership in portable imaging, while Nanosonics ((NAN)) is successfully changing hospital practices for disinfecting surgical tools.

Others that have started to attract the attention of investors include Aroa Biosurgery ((ARX)), Cogstate ((CGS)), immutep ((IMM)), MediBio ((MEB)), Medical Developments International ((MVP)), Polynovo ((PNV)), SomnoMed ((SOM)), and Telix Pharmaceuticals ((TLX)).

Buyer Beware

Despite the glitz and glamour on the outside, and the promise of potentially outsized returns, internally the healthcare sector is instinctively conservative by nature.

No surprise thus, healthcare has been a perennial lagger when it comes to adopting innovation.

But no regulatory or other constraints will stop the many changes and innovations from transforming healthcare services in the decade ahead.

For investors, these many (and significant) changes offer both danger and opportunity – just like the rest of the share market.

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