Wealth Outlook 2024 - Slow then grow

96 Wealth Outlook 2024 | Unstoppable trends For investors, healthcare innovation is on sale Innovation and investment lead a 2024 recovery We think healthcare investors can climb this wall of worry in 2024. We expect the Federal Reserve to ease its restrictive monetary policies over time. And we are already seeing a stabilization in biotech funding. Relaxing of financial conditions would support increased drug R&D, which, in turn, would help lift beaten- down biopharma and LST companies. Excess COVID inventories should be worked off and overcapacity fully redeployed to new advancements in drug development. We also see a 2024 earnings recovery as likely. Demand for life-improving drugs, therapeutics and services will always be more resilient than discretionary consumption segments. A pickup in dealmaking should see cheap small- and mid-cap healthcare shares get gobbled up by large biopharma companies, while easing monetary policy from central banks should help boost depressed valuations of other early-stage companies. Right now, healthcare innovation is “on sale.” We are particularly drawn to discounted valuations in the medical technology and tools segments. Some of these are the necessary “picks and shovels” of the drug development ecosystem. They work in conjunction with their biopharma partners in the early stages of cell line production and later in the purification, formulation and packaging of an approved drug. Others are the producers of the new generation of devices either worn on or implanted in the body to address chronic conditions like heart disease and diabetes. Another investment opportunity is the makers of the equipment used in robotics-assisted surgery. Atypically, both large and small companies have suffered. Many well- established firms have seen their prices underperform alongside the more speculative pre-revenue areas of the Healthcare sector. In the year ahead, cash-rich, now-cheaply-valued companies that help facilitate drug research and development, save costs and improve patient outcomes look like a safe way to play the Healthcare sector’s convalescence. We also see potential opportunities in value-based care, a new paradigm that prioritizes proactive measures to prevent illness, departing from the traditional fee-for-service that incentivizes treating patients after they get sick. As with drug discovery (see AI-propelled digitization in 2024: five areas of focus on page 82 ) , this is an area of healthcare where generative AI could have a profound impact. The new AI, like the old AI, is still only as good as the amount and quality of data it’s fed. Healthcare has long sat atop a rich trove of data about symptoms, treatments and outcomes. Due to privacy concerns (and inertia), much of this data has been too siloed to be of much use. Today, though, through the tremendous consolidation – and innovation – happening across insurers, PBMs, pharmacy chains and providers, more of that data is being harnessed and hitched to the new analytics and predictive engines. This shift, too, is helping to promote a more holistic, preventive and patient-focused approach to keeping people healthier so they can live full, more active lives as they age.