From the reported news of Seeking Alpha, according to new research by Goldman Sachs, which was published after the bank’s annual healthcare sector conference in Dana Point, California, last month, the healthcare sector has several potential businesses prepared to flourish this year despite a mediocre start to 2023.

(Source: iQoncept)

Healthcare Sectors’ Performance

The 44th iteration of the event, which attracted more than 200 firms, offers a glimpse of the healthcare sector industry’s mood at the halfway point of the year. The third worst-performing sector in the benchmark index’s S&P 500 this year is healthcare equities, which have lost 5% of their value.

Asad Haider, head of Goldman’s healthcare sector research, claims that this year’s first half saw one of the sector’s worst results in at least three decades. He explains the underperformance by pointing to macro rotations, regulatory problems, growth concerns, and investors’ predilection for large-cap tech firms. Only 46% of small investors surveyed by Goldman Sachs in conjunction with the event predicted that the healthcare sector would outperform the S&P 500 in the second half of 2023, with the remaining investors expecting an equal or subpar performance.

Given the significant procedure volumes seen in Q2, the poll respondents selected MedTech as the health industry most likely to outperform in H2 2023. “That said, there were several pockets of optimism,” the analyst continued, saying that the subsector will likely continue to grow in the future. The SMID-cap biotech and life sciences instrument makers finished in second and third, respectively, with 21% and 14% of favorable votes, and dental stocks came in last, with 25% of votes reflecting bullish views on MedTech. 12% and 6% of respondents, respectively, were bullish on managed care and hospitals at the same time.

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In Spite of Cost Pressure, Medical Equipment Remains the Same

Medical equipment manufacturers in the healthcare sector are becoming stronger as surgical and elective procedure volumes recover and stabilize despite easing cost pressures. These companies underperformed during COVID. Conversely, pandemic beneficiaries including life sciences, tools, and managed care corporations have found it difficult due to post-COVID normalization tendencies. M&A was among the subjects that received the greatest attention at the conference, according to Haider. The analyst explains the biopharma industry’s interest in mergers and acquisitions as a result of a projected $200 billion revenue loss anticipated for the industry this decade as several of its most important products lose their patent protection.

According to estimates, pharma and biotech companies spent $85 billion on acquisitions in the first five months of this year, compared to about $36 billion during the same period in 2016. Regulatory oversight has already been raised due to the increase in M&A activity. The $28 billion acquisition of Horizon Therapeutics (HZNP) by Amgen (AMGN), which was expected to be the largest biopharma M&A deal of the year, was challenged by the Federal Trade Commission (FTC) in court in May.

“The baseline expectation is that there is going to be continued M&A,” Haider said, adding that “the pharmaceutical industry will need growth and is sitting on a tremendous amount of cash.” This is true notwithstanding regulatory ambiguity, especially about larger transactions. Goldman Sachs estimates that the global pharmaceutical business under the healthcare sector has $700 billion in dry powder—cash and borrowing power—to spend lavishly on acquisitions and R&D.

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