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The silver economy shines for long-term growth in portfolios

Global pharmaceutical companies benefit from ageing demographics By 2005, 10 per cent of global population was aged over 60

While Australians can invest in some excellent local healthcare companies, there are limitations. For instance, they tend to be either single or narrow product device companies says Monik Kotecha, Insync.

In an uncertain and volatile equity environment investors should not overlook global pharmaceutical companies that are benefitting from ageing demographics, reports Monik Kotecha. This is a powerful megatrend that is not sensitive to the global economy or the slowdown in China.

By 2050, 22 per cent of global population will be aged over 60

Regulators are approving new drugs at record rates as global pharmaceutical companies respond to the effect of population ageing on healthcare systems. For example, in 2014, the US Food & Drug Administration approved 50 new drugs composed of 30 new molecular entities and 20 new biological, one of the highest numbers of approvals in 20 years.

A recent example of the potential for these new breakthrough drugs is in the treatment of Hepatitis C, where a cure has been found. Nasdaq-listed US biotechnology company, Gilead Sciences, has developed drugs that are leading the way for all-oral treatments in the fast-growing hepatitis C market.

The company’s two key drugs in Hepatitis C each generated revenues exceeding US$2 billion within three months of launch and its first HCV drug generated sales of more than US$10 billion after the first 12 months. With the HCV disease affecting an estimated 3.2 million people in the US and 150-180 million worldwide, it can lead to a number of serious liver complications and death.

The effect of population ageing – also referred to as The Silver Economy or Silver Tsunami – is an international phenomenon. In 1950, just eight per cent of the world population was aged 60 years or over. By 2005 that proportion had risen to ten per cent and it is expected to be more than double over the next 40 years, reaching 22 per cent in 2050. Globally, the number of people aged 60 and over will nearly triple in size, increasing from 894 million in 2010 to 2.43 billion in 2050.

This ageing population will have a major impact on global healthcare systems. According to consultants Deloitte, it will lead to huge increases in chronic disease such as heart disease, stroke, cancer, chronic respiratory diseases, diabetes, and mental illness. These diseases are the leading cause of mortality in the world, representing 63 per cent of all deaths, and can be attributed to the aging population, more sedentary lifestyles, diet changes and rising obesity levels, as well as improved diagnostics.

In response to this trend, regulators are approving new drugs at record rates while the review times for new drugs that are saving lives are at historically short levels.

This trend is providing a significant boost for the pharmaceutical sector, where the pipeline of drugs is generating a strong tailwind for the sector, leading to multi-billion dollars in revenues.

While Australians can invest in some excellent local healthcare companies, there are limitations. For instance, they tend to be either single or narrow product device companies which can put them at a higher risk from product recalls. Or they can be companies that are principally exposed to the Australian healthcare sector, such as radiology, pathology and hospital based companies, exposing them to risks from changing funding structures and regulation.

By diversifying their domestic portfolios into areas which are not available in Australia, such as oncology, diabetes and orthopedics, investors can benefit from a major global megatrend like the impact of the Silver Economy on healthcare systems.

Media contact

Monik Kotecha

Mr Monik Kotecha CIO
Insync Funds Management (02) 9216 2977
0413 768 480
mkotecha@insyncfm.com.au

Originally published 6 April 2016.