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Despite the U.S. national debt, there is a silver lining for income
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| A
Different Way to Profit From the Healthcare Industry |
Published: November 21, 2006
When it comes to investing in the
healthcare industry, most investors think first of pharmaceutical and
biotech stocks. Although these firms play an important role, good health
and modern medicine involves a lot more than simply taking a few pills
each day or getting a vaccine injection once a year. Modern healthcare
is a complex business involving an array of high-tech equipment,
specialized supplies, and a highly skilled workforce.
Think back to the last time you visited your dentist. If you're like
most patients, then your dentist used a powerful light along with a
series of handheld mirrors and probes to examine your teeth. He or she
likely also used specialized dustless latex gloves and an X-ray machine
during your examination. And if you were unlucky enough to need a
filling, then that procedure involved several different types of pastes,
sealants, and compounds.
And, of course, it's not just dentists -- every doctor's office and
hospital in the country is equipped with a wide variety of medical
appliances and uses a steady stream of disposable products. While none
of these products are as glamorous as the next breakthrough cancer drug,
they're just as crucial to proper healthcare.
And supplies and equipment aren't all that's involved in healthcare.
Before you even see your doctor or dentist, a nurse likely pulls your
detailed patient records. When you consider the hundreds of patients at
a typical medical practice, that's a lot of information to keep track of
and update. Today, powerful computer databases are used to manage and
sort all of this information; computerized databases can even allow a
doctor in a distant city you're visiting to view your medical records
almost instantly.
 Whether
it's disposable latex gloves or advanced patient database software, a
handful of companies supply hospitals, dentists, and doctors with the
equipment and supplies they need to perform their work effectively.
Medical services and supply companies also benefit from consistent,
growing demand. Even in relatively severe economic slowdowns consumers
will keep paying hefty sums for healthcare.
Moreover, the industry benefits from solid demographics and growth
dynamics. As our chart shows, healthcare spending by Americans over 65
years old has been steadily increasing since the mid-1990s. Furthermore,
older Americans spend far more on healthcare than their younger
counterparts. As our second chart shows, the U.S. Census Bureau projects
the number of Americans over 65 will increase from 35 million in 2000 to
nearly 90 million by 2050. That spells increased spending on healthcare
for years to come, regardless of how fast the economy is growing.
 Even
better, medical services and supply firms enjoy one major advantage over
pharmaceutical and biotech firms -- lower business risks. Specifically,
developing a new drug is an expensive and time-consuming process. Out of
thousands of compounds studied, a company may find just a handful with
the potential to become new drugs. And those compounds must be put
through a series of clinical trials to establish safety and efficacy
before receiving approval from the FDA. On average, less than 20% of all
drugs entering clinical trials ultimately make it to the market. It also
takes an average of nearly 14 years to develop a new drug and push it
through clinical trials. As a result, new drug development can cost
hundreds of millions -- and in some cases even billions -- of dollars.
And pharmaceutical companies remain at risk even after a drug is
developed, approved, and launched. Merck's Vioxx drug, for example, was
found to have negative side effects in some patients long after the drug
was launched. Vioxx was taken off the market as a result, and now Merck
faces the loss of Vioxx sales and the specter of years of expensive
lawsuits and punitive damage awards.
By contrast, the medical services and supplies industry is a relatively
simple business. When it comes to medical products like X-rays and
lamps, there is little or no development risk or cost. And with most of
these products there's far less risk of expensive lawsuits.
With these points in mind, my staff and I highlight three of our
favorite companies in the medical supplies and services business . .
.
Important
Note: Throughout
the remainder of this article, editor Paul Tracy provides a detailed
look at three companies that specialize in the medical supplies and
services industry. However, in order to view the remainder of this
article, you'll need to subscribe to our premium newsletter -- Market
Advisor. After you subscribe you'll receive immediate
access to this full article, as well as our monthly Market Advisor
newsletter and a host of additional premium content. Please visit one of
the following links to continue...
Good investing!
-- Paul Tracy
Editor
StreetAuthority
Market Advisor
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receive in-depth guidance on today's leading investing
opportunities each month, plus access to five model
portfolios, please subscribe to Paul Tracy's premium investment
newsletter -- the StreetAuthority
Market Advisor. |
Paul Tracy
founded StreetAuthority and became Chief Investment Strategist in 2001. Prior to
that he spent several years as Managing Editor at a multi-million dollar
financial publishing firm with over 150,000 subscribers. In addition to
his role as managing editor and lead financial writer, he was also
responsible for equity research and managing a team of seasoned
professional financial writers, researchers and market commentators.
Paul's previous experience
includes a position at Robert W. Baird & Co.'s full-service
brokerage operations as well as economic research work on a Money and
Banking project funded by the National Bureau of Economic Research. He
has also spent time doing outside consulting and research for the
University of Virginia, has appeared as a guest expert on several
prominent financial radio shows, and has been a featured speaker at
various investment conferences across the U.S.
Paul graduated with a B.S.
in Finance and Management from the McIntire School of Commerce at the
University of Virginia.
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