While countries around the globe have long been working towards modernizing their healthcare systems and infrastructure, COVID-19 has put these efforts into overdrive. In recent years, an accelerated pace of technological and scientific advances has led to new medical breakthroughs and more efficient supply chains around the globe. The crisis has intensified the dire need for increased research and novel therapeutics that provide innovative ways to help combat the world’s deadliest diseases. The implications will be far reaching and profound, creating compelling opportunities for long-term investors.
Many investors would be surprised to learn all the ways that China is transforming its healthcare ecosystem into one that is incubating a promising culture for future healthcare innovation. In fact, China is one of the world’s fastest-growing major healthcare markets with a 5-year compound annual growth rate of 11%, or almost triple the U.S. rate of 4%—and these estimates don’t account for the significant enhancements since the coronavirus outbreak.1 A determined country in desperate need of a better healthcare system has been mobilizing to seal the infrastructure and innovation gaps and embrace new technologies and novel approaches to push China’s aggressive healthcare transformation agenda forward.
As the world’s most populous nation with the second-largest economy, China offers long-term growth opportunities in its healthcare sector, driven by several dynamic trends: an aging population, an increasing prevalence of chronic diseases, growing wealth to afford medical care, regulatory reform, and an influx of capital and talent. Its healthcare industry is projected to be worth $2.4 trillion by 2030, based on the government’s ambitious Healthy China 2030 plan. And while its $232 billion pharmaceutical market is still relatively young, it’s already the second-largest in the world and is expected to soar to $574 billion by 2022.2
Jennison Associates’ Global Equity team believes the Chinese healthcare sector offers compelling growth opportunities with strong long-term catalysts, especially in the pharmaceutical and biotech arenas. While the U.S. is the world’s leading biotech superpower, China has become an increasingly important player in biotechnology.
Three Catalysts for Long-term Growth
ENCOURAGING SPEED AND AFFORDABILITY
China’s rapidly aging population and accelerating rate of diseases has created an urgent need to improve the nation’s medical care. Rapidly adopting sophisticated policies common in western nations, Chinese leaders have implemented various reforms to make healthcare an integral element of China’s transformation into an epicenter of innovation.
Faster Drug Approvals: China’s State Drug Administration has created regulatory rules encouraging innovation, such as instituting a “priority review” of cutting-edge foreign drugs to speed up approvals.
National Reimbursement: The Chinese government has instituted a more formal reimbursement process and started paying for more novel drug treatments, opening up commercial opportunities for both Chinese and foreign healthcare companies.
ATTRACTING CAPITAL AND TALENT
Despite plans to transform its economy, China continues to play catchup with other nations. China currently spends only 5% of its gross domestic product on healthcare, compared with 17% in the U.S. and 12% in aggregate for 36 countries belonging to the Organization for Economic Cooperation and Development.5 That gap is expected to narrow as China continues to increase spending on its healthcare ecosystem to foster a positive environment for innovation and growth.
In April 2018, as part of its effort to increase incentives to local talent and attract additional capital into the sector, Hong Kong began allowing pre-revenue/pre-profit companies to list their shares on its stock exchange. This decision has led to an influx of capital into China’s healthcare and biotechnology sectors and has enticed Chinese healthcare experts to return from abroad to start biotech companies. Contract research organizations (CROs) like Wuxi Biologics—a provider of research, development, and manufacturing of biologic services—have been catapulting growth rates by increasing R&D outsourcing activities from drug companies as biologics are favored over chemical drugs.
While the Chinese healthcare market is still young and unproven, Jennison believes that China’s promising drug research in recent years combined with ongoing support from Chinese leaders can provide the country’s healthcare market with a solid foundation for innovation and long-term investment opportunities.
1 Source: World Health Organization, as of December 2016
2 Source: Statista
3 Source: Organization for Economic Cooperation and Development
4 Source: World Health Organization, NCBI
5 Source: Statista, OECD
Risks—Foreign investments may be volatile and involve additional expenses and special risks, including currency fluctuations, foreign taxes, and political and economic uncertainties. Emerging and developing market investments may be especially volatile. Investments in securities of growth companies may be especially volatile. Due to the recent global economic crisis that caused financial difficulties for many European Union countries, eurozone investments may be subject to volatility and liquidity issues. Value investing involves the risk that undervalued securities may not appreciate as anticipated. It may take a substantial period of time to realize a gain on an investment in a small or midsized company, if any gain is realized at all. Diversification does not guarantee profit or protect against loss. Emerging markets are countries that are beginning to emerge with increased consumer potential driven by rapid industrial expansion and economic growth. Investing in emerging markets is very risky due to the additional political, economic, and currency risks associated with these underdeveloped geographic areas. Investing involves risks. Some investments are riskier than others. The investment return and principal value will fluctuate, and shares, when sold, may be worth more or less than the original cost.
The views expressed herein are those of Jennison Associates LLC (“Jennison”) investment professionals at the time the comments were made and may not be reflective of their current opinions and are subject to change without notice. This commentary is not intended as an offer or solicitation with respect to the purchase or sale of any security or other financial instrument or any investment management services. This commentary does not constitute investment advice and should not be used as the basis for any investment decision. This commentary does not purport to provide any legal, tax, or accounting advice.
Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information, nor do we make any express or implied warranties or representations as to the completeness or accuracy. Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated, based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
1044851-00001-00 Ed: 02/21