How to profit from investing in healthcare innovations

Healthcare investments can involve significant risks and require thorough due diligence and often a long-term perspective to realize potential gains. It is important to use proved strategies in order to successfully invest in healthcare innovations. We share our insights.

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Understanding the key to successful investing in healthcare industry

The key to successful innovation investing in the healthcare industry lies in?strategic focus,?collaboration, and?long-term vision. Below we explore these aspects:

Strategic Focus:

• Identify Unmet Needs: Unlike other industries, healthcare requires much more research into companies and projects. Investors should understand the pain points and unmet needs within the healthcare ecosystem. Look for areas where innovation can significantly improve patient outcomes, reduce costs, or enhance efficiency.
• Target High-Impact Areas: From our own experience, it make sense to prioritize investments in high-impact areas such as personalized medicine, telehealth, digital health, and AI-driven diagnostics. These fields have the potential to transform healthcare delivery. We regard these fields as long-term revenue-drivers of the healthcare companies, which focus on these developments.
• Evaluate Regulatory Landscape: Consider regulatory challenges and compliance requirements. Innovations that align with existing regulations or have a clear path to regulatory approval are more likely to succeed.

Collaboration:

• Industry Partnerships: Healthcare companies which actively collaborate with hospitals, research institutions, and other stakeholders are usually placed to succeed in implementation of their innovative projects. Partnerships can accelerate innovation by combining expertise, resources, and networks.
• Invest in Talent: Attract and retain top talent—clinicians, data scientists, engineers, and business leaders. Cross-disciplinary teams drive breakthroughs. It is important to screen what kind of management team has a healthcare company. Who stays on the forefront of innovative project implementation?
• Patient-Centric Approach: Involve patients, caregivers, and advocacy groups in the innovation process. Their insights are invaluable for designing patient-centered solutions. When investing in a healthcare company, we always recommend to look at medical service reviews of the company’s patients. This is the case when track record of the company’s products or services can say a lot about its long-term success, when it comes to introduction of the new service.

Long-Term Vision:

• Invest in Research and Development: It is critical to look into the Research and Development budget of a healthcare company. How much resources the company allocates for long-term R&D. Some innovations take years to mature, but they can revolutionize healthcare service.
• Sustainable Business Models: A successful healthcare company will have long-term vision and sustainable business model. Balance short-term financial goals with long-term impact. Sustainable business models ensure continued investment in innovation.
• Adaptability: Healthcare is dynamic. A healthcare company can be flexible enough in order to react quickly to changing market dynamics, technological advancements, and patient needs.

Examples of successful healthcare companies

For investors who are interested to invest in healthcare sector and make profits, we provide some examples of companies:

Medtronic (MDT):

• A global leader in medical technology, Medtronic focuses on developing innovative solutions for chronic diseases.?Their products include devices for cardiac and vascular therapies, diabetes management, and surgical technologies.
• The company is known for a variety of medical products, but perhaps most notably for developing the first battery-powered, wearable artificial pacemaker. This innovation has been a cornerstone in the field of cardiac rhythm management.
• Over the years, Medtronic has expanded its product lines to include devices and therapies for a broad range of medical conditions, including spinal and musculoskeletal conditions, neurological disorders, and diseases of the heart and vascular system. Some of their products include insulin pumps for diabetes management, stent grafts for aortic repair, neurostimulators for chronic pain and movement disorders, and many more.
• MDT is profitable company, currently trades at P/E of 26.3x (below peer group average). The company also pays dividends with the current dividend yield of 3.3%.
• Medtronic is expected to report earnings on May 23, 2024, for the fiscal quarter ending in April 2024. The expectations for the company’s earnings per share (EPS) are set at $1.45, which is a decrease of 7.64% from the prior year. The market expects that the company reports weak financial results due to high interest rates and currency fluctuations.
• We maintain bullish view on Medtronic for a long-term investment. In our opinion, Medtronic has solid revenue drivers for the next years to come: Medtronic saw double-digit growth in its Diabetes business, particularly in the United States, as the U.S.?market returned to growth. This trend may continue as the company expands access to innovative diabetes technologies globally. Continued demand for spinal devices and treatments could be a driver in the coming years. Medtronic’s Cardiac Surgery business also showed robust growth. Advances in cardiac surgery techniques and devices may sustain this momentum. Medtronic’s Cardiac Pacing business experienced growth. As the aging population increases, demand for pacemakers and related technologies may remain strong.
• Additionally, Medtronic received approvals for several transformative products, including those related to diabetes, cardiac rhythm management, neuromodulation, hypertension, and pulsed field ablation.?These approvals enhance their confidence in driving reliable growth over the coming quarters and years.

Hims & Hers Health (HIMS):

• Known as Hims & Hers, is an American telehealth company that specializes in providing both prescription and over-the-counter drugs online, as well as a variety of personal care products. Their focus is on making healthcare accessible and convenient through their one-stop telehealth service, which offers treatment options for a range of conditions affecting men’s wellness, such as hair loss and erectile dysfunction (Hims). The company operates a telehealth platform that connects consumers to licensed healthcare professionals, not only in the United States but also in the United Kingdom.
• Hims & Hers Health?has established partnerships with several high-quality health systems to enhance its services and provide a seamless continuum of care. The partnerships include Privia Health: Hims & Hers collaborates with Privia Health to offer patients direct access to providers for in-person visits and virtual primary care in select states. Privia Health is a national physician organization with over 2,600 providers across multiple states, emphasizing primary care and wellness.
• Ochsner Health System: Hims & Hers has a partnership with Ochsner Health System, based in New Orleans, Louisiana, Florida, and Mississippi.?This collaboration helps manage chronic illnesses and other healthcare conditions not addressed through its own platform.
• In the first quarter of 2024,?Hims & Hers Health, Inc.?reported strong financial results, which provide insights into their revenue drivers for the year. Below we provide the key highlights:

Key financial highlights for HIMS Q1 2024 results

Revenue Growth:

• Total Revenue: In Q1 2024, Hims & Hers achieved total revenue of?$278.2 million, representing a?46% year-over-year growth?compared to the same period in 2023.
• Online Revenue: The company’s online revenue reached?$267.8 million, reflecting a substantial increase of?45%?year-over-year.
• Wholesale Revenue: Hims & Hers also generated?$10.4 million?in wholesale revenue, which grew by?58%?compared to Q1 2023.

Subscriber Base Expansion:

• The company added a record number of net new subscribers, resulting in a?41% year-over-year increase?and bringing the total subscriber count to?1.7 million?on the Hims & Hers platform.

Average Order Value (AOV):

• The AOV increased to?$109, up by?21%?from the previous year.

Profitability:

• Hims & Hers achieved its?first quarter of double-digit net income profitability, with net income reaching?$11.1 million?in Q1 2024.
• Adjusted EBITDA?(Earnings Before Interest, Taxes, Depreciation, and Amortization) stood at?$32.3 million?during the same period.

Revised Full-Year Guidance:

• Based on the strong momentum and business performance, Hims & Hers raised its full-year 2024 guidance: The company now expects revenue in the range of?$1.20 billion to $1.23 billion?for the entire year. The adjusted EBITDA guidance was updated to a range of?$120 million to $135 million.

HIMS ‘ revenue drivers for 2024 and beyond

Hims & Hers Health’s revenue drivers for 2024 and beyond include continued subscriber growth, optimizing AOV, diversifying product offerings, operational excellence, and maintaining brand appeal.?We expect that HIMS will achieve profitability in 2024. Given expected growth, HIMS fair price comes at $18 per share and implies attractive growth potential of more than 46%. We recommend investors to look at HIMS for a potential long-term investment.

Summary – Our View

Investing in the healthcare industry can be a smart move, given its growth potential and the increasing demand for healthcare services. Below we summarized the strategies, which investors should consider for successful investing in healthcare sector:

Healthcare Stocks:

• Pharmaceutical Companies: These companies develop and manufacture pharmaceutical drugs to treat or prevent diseases and infections.?Keep an eye on clinical trial data, patents, and marketing frameworks.
• Medical Device Providers: These companies design and manufacture medical instruments and equipment, such as syringes, joint prostheses, and patient monitors1
• Health Insurance Providers: Companies that offer health insurance plans for individuals and employers to help meet the cost of private healthcare.
• Medical Services Providers: This category includes hospital operators, diagnostic centers, nursing homes, physicians, and pharmacies.

Exchange-Traded Funds (ETFs):

• Investing in healthcare ETFs is a good way to gain exposure to a diversified portfolio of healthcare companies. These funds typically track an index of healthcare stocks.

Mutual Funds:

• Similar to ETFs, healthcare mutual funds invest in a variety of healthcare companies.?They may offer more hands-on management compared to ETFs.

Stay Informed:

• Understand trends and dynamics in the industry.?Monitor clinical trial data, reimbursement rates, government regulations, and key metrics like medical cost ratios and adoption rates.

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