The Healthcare Outlook: Macro Challenges and Biotech Innovations

Equity markets are reaching new heights, but one sector has been lagging behind: healthcare. So what's driving this underperformance, and how will upcoming innovations impact future investment opportunities and the sector's outlook? I'm Alison Nathan, and this is Goldman Sachs Exchanges. In today's episode, I'll be speaking with Asad Hayder, who leads the team covering The U. S. Health care sector for Goldman Sachs Research. We'll explore the macroeconomic factors and the specific headwinds and tailwinds affecting the industry. Next, we'll turn to Amit Sinha, head of life sciences investing in

Thank you for having me.

So let's start with the big picture. I'm just looking at my screen. The S and P 500 is at record high levels, but health care has not had that performance. In fact, it's substantially underperformed. And if I have my facts right, the health care sector's weight in the index has dropped to its lowest point in decades. So just start there. What is behind this significant underperformance?

You're right. Health care has really struggled this year, and it's actually struggled for the last few years. It's actually a fifth straight year of health care underperformance, and you had this period of outperformance during the COVID years after which the health care sector has rolled over and been struggling since. And your observation on the market cap weighting is the right one. It's health care right now commands about 9% of the S and P's weight, which is the lowest in about thirty years. So what's going on? I think it's a combination of things. I think there's exogenous factors on the

I want to dig into the policy uncertainty a little bit more because it does feel like a big headwind to the sector right now. So you mentioned a few, but what policies specifically are we talking about, and what do they really mean for the sector? There are a couple that stand out that are having a big impact.

Yeah, absolutely. So you never really want to have policy uncertainty in a sector or in an area that's already struggling with some of the fundamental headwinds that I talked about. A lot of the pharma industry, for example, is already gonna be navigating some severe, what we call, patent cliffs in the twenty six to twenty thirty period. And into those patent cliffs, what's happened is that the uncertainty from the Trump administration on the policy side on things like drug pricing and trying to normalize the prices of US and OUS prices and this whole concept of most favored nation pricing, et

Let me ask you because we are heading into the winter months here. So let me ask you a bit about vaccines, which has certainly been What in the headlines are the implications of some of the policy shifts we think we are seeing at this point on vaccine distribution Yeah. And access?

Yeah. Another great question. And so this all gets wrapped into some of the regulatory and policy uncertainty that I was mentioning earlier. I think vaccines specifically are an area where the uncertainty has been particularly acute for reasons that I think everyone's aware of. So for example, the head of HHS, Robert F. Kennedy, Jr, has had some very unorthodox views on vaccines that have created some uncertainty in those areas. And you've seen things like changes of personnel in the CDC, as well as the HHS and the CMS, etcetera. Some of the supporters of vaccines are no longer in the agencies

All very interesting. Let me ask you about one other area that has come into focus, which is the cuts to funding. We've seen a lot about NIH funding being cut, and ultimately, we think about hea