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ANALYSIS: Should you put healthcare equities under the microscope?

Mahony also points out the gross versus net increases with the structure of the healthcare industry in the US being so intermediated.

“If the drug industry pushes up prices by 8% per annum, you have to delineate the difference between the gross and net price of drugs in the US.”

He likens the rebate system to hotel rooms that are nearly always sold on discount with different parts of the supply chain clawing back their share.

“So when you hear about a drug company increasing their prices by 8% it might actually only be by 2%.”

Under scrutiny

More transparency can be expected as Trump’s government shines a light on the middlemen, in particular the pharmacy benefit managers, who work on behalf of the insurance companies.

“I think they in particular will come under scrutiny and we should expect to see some clarity over that by the summer.”

Richard Philbin, chief investment officer at Wellian Investment Solutions, believes any threat posed by Trump will be short-lived as the long-term fundamental investment case is built on a robust demographic rationale – people are living longer and demanding a better quality of life in doing so.

“Regardless of Donald Trump, the principles supporting healthcare as an investment sector have not changed. People still age, they still need medication, want life-saving treatments and there will remain lots of businesses out there ready to provide for that.”

He doesn’t believe either Clinton was, or Trump is, trying to lock down innovation in the sector, more trying to achieve a fairer pricing structure.

When you have a low inflation, low interest rate environment, there is no demand for innovation. With healthcare inflation rising so rapidly in the past few years, governments are trying to kerb that in order to encourage innovation, which will bring in new entrants, buoy the sector overall, disrupt with new products and achieve better healthcare outcomes – all hopefully, at a lower cost. 

Part of the Bonhill Group.