The intervieew partners
Prof. Dr. Patrick Da-Cruz is Professor of Business Administration and Health Management at the Faculty of Health Management at Neu-Ulm University of Applied Sciences (HNU) and Academic Director of the MBA program in Leadership and Management in Healthcare.
Prior to joining HNU, Mr. Da-Cruz worked for renowned strategy consultancies in the pharmaceutical/healthcare sector and held management positions in healthcare companies in Germany and abroad.
As Health Innovation Manager at a health insurance company, Dr. Florian Brandt is responsible for identifying, launching, and evaluating novel approaches and promising technologies for improving medical care. Working at the interface between healthcare institutions, cost bearers, and industry, he gains comprehensive insight into the key trends and developments in the sector—an ideal starting point for his part-time work as a healthcare investor. A graduate in economics and holder of a doctorate in medicine, he is the author of numerous health science studies and publications.
Compared to other industries, investments in healthcare are considered crisis-resistant, but are subject to strong regulatory and innovation pressure. Which segments of the healthcare industry are currently considered the most attractive investment areas and why?
Dr. Florian Brandt: Healthcare is indeed considered crisis-resistant compared to other industries. Many products, such as drugs for chronic diseases, are in demand regardless of economic cycles. Globally active pharmaceutical and medical technology companies in particular also have diversified product portfolios and multiple sources of income, which mitigates the risk of product-specific setbacks. Overall, the healthcare industry is characterized by fundamental factors that are difficult to change, which increases predictability for investors: Aging populations in industrialized nations are accompanied by a steadily growing demand for healthcare services. The foreseeable increase in the prevalence of age-related diseases such as cancer and dementia makes the market predictable to a certain extent.
Regulatory and innovation pressures have a particularly strong effect on newcomers with a focused product portfolio. Approvals or rejections of new drugs by authorities such as the U.S. Food and Drug Administration (FDA) can trigger massive price movements. Breakthroughs or setbacks in research and development also have a significant impact on prices – in one direction or the other.
Companies with deep moats—competitive advantages that protect a company from competition in the long term—are attractive to investors. In healthcare, these include patents, regulatory hurdles, anchoring in treatment guidelines, or high switching costs—the latter protect, for example, suppliers of cost-intensive equipment that is depreciated over many years in clinics and doctors' offices.
How do traditional healthcare investments, such as in clinics, nursing homes, or medical centers, differ from investments in digital business models such as telemedicine, health apps, or AI solutions? What are the opportunities and risks?
Dr. Florian Brandt: Of course, there will always be a need for hospitals, nursing homes, and medical centers. However, digital business models offer potential that cannot be realized in business models from the “analog world”: In the digital space, barriers to demand for patients are reduced, automation potential reduces personnel intensity and operating costs, and location independence improves scalability. With regard to telemedicine platforms in particular, we have already learned from other industries that such business models work very well – whether in the consumer goods sector with Amazon, in the travel market with Booking.com, in the catering sector with Lieferando, or in the insurance market with Check24. The delayed digital development, especially in the German healthcare sector, where fax machines are still widely used, allows investors to look into the future, so to speak. Another plus point: development bottlenecks can lead to significant catch-up investments, which in turn drives share prices – as can currently be seen impressively in the example of the defense industry.
A significant risk: Building up a critical mass of users requires high initial investments. In addition, operators of digital business models in the healthcare sector are confronted with stricter regulations than in other industries. This is also relevant insofar as market success in the digital sector is directly linked to usability. Regulations can have a negative impact on user-friendliness if the design of certain functions is not only based on user needs but also has to comply with legal design requirements – and it is probably well known that bureaucrats who are out of touch with reality do not always come up with practical rules...
What role do regulatory developments play in the evaluation of investment opportunities in the healthcare sector?
Dr. Florian Brandt: A very big one. Although strict regulations make the healthcare business more complicated, it is also more predictable than the traditional consumer goods industry. Market development with new products and services follows clear paths: good study results are followed by approval, followed by inclusion in treatment guidelines, followed by increasing use, followed by sales.
Approval hurdles favor established companies with sufficient resources, while smaller newcomers can struggle to overcome them. Pharmaceutical giants such as Roche and Novartis have permanently integrated regulatory processes into their operations, thereby securing competitive advantages. Smaller companies often need the support of specialized consulting firms or partnerships with major players to overcome such hurdles. Country-specific price regulations also influence the profitability of healthcare business models by limiting achievable margins.
At the same time, new legal requirements, for example regarding the digitization of health data or care processes, can create the space for new business models in the first place. Smart healthcare investors should always consider the extent to which the regulatory framework in relevant target markets such as Europe and the US could promote or jeopardize the respective business model.
Which trends have the potential to permanently change the investment landscape in healthcare?
Dr. Florian Brandt: One of the most significant trends is demographic change, which is causing the proportion of older people in the population to rise steadily. This development is leading to higher demand for medical care and prevention programs. At the same time, services that maintain quality of life in old age are becoming increasingly important.
At the same time, digitalization is changing the way healthcare services are used. Mobile health apps, wearables, and telemedicine are improving access to care, promoting personal responsibility, and opening up new possibilities for diagnosis and treatment—often regardless of time and place. The COVID-19 pandemic in particular has greatly accelerated the expansion of digital health infrastructure, making it an increasingly accepted part of everyday healthcare. Closely linked to this is the rapid spread of artificial intelligence. Algorithms can evaluate medical images in seconds, predict disease progression, and support doctors in treatment and documentation. At the same time, ethical and regulatory challenges are emerging, for example with regard to data protection, the approval of self-learning and self-developing systems, and liability issues.
Another defining trend is precision medicine, which increasingly tailors medical care to the genetic, biological, and lifestyle characteristics of individual patients. Advances in genome research and data analysis enable individualized therapies that are more effective and often have fewer side effects than conventional approaches. This development is changing not only the treatment of diseases, but also their prevention and early detection.
If you could recommend only three investment opportunities in healthcare to a cautious investor, what would they be and what criteria would you use to select them?
Dr. Florian Brandt: My first piece of advice to any cautious investor would always be to never put all your eggs in one basket—and that advice applies to reckless investors too, by the way. When building wealth, diversifying broadly—i.e., investing in companies in different industries, countries, and sizes, and perhaps even adding other asset classes such as precious metals, bonds, or Bitcoin—is the best way to protect yourself from making a costly mistake. It is very unlikely that everything will crash at once.
It follows that a cautious investor should not invest solely in healthcare. However, if you are convinced that healthcare will remain a growth market in the long term – and, as discussed, there are very good reasons for this – and would like to increase the weighting in your portfolio, I would give you the following three tips:
- Healthcare ETFs, which are based on indices such as the MSCI World Health Care Index or the S&P Global Health Care Index, offer a cost-effective way to invest broadly in the healthcare sector. They include the big players in the pharmaceutical, medical technology, and other sectors.
- For those who want to invest in specific trends within the healthcare sector via ETFs, thematic ETFs such as the Global X Aging Population ETF, the iShares Healthcare Innovation ETF, the iShares Nasdaq US Biotechnology ETF, or the iShares US Medical Devices ETF could be a good option.
- Risk-tolerant investors who are interested in promising newcomers should invest in my book: “Healthcare Stocks – Investing Successfully in the Medicine of the Future on the Stock Market.”
And very importantly: never buy something blindly because someone gives you a “hot tip,” but always subject outside inspiration to a plausibility check of your own thoughts and analyses – and, of course, invest not only in healthcare stocks, but also in your own health.
Thank you very much for the interview!
The content and statements presented in the interviews reflect the perspective of the interviewees and do not necessarily correspond to the position of the editorial team.
