Goldman Sachs Global Investment Research
Innovation is the key value driver in healthcare. Most of the market capitalization resides in companies with new products, including major pharma, biotech, andmedical device companies.
The relative absence of innovation set against a bloated cost structure has led to a rapid decline in value of large-cap pharmaceuticals, from nearly two-thirds of the market cap of healthcare in 2000 to less than one-third today. Over the past eight years, the pharmaceuticals sector has lost a stunning $593 billion (-65%) in market cap while the two sectors with innovation—biotech and med tech—have each added $71 billion (+46%) and $19 billion (+6%) in market cap, respectively (see exhibit below). Generic drugs have also fared well (+$27 billion or +139% in market cap) as generics represent a low-cost solution to high drug costs. Furthermore, the generic companies have aggressively launched generics “at risk” or negotiating settlements with large-cap companies.
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