A Renaissance for Health Care, but Can Economy Keep Up? | American Funds

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Market Commentary

June 2015

A Renaissance for Health Care, but Can Economy Keep Up?

An investment analyst discusses the great strides seen in health care innovation and outcomes in recent years, but wonders whether the U.S. economy can support the proliferation of new drugs soon to be on the market.



Richmond Wolf


Rich Wolf: Were in the middle of a massive, massive health care renaissance, and I think we’re probably in the second or third inning of that. So people, raise your hand if you remember when we declared that wed sequence the human genome in 2000. Right. That was 14 years ago. So 14 years later, were only just now figuring out what to do with that code. And you’re hearing every day about new biotech drugs. Well, the key thing that you should be hearing is that for the first time, were understanding the exact mechanism of how those drugs work in the human body and how they specifically target the code that that codes for genes and proteins in our human body.

Virology alone is incredible. We can cure hepatitis C now for the most part. That’s just unbelievable. Immuno-oncology — the idea that you can train someone’s immune system to actually combat diseases like cancer — I mean, the first two drugs aren’t even that good, and they’re still great. And you start to look at the second- and third-generation type therapies, they’re just amazing. Now there are X number of cancers that are not only treatable but, in many cases, curable. Leukemia, for instance, in general: We’ve just massively rolled back the clock on patient death in leukemia. So I just think there’s a lot more to go. 

Now, what we have to be cognizant of, in terms of taking profits: The one area where I’m really scratching my head is how much can the system afford? It’s not so much the specific price of the drugs, especially if they’re curative or massively increase patients’ longevity. It’s more just the raw number of them that are coming and the number of new drug filings, the number of products in Phase 3. I do wonder how much of that weight can be held up by the U.S. economy. We’re already at 19% of GDP in health care. How far can we push that?

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