Healthcare Investing Trends for '09 and Beyond

While the departure of Tom Daschle and concerns over rising unemployment and the global economic slowdown may hamper many of President Obama's plans for healthcare reform; there are several growth trends within the sector outlined below which are poised to benefit in 2009 and beyond. Follow any of the links below for more information on the new ETF Innovators indexes and exchange-traded fund ideas for the sector.

Global Health IT: The top five rated companies include Swiss telemedicine firm Card Guard (CDGUF) – a provider of remote patient monitoring systems, Merge Healthcare (MRGE) – a clinical + medical imaging information software developer, Quality Systems (QSII) – NextGen electronic medical records system, SXC Health Solutions (SXCI) – pharmacy benefit management + transaction systems, and CardiNet (BEAT) – CardioNet System for real-time, outpatient heart rhythm monitoring.

Cerner (CERN) and Allscripts-Misys (MDRX) are two more companies included in the top 30 rated stocks as integrated Health IT plays on electronic prescribing (e-prescribing), computerized medical records, and health information systems. The entire Health IT space is poised to benefit (although not immediately) from an expected multi-billion dollar investment (likely around $20B) as part of an overall $800B-plus stimulus plan which is still being debated.

Generic Drugs: The Healthcare Cost Containment Index includes generic drug companies such as Teva Pharma (TEVA) and Perrigo (PRGO) as well as pharmacy benefit managers such as Express Scripts (ESRX), which share the common theme of promoting the use of generic drug products to lower overall healthcare costs.

Favorable growth trends for the generic drug industry include nearly $70B in brand name drug sales with patent expirations through 2012, a push to increase generic substitution rates from 65% of all prescriptions dispensed to over 70%, continued industry consolidation of small and mid-caps by industry leaders such as TEVA and Mylan Labs (MYL), and the potential for legislation this year regarding generic versions of high-cost biological agents, with Merck (MRK) announcing plans for a bio-generic division which will initially target Amgen's (AMGN) anemia drug Aranesp.

Preventive Medicine: An index of companies involved in diagnostics, lab services, diabetes care, and vaccines which have positive growth trends and represent M&A targets for big pharma companies, such as Pfizer's (PFE) recent deal for Wyeth (WYE) in which PFE cited Wyeth's high-growth vaccine + biological agent business as a major reason for the deal. Crucell (CRXL) represents the largest pure-play vaccine maker with a market cap over $1B, and the stock is up nearly 20% since I wrote about it last week as a likely takeover target this year.

Cosmetic and Restorative Medicine (CRM): The CRM Index is organized to include companies which either enhance appearance or restore bodily functions (with increased demand expected from an aging Baby Boomer population and as medical advances allow people to live longer) – including a breakdown of approximately 15% stem cells + regenerative medicine, 25% skin care + cosmetic medicine, 30% orthopedic repair + implants, and 30% cardiovascular repair + implants.

While the Emerging Stem Cell Index would not be feasible for a standalone ETF, it serves as a feeder index for companies which progress above the $100M market cap level to be eligible for the CRM index such as StemCells (STEM), Cytori Therapeutics (CYTX), RTI Biologics (RTIX), and BioMimetic Therapeutics (BMTI).

Favorable trends for stem cell companies include the allowance by the FDA for human embryonic stem cell testing, the move by big pharma into regenerative medicine as the next frontier for R&D, the likelihood of federal funding for stem cell research, and expected 2Q09 results for Osiris Therapeutics (OSIR) leading to a rolling BLA submission for Prochymal as part of a major deal with Genzyme (GENZ).