Frank Talk on Healthcare

07/08/2014 9:00 am EST


Frank Holmes

CEO and CIO, U.S. Global Investors, Inc.

Recently, I spoke with John Derrick, director of research here at US Global, to pick his brain about what he thought was the most interesting sector right now—healthcare—notes Frank Holmes, editor of US Global's Frank Talk.

Average global spending on healthcare as a percentage of GDP is currently above 10%. The US alone spends over $8,000 annually per person on healthcare, more than any other country.

Even so, these figures are expected to rise over the coming months and years as our population matures and, unfortunately, we become more accustomed to unhealthy diets and sedentary lifestyles.

In emerging countries, healthcare infrastructure is in desperate need of improvement. Many parts of the fastest growing regions, such as the Middle East and Africa, sorely lack easy access to healthcare in general.

These are areas where global healthcare providers, drug makers, and biotech firms can realize huge growth potential by entering historically underserved markets.

As we've seen in other industries lately, healthcare companies are undertaking a series of high-profile M&As that enable them to increase their innovative bandwidth and expand their global reach. Following are a couple that John says are worth checking out.

Biogen Idec (BIIB), the top holding in both our Holmes Macro Trends Fund (MEGAX) and All American Equity Fund (GBTFX), was founded in 1978 in Geneva, Switzerland, and specializes in developing leading treatments for neurological and autoimmune disorders such as multiple sclerosis (MS).

Since its 2003 merger with IDEC, it has gone on to acquire two other companies. Now headquartered in Weston, Massachusetts, Biogen Idec controls business and research operations facilities all over the world and generates close to $7 billion in annual revenues.

Although sales of its popular Avonex have slowed lately, Biogen Idec still has strong growth potential.

Its oral MS drug Tecfidera, launched in April of last year, has become a certifiable blockbuster hit, generating $1.38 billion in the first quarter of this year alone. Biogen Idec has been rising steadily over the last three years, consistently outperforming the S&P 500 (SPX).

Another company that has benefited from acquisitions is Grifols (GRFS), a leading producer of blood-plasma products. It's made several of them in the past decade and continues to seek additional opportunities, especially within diagnostic and hospital services.

Because of these actions, Grifols is now the world's third-largest manufacturer of plasma protein therapies, with donor and treatment centers dotted across the globe, from Argentina to Canada, Germany to China, Thailand to Australia. Although headquartered in Spain, it conducts more than 90% of its sales outside of its native country.

Grifols is in the early stages of building a new logistics facility in Ireland, to be completed by February 2015, to take advantage of the country's inviting 12.5% corporate tax rate.

Biogen Idec and Grifols, among others, exemplify the idea that biotech firms and drugmakers can join forces and broaden their global reach in an ever-increasing population-while also serving the needs of their shareholders.

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