Global healthcare outlook 2022

2021 healthcare review

The global healthcare sector (represented by the Russell 3000 HealthCare Index) returned +19.8% in 2021, highlighting positive growth in the context of a volatile equity market. However, not all industries and companies were created equal. This year brought significantly higher dispersion of returns between various industries, as well as different market capitalization segments, with the clear winners being COVID-19 beneficiaries.

Overall, areas more sensitive to impact from the COVID-19 pandemic, including medtech elective procedures, next generation service providers and telemedicine companies experienced heightened volatility and weaker returns during the period. In addition, broad market uncertainty led to a flight to safety away from risky assets and in favor of large, quality companies. Healthcare companies with market caps below $10billion delivered on average negative returns in 2021.

Life sciences companies, primarily providing technological tools and software for increased efficiency as well as research services, were strong winners during the year. The industry benefited from increased technological adoption and heightened demand for clinical services. In the healthcare providers space, hospitals and lab testing companies experienced strong returns, largely due to increased demand as a result of COVID-19. The managed care industry, primarily composed of large, U.S.-based insurance providers, experienced positive momentum on the back of the quality and value factor market rotation. Elsewhere in the industry, home health companies and value-based primary care providers experienced significant drawdowns during the year. The companies were negatively impacted by increased COVID-related costs, lower than anticipated adoption and the growth-to-value rotation that affected many 2020 strong stock performers.

Returns within the pharmaceuticals sector were strong but concentrated, with three companies, Pfizer, Eli Lilly and Johnson & Johnson, driving about 91% of the returns this year in the Russell 3000 HealthCare Index. Both Pfizer and Johnson & Johnson benefited from the FDA emergency approval and subsequent deployment of their COVID-19 vaccines. Eli Lilly soared on the strength of their COVID-19 antibody treatment as well as an anticipated upcoming approval of their Alzheimer’s drug.

The medical devices and supplies space also experienced heightened dispersion during the year, with COVID-19 diagnostic and testing companies posting the strongest returns. Results amongst the elective procedure segment were largely mixed, with larger, diversified quality companies delivering solid growth. Companies developing hospital tools, medical supplies and remote monitoring devices also returned positively.

The biotechnology industry experienced the greatest weakness during 2021, with the equal weighted S&P Select Biotechnology Index posting -20% returns. The industry experienced a sharp reversal from 2020 highs, likely driven by factor rotations in the market, as well as lackluster clinical progress outside of COVID-19 during the period. Stripping out COVID-19 vaccine developer Moderna, which returned a staggering 143% in 2021, left the industry with approximately flat returns during the period. A slowdown in M&A activity amidst increased regulatory scrutiny and clinical safety setbacks in areas like gene therapy have also contributed to dampening sentiment. Given the riskier characteristics of early stage biotechnology companies, market sentiment shifted out of favor for the industry, even in cases of positive clinical development.

Overall, 2021 brought increased dispersion and volatility across the healthcare sector, creating pockets of opportunity for 2022. 

2021 healthcare returns by industry weight & market cap

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Source: FactSet as of December 31st, 2021. Sub-sectors are constituents of the Russell 3000 HealthCare Index.

2022 outlook

mRNA vaccines

Vaccines that target the spike protein found on the novel coronavirus using genetically engineered mRNA were a new class of inoculations approved during 2021. These jabs, primarily developed by Pfizer-BioNTech and Moderna, saw high efficacy rates and wide adoption in the U.S. and across the developed world. Praised not only for their impressive results but also for the velocity of development, scientists are looking to use the mRNA modality to approach infectious diseases in the future, including malaria, influenza, sexually-transmitted diseases and cancer. mRNA therapies are likely to see continued clinical development in oncology over the next few years, as scientists attempt to leverage the modality of training the human immune system to fight specific identifiers in order to target tumor and cancerous cells. The versatility of genetically engineered mRNA is likely to usher in a new wave of medical innovation over the next decade.


In March 2020, the FDA granted emergency approval to the first ever CRISPR-applied product, a COVID-19 diagnostic test that revealed results in under an hour. A year later, dozens of different diagnostic solutions have been developed by leading medtech companies, among them Abbott Labs, Danaher, Becton Dickinson and Thermo Fisher. From 10-minute blood tests to at-home rapid antigen swabs, testing companies have continued to innovate in 2021, in order to provide increasingly efficient and accurate COVID-19 tests. We anticipate that demand for COVID-19 diagnostic tests is likely to persist in the near-term on the back of the emergence of new virus variants.

Antiviral oral treatments

The second half of 2021 brought a welcome advance in the fight against the pandemic: the development of efficacious antiviral oral treatments for COVID-19. First announced by Merck & Co and subsequently launched by Pfizer, these treatments have the potential to significantly reduce mortality in patients sick with the virus, helping prevent severe illness and keeping hospitalizations at a manageable rate.

Originally developed in the early 2000’s to treat influenza, Merck’s molnupivarir faced regulatory scrutiny after announcing that the drug was not as efficacious as originally expected. In contrast, Pfizer’s Paxlovid, a protease inhibitor drug, was found to reduce the risk of hospitalizations and deaths in high-risk patients by 89%.

Despite the incessant focus of the healthcare industry on addressing COVID-19, there is also significant scientific progress outside of the current pandemic.


The field of cancer treatments continued to expand at a rapid pace in 2021, despite record low rates of utilization. Patient hesitation to visit hospitals during the pandemic has led to significantly lower rates of diagnoses, with early 2021 rates still 26-51% below pre-pandemic levels. The impact of these delayed detections will likely continue to play out in the years to come. From a development perspective, breakthroughs in immune modulation are leading to record-levels of efficacy, with 17 novel cancer treatments approved for use globally in 2020 (16 of these designated as orphan drugs for rare cancers). Innovative treatments continue to be concentrated in smaller-capped companies, with nearly 80% of early-stage pipelines and 66% of late-stage pipelines being developed by emerging biopharma companies.1

CAR T-Cell therapies, a revolutionary oncotherapy, continued to expand in 2021, with approved treatments currently targeting lymphoma and leukemia now becoming increasingly accessible in the U.S..


2021 marked a milestone in the fight against Alzheimer’s with the FDA approval of Biogen and Eisai’s drug Aduhelm earlier this year. The drug and other biosimilars continue a controversial and volatile road ahead faced with regulatory scrutiny and hurdles in commercial adoption.


Medical devices continue to see significant progress, with advancements ranging from portable MRI (magnetic resonance imaging) machines, ACL (anterior cruciate ligament)-healing tools and Alzheimer’s blood-based diagnostics, among others. We are likely to see continued innovation in this space, from precision surgical tools and minimally-invasive procedures, to the growing trend of wearable tech and connected devices, like continuous glucose monitoring systems.

Technology in healthcare

Despite the innovation developed within the sector, there is still a long way to go in the use of technology to improve products and services. In particular, the utilization of artificial intelligence (AI) in clinical trials, gene mapping and robotic-assisted surgery is increasing. We are also seeing AI and software innovations in electronic records, personalized insurance plans and next-gen healthcare provider services. 

Early adopters of AI tools in clinical development have cited the ability of machine learning algorithms to identify biomarkers and learn about new diseases 30% faster than human pathologists. Given the average go-to-market rate of 5-10 years for new drugs, experts are hopeful that technology like AI can speed up drug discovery and development. 2

1IQVIA Institute: Global Oncology Trends, June 2021

2 BioSpace, December 2021

Reference to the names of the companies mentioned is for illustrative purposes only and should not be construed as investment advice or an investment recommendation of the companies.

Despite dampening sentiment on China investments in 2021, we continue to view the country as a long-term growth opportunity in healthcare, particularly as the government invests in the development of an innovative domestic biopharma industry. On the back of continued regulatory uncertainty, we remain neutral on sentiment in the country today, with a preference in risk-managed opportunities, such as contract research organizations, that benefit from secular demand for clinical trials and services, which we believe are likely to see organic growth in the next few years. We maintain exposure to biopharma companies in select, high-conviction opportunities.

Valuations today for the healthcare sector remain very attractive and well below the long-run average, with FY1 P/E ratios currently at a 20% discount to broad equity markets (represented by the Russell 3000 Index). Certain industries, such as biotechnology, appear particularly attractive, with a FY1 P/E discount of 51% versus broad equity markets. We remain selectively optimistic in this industry, particularly in the small- and mid-cap segment of the market, with a focus on innovative pipelines and strong product results.

Valuations for broad market P/E, healthcare P/E and biotech P/E

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Source: BlackRock, as of 12/31/21

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