Investors should take notice of positive developments in the health-care sector. The market already has. Stable earnings and solid fundamentals have led health care — a typically defensive sector — to outperform in a rallying U.S. equity market. Health-care companies across most subsectors have delivered solid financial results, often exceeding both investor expectations and their own guidance.

  • In biotechnology and pharmaceuticals, companies of all sizes have experienced
    positive pipeline progression, that is, success with the development of truly innovative drugs and compounds, early FDA approvals, and favorable clinical trial results.
  • Expanded product pipelines have also helped many companies combat the “patent cliff.” This is when revenues decline as a result of key products losing their patent protection. Without this protection, companies face competition from rivals who can offer less costly generic drug alternatives.
  • Merger and acquisition activity, particularly among drug and biotech firms looking to broaden their pipelines, has also contributed to health-care sector outperformance.
  • Even within the HMO industry, which has been pressured by uncertainty about the impact of the Affordable Care Act, many companies have delivered solid earnings, thanks in part to cost-cutting initiatives and relatively stable cost trends.

The diversity of health-care subsectors is also beneficial for investors. The sector spans a wide range of industries globally, each with a unique set of opportunities.