The global life sciences industry sits at the intersection of several powerful long-term growth trends led by global demographics and the ineluctable advance of scientific innovation in treating disease. These trends have caused a rapid increase in the amount of healthcare spending in the industrialized world, led by the U.S. which now spends over 16% of its GDP on healthcare. The share of U.S. GDP devoted to healthcare is widely expected to continue on its upward trend, possibly reaching 20% of GDP by 2017. Although the U.S. is the largest global consumer of healthcare goods and services, a similar growth pattern has played out in many of the industrialized countries as shown below.

Share of GDP Spent on Healthcare by Country

Source: OECD Health Data 2008

A key underpinning of the future growth of the global healthcare industry is the trend in most large consumer markets towards an overall aging of the population. Because healthcare expenditures are disproportionately incurred by the elderly, this aging trend portends sustained growth potential for the global healthcare sector. As shown in the following chart, lower birth rates coupled with greater longevity, thanks to improved healthcare, are leading to a surging percentage of the elderly population in North America, Europe, and Japan, with profound implications for what will certainly be far higher required levels of healthcare spending in the future.

Percentage of Population Aged 65+, Selected Countries

Source: United Nations Statistics Division

In addition to significant demographic shifts in the industrialized countries, China has a striking demographic aging trend due to its one-child policy and rapid improvements in healthcare, which will cause its elderly population to double by 2025 from 2000. This demographic trend, coupled with rising disposable income in many emerging markets, has given rise to a significant new commercial market for healthcare goods and services: in 2008 fully one-third of the growth in worldwide pharmaceutical sales came from the emerging markets.

The healthcare industry's powerful growth profile coupled with its magnitude and complexity create myriad investment opportunities at many different nodes of the healthcare delivery system. For example, a typical experience for a patient with heart disease might involve an initial assessment by a primary care physician or cardiologist using a battery of diagnostic tools such as angiography, intravascular ultrasound and echocardiogram. Treatments could involve physicians using products such as drug-eluting stents, implantable cardioverter-defibrillators (ICDs), atherectomy devices, balloon catheters for angioplasty and replacement valves. Following initial treatment either as an inpatient or in an out-patient hospital setting, the patient might receive additional care at a long-term acute care hospital, at an outpatient rehab facility or from an in-home nursing care provider. As an out-patient, individuals with heart disease typically receive potent prescription therapeutic agents such as statins for lowering cholesterol, anticoagulants for treating blood clots, and antihypertensives to lower blood pressure. These drugs are discovered and developed by pharmaceutical and biotechnology companies, wholesaled by Pharmacy Benefit Managers ("PBMs") and sold by retail, mail-order and internet pharmacies. At every stage of the discovery, development and administration of care for this patient there are potentially attractive investment opportunities, creating a diverse and rich landscape for investment.

The Life Sciences Universe

The life sciences investment universe includes companies principally engaged in the development, production, or distribution of products and services related to health care.