We were in investing during the tech crash of 1999, in 9/11 and during the 07/08 global financial crisis.
But today’s level of anxiety is of a different magnitude.
As with 9/11 and the financial crisis, I believe that the world will return to a ‘new normal’.
And certain businesses and consumer behaviour will not survive in its current form.
Paranoia and panic are sound evolutionary strategies to avoid death in the unfriendly world humanity was born into.This disease has a limited impact on the vast majority of people, who will experience only mildly debilitating symptoms and will then recover without long-term health consequences.
It is more lethal than seasonal flu, but tough to say how much worse as testing is so patchy.
A fraction without a correct denominator is just a random number.
The World Health Organisation (WHO) shows a consistent pattern of infection tapering two-three months into an outbreak.
Paranoia and panic are sound evolutionary strategies to avoid death in the unfriendly world humanity was born into.
In today’s safe and highly connected world though, they become the driver of the self-fulfilling prophecy.
Pandemic impact
It does not really matter what the course of this pandemic looks like; consumer behaviours (either voluntary or by government edict) has changed and the economic carnage that will follow may prove short lived, but it will feel very real to those who are impacted.
Healthcare stands apart from the wider economy.The scale of the economic challenge is significant.
The tourism sector; hotels, bars, restaurants, airlines, cruise lines and the like need to adjust to much lower volumes.
The tourism industry employs around 300 million people globally.
A 10 per cent cut in employment is equivalent to making the entire population of Malaysia unemployed.
These people cannot spend as before and so the economic contagion spreads faster than the virus causing it.
This anxiety and the behaviour changes in response to it mean that a global recession is inevitable.
Resilience
Healthcare stands apart from the wider economy.
If there is a global downturn, it will have little impact on demand for the industry’s products and services.
Profits in hospitals are made in caring for the mildly unwell admitted for elective procedures. These will reduce. But let’s see what parts of the industry will be affected, and how.
Heath insurance companies should do well. Why?
Because elective procedures will be postponed and these are costs paid by insurance companies.
The opposite is true for hospitals (facilities).
Profits in hospitals are made in caring for the mildly unwell admitted for elective procedures. These will reduce.
Hospital margins are thin anyway and capex and debt levels are high, so profits will be hit hard.
Pharma, speciality pharma and biotech should be a safe place to hide.
Prescriptions are generally necessary and people are no more likely to forget to take their pills now than before.
Patient-centric med-tech could underperform near-term as elective surgical volumes decline.
Bigger ticket items could also suffer as hospital capex projects are delayed with focus on other, more pressing matters.
Critical care equipment providers may see demand if production can be ramped up in a reasonable timeframe.
Diagnostics providers exposed to respiratory testing could see increased demand too.
Dental may struggle as patients defer visits through social distancing and then, longer-term, consumers may seek to reduce out-of-pocket or discretionary expenditures in the event that they are directly impacted by the economic fallout from coronavirus.
When the dust settles and Covid-19 has thankfully become a historical consideration, the ‘new normal’ will still involve the same demographics of a growing and ageing population.The same goes for hearing aid suppliers, which are quasi retail companies with fixed costs serving an elderly population.
As the dust settles
As older people are made to stay indoors (and they cannot get to the hearing aid shop) these companies will suffer in the short-term.
Pharmacies make money on wellness and beauty and happen to serve prescriptions.
They probably won’t fare as well as you might imagine, but pharmaceutical wholesalers (distributors) should fare okay as they operate largely on a fee-for-service basis.
When the dust settles and Covid-19 has thankfully become a historical consideration, the ‘new normal’ will still involve the same demographics of a growing and ageing population.
So expect a continuation of the multi-decade trend of increasing healthcare consumption.
The inefficiencies of the current healthcare model have been amply demonstrated.
Better models of care (digital first, telemedicine, alternative sites for care delivery to reduce strain on hospitals) have demonstrated their value in a timeframe that is shorter than we expected.
This will trigger system-wide change.
Paul Major is a trust manager at BB Healthcare
