One of the areas of the market that I'm most bullish on is the healthcare sector.
Thanks to a number of favourable tailwinds, I believe the sector is well-positioned for solid growth over the next few decades.
But which shares should you buy? Here are two healthcare shares that the experts are tipping for big things:
Merck & Co., Inc. (NYSE: MRK)
The founder and CIO of Antipodes Global Investment Company Ltd (ASX: APL), Jacob Mitchell, is a fan of this American multinational pharmaceutical company. The lead portfolio manager is particularly positive on Merck & Co's Keytruda treatment for late-stage cancer.
He explained: "Antipodes' interpretation of the clinical evidence to date suggests Keytruda's mechanism of action may be delivering superior outcomes to competitors' drugs. This hypothesis is supported by the fact that nearly all 'fast-following' Chinese biotechs are developing drugs which have the same target as Keytruda as opposed to those drugs from Roche, Astra Zeneca and Merck KGaA, which have a slightly different target."
Mr Mitchell believes the opportunity for Keytruda is much bigger than the market realises. He notes that sales outside the US are set to accelerate as reimbursement broadens through Europe, Japan and China.
"Precedent suggests oncology drug sales outside the US can be 1.5x US sales. Margins are also on the precipice of a major inflection following years of heavy R&D and sales force investments which will begin to normalise at the same time Keytruda's global launch profile accelerates," he added.
Outside this, Mitchell likes Merck & Co's diverse operation and notes that its leading Vaccines and Animal Health businesses are strengthening. These businesses account for almost one-third of sales.
Overall, Antipodes sees Merck & Co as a company with defensive growth, quality attributes, and an attractive valuation. It points out that businesses with similar defensive and structural growth qualities are trading at significantly higher multiples. This is despite many of them having less attractive growth rates.
Opthea Ltd (ASX: OPT)
Analysts at Goldman Sachs are very positive on this developer of novel biologic therapies for the treatment of eye diseases. This is due the release of positive results from a study related to its OPT-302 combination therapy for treatment-naïve patients with wet age-related macular degeneration (AMD) last year.
That study revealed that the OPT-302 (2.0 mg) combination therapy showed statistical superiority for the most accepted and sensitive primary efficacy outcome. This is a big positive for the company as the current standard of care treatments for wet AMD generated sales of US$3.7 billion in 2018.
In addition to this, the company notes that there is potential for the therapy to be used for Diabetic Macular Edema (DME) as well. This is an even more lucrative market where the current standard of care currently generates sales of US$6.2 billion per annum.
Goldman said: "The strength of benefit demonstrated in the 'occult' sub-population (40-45% of patients) was highly significant and substantially ahead of our expectations. This is the group in which existing treatments have relatively less success and hence, arguably, have greater need for an effective therapy."
"Above all, this result gives us greater confidence that OPT-302 will reach commercial stage. We tweak up the probability of approval from 50% to 55% (though still in line with accepted industry averages in this indication, at this stage)."
Goldman Sachs has a conviction buy rating and $5.20 price target on Opthea's shares.
