What are the risks of investing in healthcare stocks?
Investing in any kind of stock comes with risks, including the possibility that competitors will develop products and services that are more successful in the marketplace. Healthcare stocks face these risks as well as other risks more specific to the healthcare sector.
Healthcare is highly regulated. Drugmakers and medical device makers could fail to secure the necessary regulatory approvals to market their new products. Regulatory changes could drastically alter a healthcare stock’s growth prospects. In the U.S., the Food and Drug Administration (FDA) oversees regulating drugs and medical devices. It’s smart to pay attention to any FDA events related to stocks that you’re watching.
Many healthcare stocks also face significant litigation risk. For example, biopharmaceutical companies, medical device makers, and healthcare providers can be sued if patients think that the companies’ products and services have caused them harm.
In addition, drugmakers and medical device makers must convince payers, including health insurers, PBMs, and government agencies, to pay for their products. If companies aren’t successful in obtaining reimbursement approvals, it could reduce their growth prospects.
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