Health Care
The health care breakthrough that’s not an obesity drug
Richmond Wolf
Equity Portfolio Manager & Analyst
Christopher Lee
Equity Investment Analyst
Judith Finegold
Equity Investment Analyst

You’ve heard of computer hacking, now meet gene hacking. In an age of remarkable health care innovation, scientists are manipulating human DNA to find new ways to treat diseases.

They’ve moved from the lab to the real world with a treatment for the life-shortening disease sickle cell — the first approval based on a revolutionary gene-editing technology known as CRISPR.

“Whether it’s biotechnology or medical devices, there has always been an important moment that has changed how investors view a new technology or therapy. It could be one major success or a series of successes, and we are seeing pockets of that now across health care,” says portfolio manager Rich Wolf.

Gene editing is set to expand over the next decade

The bar chart shows the estimated global market size for CRISPR in billions of U.S. dollars in 2023, as well as the projected market in 2033. In 2023, the estimated global market size was $2.4 billion, and in 2033 it is $32.9 billion, or 30% average annual growth.

Source: Statista. As of January 2023. CRISPR stands for "clustered regularly interspaced short palindromic repeats."

Novo Nordisk’s and Eli Lilly’s weight loss drugs, originally developed for the treatment of diabetes, are prime examples. The drugs, sold under the brand names Ozempic, Wegovy and Zepbound, could reshape industries beyond health care.

Meanwhile, cell and gene therapy companies are forging their own paths. These therapies can modify, replace, activate and disable genes. And rather than outright change human DNA, some companies are working on ways to moderate or fine-tune how they’re expressed.

“Approvals for genetic disorders based on a single gene such as sickle cell are just the beginning for gene-editing therapies,” Wolf says. “There will be more to come, but it won’t be a linear progression. We need to see these technologies work for diseases that affect a wider patient population. There’s a lot of wood to chop before that happens, but I believe we will get there.”

The science and the share price

Biotech investing is notorious for hype not quite meeting reality. More recently, the U.S. Federal Reserve’s monetary tightening policy siphoned capital away from more speculative investments like biotech.

Many companies were also caught flat-footed as demand for pandemic-era innovations, such as vaccines, dropped faster than projected, adds Wolf. “There was tremendous excitement over anything that was going to treat the pandemic, and valuations spiked in a big way. The bubble has since burst, particularly for companies with their revenue potential tied to the pandemic.”

U.S. health care stocks appear undervalued relative to the broad market

The line chart shows relative price to earnings valuations for the MSCI USA Health Care, MSCI USA Pharmaceuticals and MSCI USA Health Care Services Providers versus the MSCI USA Index. The period shown is from January 2019 to April 24, 2024. For MSCI USA Healthcare, the relative P/E valuation was negative from January 2019 to November 2022 before briefly hitting 4.7% in December 2022 and then falling back to a range of –10.8% to –2.8% in January 2023 to April 2024. For MSCI USA Pharmaceutical, the relative P/E valuation was negative from January 2019 to April 2024, with a trough of –40.3% in February 2022. As of April 2024, the relative valuation was –9.3%. For MSCI USA Health Care Services Provider, the relative P/E valuation was negative from January 2019 to April 2024, with a trough of –46.3% in August 2020. As of April 2024, the relative valuation was –31.7%.

Sources: Capital Group, MSCI. Relative valuation is the ratio between the forward 12-month price-to-earnings (P/E) ratio of the health care-related sectors and the MSCI USA Index. P/E for a stock is computed by dividing the price of a stock by the company’s annual earnings per share. A value below zero indicates that health care is relatively undervalued. As of April 24, 2024.

Nevertheless, it’s an industry that long-term investors can’t ignore. Health care spending in the United States reached US$4.5 trillion in 2022, according to the Centers for Medicare and Medicaid Services, or 17.3% of U.S. GDP. Valuations have improved for industries within health care. Since the start of 2024, investors have returned to health care stocks. And if interest rates decline, that could support continued capital flows into the industry.

When you’re on the cutting edge of science, there will always be failures. Significant hurdles remain for widespread adoption of cell and gene therapies, and health care investing is a decades-long endeavour. “The framework I follow considers the potential future earnings and the probability of success. In the case of biotech, I like to start with small allocations, which I’ll add to once the technology passes the threshold of helping a larger patient population or disease,” Wolf explains.

Biotech charges forward

Health care companies are racing to define how diseases are treated. Cell and gene therapy companies — including Vertex Pharmaceuticals, Gilead Sciences and Amgen — are going after the same diseases that weight loss drugs are targeting in the kidney, liver and heart, as well as cancers, autoimmune disorders and others.

Companies are developing cell and gene therapies for many diseases

The image is a table listing pharmaceutical companies working on cell and gene therapies and the various diseases they are targeting. AstraZeneca, which is based in the United Kingdom and has a market capitalization of U.S. $233 billion, has target indications including rare diseases and metabolic disorders. Novartis, which is based in Switzerland and has a market capitalization of U.S. $233 billion, has target indications including rare genetic diseases. Roche, which is based in Switzerland and has a market capitalization of U.S. 168 billion, has target indications including hemophilia, Huntington’s, spinal muscular atrophy and ophthalmology. Amgen, which is based in the United States and has a market capitalization of U.S. $144 billion, has target indications including oncology and rare diseases. Pfizer, which is based in the United States and has a market capitalization of U.S. $143 billion, has target indications including single-gene defects, neuromuscular and hematologic diseases. Vertex, which is based in the United States and has a market capitalization of U.S. $102 billion, has target indications including cystic fibrosis, sickle cell disease and blood disorder beta thalassemia.

Sources: Capital Group, MSCI, Drug Discovery & Development. Company examples include constituents of the MSCI All Country World Pharmaceuticals, Biotech and Life Sciences Index that fall within the top 15 largest companies by market capitalization and have gene editing and cell engineering candidates in current development as of March 10, 2023. Market capitalizations as of April 25, 2024. Values in USD.

In the case of cell therapy, cells are modified outside the body and then infused into patients. One specific type is commonly known as CAR-T. It has gained approval to treat certain blood cancers. CAR-T stands for chimeric antigen receptor, with the T referring to a type of immune cell modified to find and destroy cancer cells.

Current CAR-T treatments use a patient’s own cells and are limited by the long, complex journey involved for patients, manufacturing challenges and high costs. “Treatments may become more accessible and safer as scientists develop off-the-shelf techniques derived from unrelated donor cells,” says biopharmaceuticals and biotechnology analyst Christopher Lee. “Additionally, I believe companies will go beyond using T-cells and incorporate other types of cells over the next decade.”

Another area of cell engineering is focused on modifying stem cells to replace missing or defective cells. For example, Vertex aims to cure Type-1 diabetes by transplanting insulin-producing cells into the pancreas, a program currently in human clinical trials.

Yet another promising innovation is RNA-interference (RNAi). This technology allows companies to create highly specific therapies that turn off the production of proteins that cause disease. Biotech company Alnylam is currently developing programs in areas such as heart failure, hypertension and Alzheimer’s.

“The idea that you’re not irreversibly changing the DNA is compelling, but like most health care innovation, safety is paramount,” says equity analyst Judith Finegold, who focuses on U.S.-based biopharmaceuticals.

Every patient population has a different risk profile. “There are programs underway to irreversibly gene edit your liver to treat high cholesterol, and in 15 years that could be the answer, but we need to really understand the safety profiles for drugs because having high cholesterol is not a death sentence,” she adds.

Richmond Wolf is an equity portfolio manager with 27 years of investment experience (as of 12/31/2023). He also covers U.S. medical technology companies and REITs as an equity investment analyst. He holds a PhD from the California Institute of Technology and a bachelor's from Princeton.

Christopher Lee is an investment analyst with research responsibility for U.S. pharmaceuticals and biotechnology. He has 16 years of investment industry experience (as of 12/31/2023). He holds a medical degree from Columbia University and a bachelor's degree in molecular biophysics and biochemistry from Yale.

Judith Finegold is an equity investment analyst with eight years of industry experience (as of 12/31/2023). She holds a PhD from Imperial College London, an MBA from INSEAD and a degree in medicine from the University of Cambridge and University College London.

The MSCI USA Index is a free float-adjusted, market capitalization-weighted index designed to measure the U.S. portion of the world market.


The MSCI USA Health Care Index is designed to capture the large- and mid-cap segments of the U.S. equity universe. All securities in the index are classified in the health care industry.


The MSCI USA Pharmaceuticals and MSCI USA Health Care Service Providers Indexes are subcomponents of the MSCI USA Health Care Index and only contain companies within each respective industry.


The MSCI All Country World Pharmaceuticals, Biotech and Life Sciences Index is composed of large- and mid-cap stocks across 23 Developed Markets countries. All securities in the index are classified in the Pharmaceuticals, Biotechnology and Life Sciences industry group (within the Health Care sector) according to the Global Industry Classification Standard (GICS®).


Commissions, trailing commissions, management fees and expenses all may be associated with investments in investment funds. Please read the prospectus before investing. Investment funds are not guaranteed or covered by the Canada Deposit Insurance Corporation or by any other government deposit insurer. For investment funds other than money market funds, their values change frequently. For money market funds, there can be no assurances that the fund will be able to maintain its net asset value per security at a constant amount or that the full amount of your investment in the fund will be returned to you. Past performance may not be repeated.

Unless otherwise indicated, the investment professionals featured do not manage Capital Group‘s Canadian mutual funds.

References to particular companies or securities, if any, are included for informational or illustrative purposes only and should not be considered as an endorsement by Capital Group. Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any investment funds or current holdings of any investment funds. These views should not be considered as investment advice nor should they be considered a recommendation to buy or sell.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. This information is intended to highlight issues and not be comprehensive or to provide advice. For informational purposes only; not intended to provide tax, legal or financial advice. We assume no liability for any inaccurate, delayed or incomplete information, nor for any actions taken in reliance thereon. The information contained herein has been supplied without verification by us and may be subject to change. Capital Group funds are available in Canada through registered dealers. For more information, please consult your financial and tax advisors for your individual situation.

Forward-looking statements are not guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made herein. We encourage you to consider these and other factors carefully before making any investment decisions and we urge you to avoid placing undue reliance on forward-looking statements.

The S&P 500 Composite Index (“Index”) is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2024 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part are prohibited without written permission of S&P Dow Jones Indices LLC.

FTSE source: London Stock Exchange Group plc and its group undertakings (collectively, the "LSE Group"). © LSE Group 2024. FTSE Russell is a trading name of certain of the LSE Group companies. "FTSE®" is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under licence. All rights in the FTSE Russell indices or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indices or data and no party may rely on any indices or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company's express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. The index is unmanaged and cannot be invested in directly.

BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg’s licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith.

MSCI does not approve, review or produce reports published on this site, makes no express or implied warranties or representations and is not liable whatsoever for any data represented. You may not redistribute MSCI data or use it as a basis for other indices or investment products.

Capital believes the software and information from FactSet to be reliable. However, Capital cannot be responsible for inaccuracies, incomplete information or updating of the information furnished by FactSet. The information provided in this report is meant to give you an approximate account of the fund/manager's characteristics for the specified date. This information is not indicative of future Capital investment decisions and is not used as part of our investment decision-making process.

Indices are unmanaged and cannot be invested in directly. Returns represent past performance, are not a guarantee of future performance, and are not indicative of any specific investment.

All Capital Group trademarks are owned by The Capital Group Companies, Inc. or an affiliated company in Canada, the U.S. and other countries. All other company names mentioned are the property of their respective companies.

Capital Group funds are offered in Canada by Capital International Asset Management (Canada), Inc., part of Capital Group, a global investment management firm originating in Los Angeles, California in 1931. Capital Group manages equity assets through three investment groups. These groups make investment and proxy voting decisions independently. Fixed income investment professionals provide fixed income research and investment management across the Capital organization; however, for securities with equity characteristics, they act solely on behalf of one of the three equity investment groups.

The Capital Group funds offered on this website are available only to Canadian residents.