Look beyond the healthcare headline

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By Bongiwe Mdiniso · 27 Jul 2026, 00:03  For South African investors building offshore exposure, healthcare is many trades, not one – and some are quietly having a very good year. Image: AdobeStock Amid all the excitement about AI, healthcare has slipped under the radar. It has lagged the S&P 500 this year, but ‘healthcare’ is a blunt label, and underneath the headline are corners that are growing, healthy and, in places, on a serious run. Biotech is the clearest example: the S&P Biotech ETF (XBI) is up around 30% this year and over 80% since mid-last year (Figure 1). Eli Lilly, a name I follow closely and a strong contributor to our Otto1890 Innovation portfolio, became the first healthcare company worth $1 trillion. Merger activity is on track for its strongest year since before the pandemic. For South African investors building offshore exposure, healthcare is many trades, not one, and some are quietly having a very good year. Figure 1 Source: FactSet, Otto1890 From injections to pills, from weight loss to organs I wrote about Novo Nordisk when the GLP-1 story was still about weight-loss injections. The stock hasn’t been kind since, but the theme has grown and leadership has changed. Eli Lilly is the frontrunner: Mounjaro grew 125% year on year to $8.7 billion last quarter and Zepbound did over $4 billion in the US. Management guides to $82-85 billion in 2026 revenue, with earnings up over 45% this year after 86% growth in 2025. The 2026 story is the pill. Novo got there first with oral Wegovy in December 2025, Lilly’s Foundayo followed in April, approved 50 days after filing – the fastest new drug approval in over two decades. About two-thirds of oral users are new to GLP-1s: the market is expanding. Semaglutide (Ozempic, Wegovy) and tirzepatide (Mounjaro, Zepbound) are only the first wave. Lilly made as much explicit at the American Diabetes Association’s 2026 meeting. Retatrutide, a triple-agonist injectable, produced close to 29% weight loss in Phase 3, rivalling bariatric surgery. Eloralintide, an amylin agonist Lilly is testing alone and with tirzepatide, delivered up to 20% weight loss in Phase 2 with side effects at lower doses that looked more like placebo than a GLP-1. Add monthly dosing in late-stage trials and a field where nearly every large drugmaker has its own programme, some licensed from Chinese biotechs, and the pace of innovation is hard to overstate. Access is widening too: Medicare now covers these drugs for weight loss for the first time, capping co-pays at $50 – an early pilot, but a meaningful step for the addressable market. These drugs are outgrowing obesity. Semaglutide now slows chronic kidney disease and, since last year, treats MASH, a fatty liver disease. Each new indication widens the moat and highlights smaller specialists like Madrigal in MASH. Sometimes the better bet isn’t the company doing everything, but the one doing one thing exceptionally well. Those specialists are exactly what large pharma goes shopping for. The $200bn problem driving the deal wave Between now and 2030, drugs generating roughly $200 billion in annual revenue will lose patent protection, close to one-third of current revenue for the largest US pharmaceutical companies. History is clear: you cannot spend your way out. Larger R&D budgets have never reliably produced blockbusters. The GLP-1 era has tested the idea that a patent equals a moat. During shortages, US compounding pharmacies could legally sell copied semaglutide and tirzepatide, and millions did just that – until the US Food and Drug Administration (FDA) declared the shortages over. Drugmakers play their own games, layering follow-on patents over formulations and devices. A patent is a fence, not a fortress, which is why pipelines, and the mergers and acquisitions (M&A) to refill them, matter. So companies are buying again. After troughing in 2024, completed US biotech and biopharma M&A rebounded through 2025 and reached about $63 billion in the first half of 2026 alone, across more than 200 deals (Figure 2) – the busiest pace since 2023. Demand is structural, not a function of cheap money, and dealmaking has held up even with rates still elevated. The funding environment is improving, and the market is bullish on the pace of activity. If rates come down, the window for small- and mid-cap biotech only widens further. Figure 2 Source: Bloomberg, Otto1890 The suppliers: Life science & tools and CROs Behind every drug company sits a less glamorous layer of suppliers, paid regardless of whose molecule wins. But ‘Life science & tools’ is a broad label. Contract research organisations (CROs) run trials, preclinical players handle work before a molecule reaches humans, and instrument giants like Thermo Fisher supply labs. Each earns differently and recovers on a delay: money raised today only becomes a trial, and revenue, several quarters later. Today’s soft bookings reflect yesterday’s funding drought, recent improvement haven’t hit revenue lines yet. Shared exposure makes them useful read-acrosses: strong bookings at one CRO tell you something about the whole chain. They’re not all moving together yet. Thermo Fisher guides to steady growth and recently spent nearly $9 billion on Clario to push deeper into clinical-trial tech. Medpace, a CRO that I also follow, booked less new work than it billed in the first quarter of 2026, while some peers posted record backlogs. Cancellations are hard to read from outside, disclosure is thin, but management commentary suggests some therapeutic areas hold up far better than others. Pick your names carefully. Where AI fits in AI deserves a mention too, even in a quieter role than headlines suggest. A single drug costs upwards of $2 billion to develop, and most die in failed trials. Nobody can say when AI’s benefits will show up in a profit-and-loss statement, and no AI-designed drug has been approved – but the first payoff should be there: cheaper failures and faster trials. The deeper shift, as Anthropic’s Dario Amodei (a biophysicist before he built a language model) puts it, is biology becoming programmable: RNA medicines, peptide therapies and cell therapies like CAR-T are platforms you can iterate on, not one-off discoveries. The policy picture: Clearer, but not risk-free For years, regulation and politics were among the main reasons to steer clear, and the sector came into this period under a cloud. The Inflation Reduction Act gave Medicare power to negotiate prices on its costliest drugs, a new administration promised to push harder on prices, tariffs on imported medicines were floated, and question marks hung over the FDA’s leadership. That uncertainty weighed on valuations. Some of that fog is lifting. The FDA has proved anything but rigid: new priority vouchers can compress reviews from about a year to a couple of months, and Foundayo’s 50-day approval shows it moves fast when the data is strong. On pricing, most large manufacturers have struck deals with the administration, trading price commitments for tariff certainty. Not painless, but markets reward a known cost over an unknown one. The takeaway None of this makes healthcare a one-way bet. The unprofitable end of biotech will always test your stomach, and not every investment style should own it. But that’s why the blunt sector label misleads. Healthcare isn’t one trade, it’s many, and while the headline index has lagged, the subsectors here are delivering real returns. Biotech is up over 80% since mid-last year, metabolic pharma is compounding earnings at tech-like rates, and the suppliers behind them stand to recover as new funding works its way into trials. Bongiwe Mdiniso is an equity analyst at Otto1890. Brought to you by Otto1890. Moneyweb does not endorse any product or service being advertised in sponsored articles on our platform. Google See more of Moneyweb Google News Follow our coverage Newsletters Get news in your inbox Social Media Join the conversation Social media Follow us on our official channels: TAGS: acquisitions |  biotech |  drugmakers |  Eli Lilly |  GLP-1 |  healthcare |  Medicare |  mergers |  Novo Nordisk |  Otto1890 |  S&P 500 |  weight loss COMMENTS   0 Comments on this article are closed. 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