Market Insights | Investigating European Healthcare

Market Insights | Investigating European Healthcare

By Cornelius Zeeman & Christoff Marais,
Fairtree Portfolio Manager & Equity Analyst

In our Investigating the European Technology Landscape article, we discussed the differences between the S&P 500 index composition versus the STOXX 600 index. Within the STOXX 600, the Healthcare sector has been a clear outperformer, as evident in Graph 1 below. We thus found it fitting to use our time in Europe to attend the UBS Healthcare Conference, where we had the chance to meet various US and European listed healthcare companies. Below, we share some of the insights we gathered from this experience.

Graph 1: STOXX 600 vs STOXX 600 Healthcare total return

Source: Bloomberg

Demant A/S.


Demant is a hearing healthcare company based in Denmark, most known for its hearing aid devices. They sell the Oticon, Bernafon and Philips brands across 130 different countries.

The hearing aid industry is well-established, with four companies controlling 87% of the wholesale market by units, as shown in Figure 1. We expect market shares to remain stable due to established distribution channels. Audiologists and audiology practices tend to specialise in fitting specific brands of hearing aids, leading to strong brand loyalty. This means there is a high likelihood that they would continue to recommend the same brand, assuming the same level of technological progression. As a result, the market is not very susceptible to new entrants.

Figure 1: Wholesale market share (%) by units

Source: Bernstein

Although the industry composition is mature, the hearing aid market continues to grow ahead of world GDP. This statement can be further investigated by delving deeper into the price and volume dynamics of the industry.

What is driving hearing aid volumes?


The main driver of volume growth is due to the aging of the world population. As shown in Figure 2 below, the percentage of people that are 65 and older is set to almost double in the next 30 years.

From our meeting with the company, we learnt that the average replacement cycle for a device is between five to seven years. This would imply that at a life expectancy of 80 years old, a person can potentially use two to three hearing aids in their lifetime.

Figure 2: Ageing populations across the world

Source: Demant Capital Markets Day

Pricing dynamics.


The pricing dynamics within the hearing aid industry tend to be more intricate. As companies expand into new regions, they often encounter lower pricing due to differing purchasing power among populations. Countries with nationalised healthcare systems, such as the NHS in the UK, also have lower pricing – although volumes tend to be higher. Figure 3 below show the average selling price per sales channel.

The US Independent Audiologist is likely to be the preferred channel for the manufacturer, catering to a more affluent client base willing to invest in additional features. The company interestingly commented that customers who make higher out-of-pocket contributions are more likely to wear their hearing aids more regularly and are more likely to replace their hearing aids within a normal replacement cycle.

Figure 3: Average selling price per sales channel

Source: Bernstein

The Costco risk?


There has been speculation on the impact Costco hearing aid centres will have on the industry. These hearing aid centres sell lower-priced units from Sonova, GN Hearing and Demant. Many investors have been scared that this will have a negative impact on the pricing in the US.

From our meeting, we feel that the risk is slightly overblown. If you only have mild hearing loss and are not looking for additional functionality, a hearing aid from Costco might be sufficient. A customer looking for the best-in-class product will continue to make use of the Independent Audiologist channel. We think our thesis is somewhat supported by the fact that Costco removed their Kirkland Signature hearing aids after reliability complaints.

United Therapeutics.


United Therapeutics is an American pharmaceutical company that has five FDA-approved drug therapies, as shown in Graph 2. Most of United Therapeutics’ current portfolio is used to treat pulmonary arterial hypertension. This a rare long-term condition associated with high blood pressure in the arteries that carry blood from the heart to the lungs. This increased pressure makes it harder for the heart to pump blood through the lungs, which can eventually lead to heart failure.

Graph 2: United Therapeutics drug portfolio contribution (%) to revenue

Source: Company Reports

Competition in the pulmonary arterial hypertension (PAH) market.


Due to the concentration of the United Health’s portfolio, it is important for us to understand the impacts of new treatments that are entering the market.

Sotatercept by Merck, which has an upcoming FDA approval date, is poised to compete with Remodulin. The company commented that initially, due to Remodulin’s use in patients with the most severe cases, they do not anticipate an immediate impact. They also emphasised that the PAH market is characterised by polypharmacy, suggesting that the new medication will likely be used in combination therapies rather than as a standalone treatment.

Liquidia’s Yutrepia is another product coming to market that will directly compete with Tyvaso DPI. The company believes that due to its one-breath administration low flow design that requires less breath and room temperature storage, it will remain the preferred solution for a dry powder inhaler.

Product line beyond PAH.


The company is currently working on manufacturing organs, which are either 3D printed or grown in animals and then transplanted into humans. This may sound like science fiction, but the company recently made news headlines when organs from a pig were successfully transplanted in brain-dead individuals. The pigs received numerous gene modifications for the successful transplant to humans. The company stated that they recently completed the construction of a pathogen-free facility that has the capacity to manufacture 125 organs annually from different animals.



Through our interactions with management teams, we strive to gain comprehensive insights into both the companies and the industries they navigate. By integrating this invaluable knowledge into our investment recommendations, our overarching goal remains steadfast: to optimise outcomes for our valued investors.


Fairtree Asset Management (Pty) Ltd is an authorised financial services provider (FSP 25917). Collective Investment Schemes in Securities (CIS) should be considered as medium to long-term investments. The value may go up as well as down and past performance is not necessarily a guide to future performance. CISs are traded at the ruling price and can engage in scrip lending and borrowing. A schedule of fees, charges and maximum commissions is available on request from the Manager. A CIS may be closed to new investors in order for it to be managed more efficiently in accordance with its mandate. Performance has been calculated using net NAV to NAV numbers with income reinvested. There is no guarantee in respect of capital or returns in a portfolio. Prescient Management Company (RF) (Pty) Ltd is registered and approved under the Collective Investment Schemes Control Act (No.45 of 2002). For any additional information such as fund prices, fees, brochures, minimum disclosure documents and application forms, please go to

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