Global Healthcare Outlook 4Q26: Innovation supports growth amid persistent policy risks

• Healthcare continues to lag the broader market, with the MSCI World Healthcare Index up 5.3% YTD as of 22 September, versus 12.4% for the MSCI World Index. Performance remains uneven across the sector, with biotechnology outperforming while healthcare equipment and supplies has been a key drag. 

• Pharma, biotech and life science tools benefit from strong innovation, funding and M&A, supporting new drug development, pipeline growth and bioprocessing demand.

• GLP-1 adoption has further room to expand as access improves and applications broaden. Lower prices, wider insurance coverage and oral formulations could support demand, while growing clinical applications beyond obesity and diabetes may expand the addressable market. 

• Medtech faces near-term headwinds despite more attractive valuations. Policy changes, competitive pressures and the growing use of GLP-1 treatments are weighing on some procedure volumes, although demand remains more resilient for companies with greater exposure to high-acuity and life-saving procedures. 

• We maintain a Neutral stance on global healthcare, with a target price of USD 462 for the MSCI World Health Care Index, implying 10% upside from its closing price of USD 421 on 22 September. With sector opportunities and risks broadly balanced, we favour a selective approach focused on companies with strong fundamentals and resilient earnings growth.

Global healthcare equities have continued to lag the broader market in 2026. As of 22 September, the MSCI World Healthcare Index was up 5.3% year to date (YTD), trailing the 12.4% gain in the MSCI World Index. Performance within the sector has been mixed, with biotechnology outperforming the broader market with a 15.7% gain, while pharmaceuticals (+9.6%) and life science tools and services (+12.0%) delivered gains broadly in line with the global index. Meanwhile, healthcare equipment and supplies fell 19.5%, weighing on overall healthcare performance.

Figure 1: Global healthcare stocks continue to lag the broader market

Innovation, funding and M&A support pharma and biotech growth

Pharma and biotech continue to benefit from strong innovation, healthy financing conditions and robust M&A activity. The FDA approved 40 new drugs as of 14 September, putting 2026 on track to surpass the 50 and 46 approvals recorded in 2024 and 2025, respectively. A strong pipeline of late-stage clinical readouts could provide further catalysts in the months ahead, particularly across oncology, cardiometabolic conditions and neurology. Recent results from Merck and Moderna illustrate the potential market impact of successful clinical developments. In August, the companies announced that their jointly developed personalised mRNA cancer therapy reduced the risk of melanoma recurrence and spread in a late-stage trial, marking the first positive Phase 3 trial for a personalised cancer vaccine. Moderna shares surged 177% following the announcement, highlighting the potential market impact of successful innovation. Similar approaches are being tested against other cancers, including pancreatic and lung cancer, potentially opening up further opportunities for innovation in personalised oncology.

Biopharma financing has also remained resilient despite the elevated interest rate environment. DealForma data suggests that biopharma venture funding is pacing towards around USD33 billion in 2026, up from USD29 billion in 2025. This healthier funding environment supports the development of new medicines and provides smaller biotech companies with greater access to capital as they advance their pipelines.

M&A activity has been similarly strong, with aggregate biopharma deal value reaching USD157.8 billion year to date, already exceeding the USD152.9 billion recorded for full-year 2025. We expect deal activity to remain elevated as large pharmaceutical companies look to replenish their pipelines and revenues ahead of looming patent expiries. This should create opportunities for small- and mid-cap biotech companies with differentiated assets, while also reflecting the breadth of innovation across the biotech landscape.

Figure 2: Biopharma M&A continues to pick up from 2025

Pharmaceutical companies are also stepping up R&D investment. Aggregate R&D expense growth has rebounded from 3% in 2025 to around 13% currently, signalling continued investment in new products and pipelines. We favour companies with few or no near-term patent expirations, diversified product portfolios, strong R&D pipelines and strong balance sheets that provide the financial flexibility to pursue acquisitions. These characteristics should help companies replace revenues lost to patent expiries while sustaining longer-term growth.

The benefits of stronger innovation and funding also extend to the life science tools industry. Improving biotech funding, resilient pharmaceutical R&D investment and healthy bioprocessing demand should support companies such as Thermo Fisher Scientific and Danaher. Meanwhile, the signing of Most Favoured Nation (MFN) deals is expected to support the reshoring of US pharmaceutical manufacturing, creating additional demand for the equipment and services needed to expand production capacity.

GLP-1 adoption expands as access and applications grow

We remain constructive on the long-term outlook for GLP-1 treatments as lower prices under MFN pricing, expanding insurance coverage and broader applications support wider access and demand.

The introduction of oral formulations is broadening GLP-1 adoption, with early evidence suggesting they are expanding the overall market rather than simply replacing injectable treatments. Broader insurance coverage could further improve access and bring more patients into the market. In the US, Medicare launched a temporary programme in July that allows eligible Part D beneficiaries to access certain GLP-1 therapies for USD50 per month through 31 December 2027. The programme attracted 6,000 participants in its first 60 days, highlighting the potential for lower treatment costs and broader coverage to support adoption.

The potential applications of GLP-1 therapies are also expanding beyond obesity and diabetes. Growing clinical evidence suggests that these drugs may benefit patients with cardiovascular, kidney, liver and sleep-related conditions, as well as joint problems. Eli Lilly's retatrutide, a triple GIP/GLP-1/glucagon agonist, illustrates this potential. Following positive Phase 3 results, Lilly has completed the clinical data package needed to support global regulatory submissions across obesity, obstructive sleep apnea and knee osteoarthritis pain, with US filings planned for the first quarter of 2027. If approved, retatrutide could further expand the market for GLP-1-based therapies.

Within the competitive landscape, we continue to favour Eli Lilly over Novo Nordisk, given Lilly's stronger pipeline and continued market-share gains. Despite the slower initial launch of Foundayo, Lilly's oral GLP-1 treatment, the company has continued to capture market share from Novo Nordisk. Novo recently reported positive late-stage results for CagriSema, which delivered greater weight loss than Lilly's tirzepatide at the 5mg dose in patients with diabetes. However, the result is less conclusive given the lower tirzepatide dose and different patient population, as an earlier trial in patients with obesity found tirzepatide at the higher approved 15mg dose delivered greater weight loss than CagriSema. This suggests CagriSema does not provide a clear competitive edge for Novo Nordisk, particularly if Lilly's retatrutide is successfully approved.

Medtech faces near-term headwinds despite attractive valuations

Medical device companies have underperformed amid a combination of policy headwinds, competitive pressures and company-specific issues. The expiry of enhanced Affordable Care Act (ACA) premium subsidies in 2025 and lower federal Medicaid spending stemming from the One Big Beautiful Bill Act (OBBBA) are reducing Medicaid enrolment and participation in ACA exchanges. This could limit access to healthcare and encourage some patients to delay elective medical procedures, putting further pressure on procedure volumes. Meanwhile, growing adoption of oral GLP-1 treatments could further weigh on medtech companies exposed to bariatric and cardiometabolic procedures, although the impact is likely to vary across companies and procedures.

Recent results from major medical device companies highlight this divergence. Intuitive Surgical saw US da Vinci procedure growth moderate to 12% in the second quarter from 14% in the first quarter, with some impact from patients affected by the expiration of enhanced ACA subsidies. US bariatric procedures performed using da Vinci also declined by high single digits as GLP-1 usage increased. By contrast, Abbott Laboratories has not seen a negative impact on testing or procedure volumes from Medicaid eligibility reviews or ACA disenrolment. Its US cardiovascular business is driven predominantly by Medicare, while demand for high-acuity and life-saving products is relatively inelastic and less dependent on changes in insurance coverage. Medtronic similarly reported resilient procedure volumes across most of its end markets and geographies, particularly in chronic disease, high-acuity and life-saving interventions. Boston Scientific, on the other hand, has faced more company-specific challenges. Growth in its WATCHMAN device, which closes the left atrial appendage to reduce stroke risk in patients with atrial fibrillation, has slowed as physicians reassess patient selection following new clinical evidence. Its electrophysiology business has also experienced greater-than-expected competitive share losses in the US.

Valuations for the industry are attractive, with the MSCI Healthcare Equipment and Supplies Index trading at 19.7x forward earnings, well below its five-year average of 26.2x. While near-term headwinds remain, ageing populations and continued innovation in minimally invasive care should support procedure volumes over the longer term. That said, we see limited near-term catalysts for a meaningful reacceleration in growth and therefore remain selective within the industry, favouring companies with resilient procedure volumes. 

Figure 3: Medtech is trading at cheap valuations

Sector is fairly valued, but selectivity remains key

Healthcare combines defensive qualities with innovation-driven growth, offering diversification benefits for equity portfolios while retaining long-term growth potential. Healthcare earnings are expected to rebound in 2027, although uncertainty around IRA (Inflation Reduction Act) drug-price negotiations, sector tariffs, and Medicaid and ACA coverage could continue to weigh on sentiment and earnings visibility. The November midterm elections could provide an additional policy catalyst. A Democratic takeover of the House could raise the legislative hurdle for further healthcare spending cuts, while continued unified Republican control of Congress could allow existing policy tightening to continue, with further healthcare spending cuts remaining a downside risk.

Valuations appear fair. Applying a fair P/E of 18x to our 2028 earnings forecast, we derive a target price of USD 462 for the MSCI World Health Care Index, implying 10% upside from its closing price of USD 421 on 22 September 2026. With the sector's opportunities and risks broadly balanced, we maintain a Neutral stance on global healthcare and emphasise selectivity across both biopharma and medtech, favouring companies with strong fundamentals and resilient earnings growth.

Investors seeking exposure to the sector may consider the Xtrackers MSCI World Health Care UCITS ETF 1C (LSE: XDWH) for passive exposure or the  Manulife Global Fund – Healthcare AA Acc SGD for an actively managed approach that seeks to navigate the opportunities across the healthcare sector.

Table 1: Projections for the MSCI World Health Care Index

MXWO0HC Index	2025	2026E	2027E	2028E
Earnings Per Share (EPS)	20.9	20.4	23.6	25.7
Earnings Growth YoY	15.8%	-2.1%	15.7%	8.7%
PE Ratio (X)	19.1	20.6	17.8	16.4
Target Price (based on a fair PE of 18X)				462
Upside Potential				9.9%
Source: Bloomberg Finance L.P., iFAST estimates. Data as of 22 September 2026

Figure 4: Share prices are driven by earnings growth in the long run

Declaration:

This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.

For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.