Baby Boomers Fuel Thriving Health Industry
Health care profits are good for the economy now, but may hurt consumers later.
July 17, 2008 — -- Americans accustomed in recent months to a daily dose of gloomy economic news may find a silver lining in the health care industry as aging baby boomers fuel demand for drugs, health services and medical supplies, boosting the companies that make them.
Employers and investors have fought for relief this year as housing prices fall, gasoline and food prices rise and credit and financial markets continue struggle for stability.
But health care, which today makes up 16 percent of gross national product, three times as much as in 1960, according to Kaiser Foundation, is one of a handful of sectors like mining, farming and natural resources to thus weather the economic storm.
While some experts fear rising costs for drugs and services could eventually mean bad news for individual Americans, small business and government spending, the thriving health care industry is welcome news for company profits and many investors.
Companies like Johnson & Johnson, the biotechnology company Genentech and Abbott Laboratories saw big second-quarter profit gains. And the sector has steadily created new jobs during the past year.
The quickening economic strides come as more Americans are slowing down and getting older, but also living longer.
The number of Americans over the age of 45 has jumped from 77 million in 1990 to about 112 million people in 2006, according to AARP, the organization that advocates the rights of older people.
And according to a recent Kaiser Family Foundation report, the average American spends $7,000 annually on health care, much of that coming from growing millions of baby boomers approaching old age.
"As baby boomers we have more access to health care," said Oscar Gonzalez, economist for John Hancock. "We are living longer, we use it more and we demand more from the system. You can have every kind of test from an MRI to replacement of hips and joints."
It's been a steady earnings season for many of the companies that make medical products.
Health care giant Johnson & Johnson posted an 8 percent jump in their second-quarter profits, with a boost coming from the new non-prescription allergy pill, Zyrtec, new Acuvue contact lenses for astigmatism and surgical products for treating obesity.
Sales of medical devices and diagnostics, led by joint replacements and diabetes and vision care items, jumped 12 percent.
"The penetration of drugs has increased, so more are available," said John Hancock's Gonzalez. "How can you blame us when they do us good? Why not take them?"
Genentech, the biotech firm, saw second quarter profits rise 5 percent due to strength from its blockbuster cancer drugs. The company added breast cancer to its list of uses for its drug Avastin earlier this year, in addition to colon and lung cancer, resulting in a 15 percent sales increase.
Sales of Rituxan, which treats non-Hodgkin lymphoma and rheumatoid arthritis, gained 12 percent.
And Abbott Laboratories Inc. announced a 34 percent jump, driven by robust international sales of its arthritis drug Humira and other medical products and its cholesterol pill Niaspan.
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