Jefferies Healthcare Temperature Check

Expectations for the FTSE 100 Index in 2025

After sustained macro pressures, our respondents finally appear to be calling the turn in the market, marked by optimism in their expectations for the FTSE 100 in 2025. Two thirds of respondents think the index will be higher by the end of 2025, up from just under half last year. The number of bears has also decreased, with only 8% expecting the FTSE 100 to be lower, versus 22% last year. Institutional Investors were the biggest swing voters, from 27% fearing it would be lower in 2024, to just 9% thinking the same for 2025, demonstrating their optimism in the market outlook.

Expectations for the MSCI World Health Care Index in 2025

Last year’s optimism for the MSCI World Health Care Index was well-founded, and preceded a strong performance for the index this year. Looking ahead, respondents in this year’s report are indicating even higher levels of confidence in the sector, with 73% expecting the MSCI World Healthcare Index to end higher by the end of 2025, up from just over half of respondents last year. Institutional Investors are the most bullish, with 94% expecting it to be about the same or higher. 

Optimism for the healthcare sector is translating into a continued expectation to increase exposure, in line with appetite last year. 46% of respondents expect their exposure to the sector to be higher in 2025, with only 2% expecting to reduce their weighting. Again, Institutional Investors are the most optimistic, with 51% expecting to increase their exposure in 2025.  

Capital Constraints

Availability of capital has been a critical theme for the past two years. Whilst it continues to be high on the agenda again this year, there are green shoots of optimism about the macro economy that indicate the worst of the funding crisis might have passed. 

Whilst 48% of respondents say the inability to raise capital is having a major adverse effect, this is down from a critical majority of 68% last year. Healthcare companies remain the most cautious, with 51% saying it is having a major adverse effect; however, this is down from 70% last year. 

The tempered caution is reflected in a larger group indicating it is having a small adverse impact (at 44%, up from 27% last year). 

Geographic Allocation

North America continues to drive our respondents’ interest and appetite. This year it is an even more popular destination for investment, viewed as the market in which there will be the biggest opportunity – selected by 74% of participants, up from 69%. Healthcare companies are particularly bullish on the region (78%).

Appetite for the UK is broadly in line with last year, with a minor decrease in those selecting it as the biggest opportunity to 18% (20% in 2024, which does not reflect well on business sentiment for the new government). 

Interestingly, 36% selected Europe (43% last year, with worsening Institutional and Private Equity appetite both driving this). 

Amid ever-more complex global tensions, China has recovered slightly from last year, with 16% of respondents highlighting it as the market in which they see the biggest opportunity, up from 12% in 2023. 

Best Performing Sub-Sectors

Developments in the market have changed the sub-sectors which respondents see as most likely to perform best in the year ahead. Mid- and Small-Cap Pharma & Biotech is where investors see the greatest opportunity (54%). It benefits from a shared confident outlook from Institutional Investors, Private Equity and Healthcare Corporates themselves.  

The outlook for Large Cap Pharma is much more muted, with only 15% selecting it as the most likely sub-sector to perform best. Versus last year, Tools and Diagnostics has come off the boil, from 13% viewing it favourably to just 5% this year. 

Healthcare IT is one to watch, increasing from 7% to 12% in this year’s report, showing a positive trajectory. 

Supply chain pressures persist but are not top of the agenda

Global supply chain pressures have not eased, remaining a background theme on respondents’ agendas. 

36% express concerns (30% state they are ‘somewhat’ concerned and 7% that they are ‘very concerned’) about the business impact of supply chain issues, consistent with last year and down from 59% in the flashpoint of 2022. Private Equity is the least concerned, with 72% expressing ‘no major concern’ or ‘no concern’ at all. 

After a year, geopolitical risk has leapt up the agenda – with 40% highlighting it as the greatest risk, up from 26% last year. Both Institutional Investors and Private Equity are worried about it in equal measure – and with Corporates (44%) most worried of all. 

Funding and pricing cuts continue to be a concern, and were a narrow second choice by respondents as the greatest risk to the sector. 36% selected it, up from 33% who were worried about a lack of funding last year. Private Equity is particularly bearish on funding and pricing cuts, with 55% selecting it. 

Interestingly, only 2% see cybersecurity as the biggest risk. 

A comeback for deals in 2025?

2024 was slow to demonstrate a recovery in dealmaking, as a result of geopolitical tensions and a higher-for-longer interest rate environment – but  it is finally picking up. This optimism is demonstrated in the 72% of respondents who think M&A will be higher next year than this year, with Institutional Investors and Corporates more bullish versus last year. 

Very few (4%) think it will be lower than last year, in a further sign of respondents signalling that we are over the worst of market conditions and that there is appetite to get deals done.   

IPOs make a comeback in dealmaking activity

Is the IPO market coming back? 20% expect equity raising and IPOs to dominate transactional activity next year, versus just 6% who said the same last year – and up from the lows of 1% who had confidence in this area of the market in 2022. In fact, this makes 2024 the most bullish outlook for IPOs since we began this survey in 2018, which bodes well for companies looking to come to market. There was a notable uptick across Private Equity, Institutional Investors and Corporates in particular. 

Expectations for Corporate-led M&A have waned versus last year, but are still expected to dominate (49% this year versus 60% last year). Private Equity, Institutional Investors, and the Corporates themselves, are aligned in this dropping down the to-do list. 

Expectations for Private Equity-led M&A remain consistent with the last few years (17% this year versus 16% and 15% in 2023 and 2022 respectively) – and down from the higher 24% in 2021. Debt refinancing was very low down the agenda (3%), alongside restructurings (3%). 

Will the IPO market return?

There is much more conviction that we will start to see companies coming to the public markets in 2025, with 64% expecting IPO levels to uptick, versus 43% last year. Private Equity is the most bullish, perhaps looking at a build-up of exits across their portfolios, at 69%. Corporates themselves are similarly looking at a return of the public markets, with 64% expecting more IPO activity next year. It will be one to watch. 

Unsurprisingly, anti-obesity medication has captured the attention of the world, with a clear majority, 36%, of our respondents selecting it as the area of innovation within Biopharma that is expected to have the biggest impact. The appetite is more pronounced across both Institutional Investors (42%) and Private Equity (44%) than Corporates (33%). 

Target therapies and artificial intelligence have both seen a considerable drop in interest.  Just 16% of respondents expect target therapies to have the biggest impact, down from the 35% of respondents who selected this last year. While 20% of respondents believed A.I. would have the biggest impact within Biopharma last year, just 8% thought so this year. 

Respondents are clear in their assertion that weight loss drugs are going to continue to be a meaningful market for some time. 47% of respondents said that it will be very large and with long-term sustainability, up from a more unsure 33% last year. This conviction was shared across Institutional Investors, Private Equity and Healthcare Corporates. 

However, as with last year, 35% of participants are mindful that amidst all the excitement, there are substantial risks that could deflate the market. As we learn more about the drugs, the number of respondents who consider there to be too little information available to make up their minds has reduced – down almost half from 32% in 2023 to 18% in 2024.

A meaningful 69% of respondents agreed that AI is already having a tangible impact on the sector as a whole – though most are not fully convinced, with 51% saying they ‘slightly’ agreed, versus the lower 18% who ‘strongly’ agreed, and 28% disagreeing altogether. Sceptics are particularly prevalent amongst the Institutional Investor group (46% of whom either disagree or are unsure).    

Health monitoring and predictive analytics are the areas where people see AI playing the most transformative role. 37% of respondents highlighted this use-case, with Corporates particularly excited about the potential (41%). 

Administrative efficiency (highly important, if not the most glamorous) was the second most cited response, at 19%. This had the edge over more sophisticated use-cases such as genomics and personalised medicine (14%) and drug delivery and development (15%).