Prognosis negative - what the hell is wrong with Aussie healthcare?

Spicy headline, I know. And the truth is that the answer may be ‘nothing’. But when looking at the table below (put together by ETF provider Global X, highlighting the top 10 ASX ‘wealth destroyers’ (their term) in 2026 - with the top four healthcare names), it feels like the right question to ask.  

The reality is that in Australia, we’ve had an incredible run over an extended period when it comes to healthcare and healthcare investing. 

On the former, we punch well above our weight in healthcare research on the global stage. On the latter, we’ve had two truly exceptional, international-scale companies, CSL (ASX: CSL) and Cochlear (ASX: COH), be so good for so long that they made us all forget what healthcare investing really is - expensive, volatile, and often speculative.

Historically, if you wanted a seat at the Australian healthcare table, you had to pay a "growth tax." Over the past 20 years, the sector has typically traded between 25x and 40x earnings, even touching a dizzying 50x during the COVID-era duration boom. Today, sitting around 23x, we are effectively at the floor of that historical range. Yet, even at these "lows," healthcare remains pricier than the broader market average. 

That is the bargain Aussie investors had struck: we paid a premium for the structural growth and the inherent execution risks of a sector where a single clinical trial or regulatory pivot can change everything.

CSL and Cochlear, because of their prior greatness, made us forget that. They (and we) became prisoners of their success. Throw into the mix other strong names like ResMed (ASX: RMD) and Sonic Healthcare (ASX: SHL) and a couple of bolters like Telix (ASX: TLX) and Pro Medicus (ASX: PME), and at one point, it seemed like just about every healthcare name could do no wrong.

And then came the reversion to the mean. CSL has been whacked multiple times in the past 12 months, Cochlear was smashed recently, and previous high-flyers have come back to earth. So, there may be nothing "wrong" with Aussie healthcare at all. This may simply be the long-overdue return to reality.

But that’s just me theorising. To reach the correct diagnosis, we consulted no fewer than four healthcare experts; 

• Anna Milne (Wilson Asset Management)
  
• Anja Samardzic (AllianceBernstein)
• Hashan De Silva (KP Rx)
• Marc Whittaker (IML)

Over a two-part series, we’ll be reviewing the current state of play, how we got here, and, perhaps more importantly, where the opportunities now lie.

What actually went wrong in healthcare?

More than 30% has been wiped from Australian healthcare stocks over the past 12 months, forcing a sector long considered to offer the perfect blend of growth, defence, and dependability into an unfamiliar position: having to justify itself.

For a part of the market that built its reputation on consistency, that shift has been jarring. Healthcare was supposed to be different. Less cyclical, less volatile, more reliable. The past year has challenged that perception, exposing a sector far more sensitive to both rates and expectations than many investors had assumed.

Ask four healthcare investors what has gone wrong, and there is broad agreement on one point: this is not a single-cause event. What has played out is a collision between macro pressures, company-specific disappointments, and a reset in how the market defines “quality”.

Macro vs micro: what actually drove the sell-off?

Across all four investors, there is a shared starting point - higher rates have mattered - but the degree to which they explain the drawdown is where views begin to separate.

Anna Milne of Wilson Asset Management places the macro front and centre, arguing the Australian market is structurally exposed.

“The XHJ is dominated by high-multiple, innovation-led businesses… these are long-duration growth assets, and elevated long-end rates are particularly punishing for valuations.”

Her argument is that the composition of the index, rather than healthcare itself, explains why Australia has underperformed global peers.

Anja Samardzic of AllianceBernstein agrees that macro has shifted, but broadens the lens beyond rates. In her view, governments are under increasing fiscal pressure, and healthcare is no longer insulated from that reality.

“The sector’s drawdown reflects both a tougher macro backdrop and a series of company-specific disappointments.”

That combination has made it harder for companies to sustain premium pricing and strong earnings growth.

Marc Whittaker of IML, who focuses on small-cap opportunities where issues are more nuanced and based on domestic conditions (like costs), takes a more grounded approach, focusing less on valuation mechanics and more on operating conditions.

“While top lines are good, cost growth has been greater in recent times.”

For him, the story is not about demand collapsing but about margins being squeezed as inflation, labour costs, and funding constraints outpace revenue growth.

Then there is Hashan De Silva of KP Rx, who pushes back most directly on the idea of a broad sector problem.

“This is not a broad healthcare sector correction… what we are seeing in Australia is a handful of stock-specific events dragging the index optics.”

His view is that CSL and Cochlear have disproportionately driven the index decline, masking resilience elsewhere.

• Where they agree: macro matters, and execution matters.
• Where they differ: whether this is a broad reset or a narrow distortion.

Is “quality growth” being reassessed?

The second question cuts deeper. If healthcare has always traded at a premium, is that premium now under threat? Here, the answers converge in direction but differ in tone.

Milne is the most direct. The premium was justified, but the conditions that supported it have changed.

“Premium multiples are earned, not given.”

She points to slowing earnings growth in companies like CSL and Cochlear as evidence that the market is right to reassess valuations.

Samardzic reaches a similar conclusion, but frames it as a shift in investor behaviour rather than a structural break.

“The market is no longer willing to assume that all healthcare earnings are defensive.”

Quality still exists, but it must be demonstrated.

Whittaker reinforces that the underlying demand story remains intact.

“With healthcare, demand is most certainly not the issue… however, in the short term, it is all about operating margins.”

In other words, the sector has not lost its long-term appeal, but short-term earnings pressure is forcing a reassessment.

De Silva is the least convinced that anything fundamental has changed.

“The market is not reassessing healthcare wholesale… the underlying thesis holds.”

However, he acknowledges that scrutiny has increased, particularly regarding capital discipline and cash-flow visibility.

• Where they agree: the bar to justify premium valuations is higher.
• Where they differ: whether this is a structural downgrade or a cyclical reset.

Could things get worse before they get better?

On the outlook, alignment starts to break down more clearly. Milne remains cautious, particularly for companies that have already disappointed.

“For names that have experienced multiple earnings downgrades, there are few green shoots of recovery visible.”

She also highlights risks from regulation, tariffs, and margin pressure, suggesting the sector’s challenges are not yet fully resolved.

De Silva agrees risks remain, but sees them as concentrated rather than systemic.

“Yes, but due to company-specific reasons rather than across the board.”

His focus is on the funding cycle, particularly for smaller companies facing capital constraints, saying that “Cash runway is now the single most watched metric… expect more down-rounds.”

Whittaker takes a more constructive stance, arguing that much of the bad news is already reflected in valuations, particularly in small caps.

“From a valuation perspective, it is hard to see… operators derate too much further from here.”

Samardzic broadly agrees, noting that while margin pressure remains a risk, the sector is now trading at a meaningful discount to its historical premium.

• Where they agree: risks remain, particularly around margins and funding.
• Where they differ: how much of that risk is already priced in.

A reset, not a rupture

Taken together, the views point to a sector that is being repriced, not broken. The long-term drivers remain intact. Demand continues to grow, innovation persists, and healthcare retains its structural appeal.

What has changed is how the market is valuing those characteristics. The premium once afforded to the sector is no longer automatic. It must be earned through delivery, discipline, and visibility.

That shift may feel uncomfortable for investors used to consistency. But it also represents a return to something more familiar - a market where fundamentals matter, and where not all growth is treated equally.

Keep an eye out for part early next week, where our experts share where they're finding opportunities, both listed and unlisted, in the Aussie healthcare space.