Outperforming the benchmark S 500 index over a long period is a formidable challenge. This task becomes even more daunting when choosing stocks from the healthcare sector, where the competitive landscape is constantly evolving due to patent expirations, technological breakthroughs, and political headwinds. Unicorns do indeed exist in the dynamic healthcare sector, however. The rare disease specialist Vertex Pharmaceuticals (NASDAQ: VRTX) and the molecular cancer diagnostic stalwart Exact Sciences (NASDAQ: EXAS) are two of the best examples.

Over the past 10 years, both of these cutting-edge healthcare companies have delivered significant excess returns for their shareholders, relative to the total returns of the S 500. That's no easy task, given that less than 3% of all stocks have consistently outperformed this bellwether index since 1926.

What's the secret to their success? Vertex has built a dominant position in the area of therapeutics for cystic fibrosis (CF), a genetically based condition with few treatment competitors, and has strong pricing power and robust demand. Exact, for its part, is a pioneer in the field of next-generation cancer diagnostics, spearheaded by its home-based colon cancer screening test, Cologuard. Thanks to their focus on innovation, each company has generated double-digit revenue growth in recent years, which has been the foundation for their market-beating performances.

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Source Fool.com