A smarter way to tap into the tech boom

Tech firms are striving hard to secure lucrative slices of the expanding market for healthcare technology.

The world’s biggest technology companies are making plays for a share of the healthcare market. Apple, Google, Amazon and their rivals believe new technologies have the potential to transform healthcare, just as they have underpinned the growth of these big-tech companies themselves over the past two decades.

Google alone invested in 14 of the 15 biggest healthcare technology financing rounds in the US last year. Apple has acquired sleep monitor company Beddit and personal health data platform Gliimpse. Amazon’s investments range from a deal with the personalised medicine distribution specialist Pillpack to an investment in baby monitoring start-up Owlet Baby Care.

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Healthy prognosis

These are far from isolated moves. Investors are scouring the globe for the most exciting opportunities. When Li Ka-Shing, a Chinese business tycoon best known for his telecoms enterprises, is pumping cash – three times this year – into obscure Canadian health business Well Health Technologies, you know this is a hot market.

It’s easy to see why. Stephanie Demko, Citigroup’s senior analyst for the healthcare technology sector, argues that the healthcare industry could boost its annual revenues by $70 billion (£55 billion) a year simply by implementing technologies to levels seen in other industries. A recent survey by the bank found that private equity investors are rushing to secure their share of the spoils.

Demko explains: “Demand is driven by high growth expectations for the sector, with nearly 80% of respondents projecting that the [healthcare technology] sector will outperform other healthcare sectors.”

Investment bank Credit Suisse shares Demko’s view. Last year, it picked out healthcare technology sector growth as a super-trend for investors taking a long view to watch closely. It expects the global healthcare technology market to be worth $206 billion by next year – almost trebling in value in over just five years.

Credit Suisse portfolio manager Christian Schmid says: “Finding innovative ways to harness digital technologies looks to be one of the most compelling solutions to the question of healthcare’s swollen price tag.” He points out that no society can afford to meet the spiralling cost of healthcare as populations age and treatments become inexorably more expensive. “Digitalisation has the potential to reverse the trend of ever-increasing costs. It’s a process a number of industries have already benefited from over the past 20 years,” he adds.

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Access strategy

How, then, can investors access this growth, particularly given that many of the most exciting ventures in healthcare technology are small unquoted companies, often located in far-flung markets?

There is no single definition of the term healthcare technology. It spans everything from the latest advances in treatments to software that helps hospitals operate more efficiently. Still, several core themes have widespread appeal.

The first might be called digital medicine or telemedicine. Telemedicine enables providers to deliver healthcare remotely via mobile apps that enable patients to speak virtually with doctors and to deploy wearable devices that can provide doctors with a constant source of data on a patient’s health, including data on their heart rate, blood pressure and other vital signs.

The global telemedicine market could be worth $113 billion by 2025, according to a study by DataX. In developed markets, it gives patients access to healthcare professionals more quickly and conveniently, while simultaneously improving the efficiency of hard-pressed hospitals, clinics and surgeries. In the developing world, telemedicine could extend healthcare to huge segments of the population – particularly in rural and remote areas – currently without it.

This sub-sector is closely related to the industry that is growing up around the storage and dissemination of electronic medical and health records. Healthcare providers are keen to digitise patient records in order to become more efficient – so that a single electronic file on a patient is available to anyone in a healthcare system who needs to access it. In addition, the aggregation of these files provides a huge new source of data that analytics technologies can extract insights from for any number of purposes, from developing tailor-made insurance products to developing new treatments.

Nicolaus Henke, a director at consultancy McKinsey, says: “In the past few years, there has been a move toward evidence-based medicine, which involves systematically reviewing clinical data and making treatment decisions based on the best information available; aggregating individual data sets into big-data algorithms often provides the most robust evidence. Although the healthcare industry has lagged behind sectors such as retailing and banking in the use of big data – partly because of concerns about patient confidentiality – it could soon catch up.”

Another exciting area of the health technology market might loosely be described as medical devices, which include advanced 3D printers that enable pharmacists to ‘print’ pills that contain multiple drugs, much to the advantage of patients taking a number of medicines. 3D printing is also now widely used to manufacture prosthetics much more cheaply than conventional processes and to tailor prosthetics to patients’ needs more precisely.

In the burgeoning field of bio-printing, scientists have moved on from advances that have helped them create new skin cells for burn victims: they are now able to build blood vessels and even whole organs.

Elsewhere in this sub-sector, robotic surgery is becoming increasingly commonplace. It is often now paired with augmented reality tools to give surgeons unprecedented support as they perform the most complex and intricate procedures. Artificial intelligence (AI) that will allow robot surgeons to make decisions, rather than simply follow instructions, will soon be part of the picture.

Patients are receptive to the idea of robotic surgery, says Quentin Cole, leader of industry for government and health industries at PwC, whose research suggests that 30% of Britons would already be prepared to have major invasive surgery performed by an AI system. “This could be the way our healthcare system operates in future,” he says.

At a more mundane – but no less impactful – level, asthma specialists have developed Bluetooth-enabled inhalers that help asthma sufferers use their devices properly and at the right time. Research suggests that 94% of asthma patients don’t use their inhalers correctly, so these inhalers could be transformative.

The field of genomics represents another way to play the healthcare technology theme. Scientists’ growing ability to edit genes has spawned a whole new area of disease treatment in the shape of preventative medicine – based on a better understanding of which genes dispose individuals to certain diseases – and in the form of medicines and treatments tailored to the needs of specific patients.

The more optimistic practitioners believe that by harnessing the natural mechanisms of the human immune system to ‘cut out’ DNA strands that cause disease, we will eventually be able to overcome diseases such as cancer and HIV.

Lydia Greasley, an investment analyst at EdenTree, says: “The application of DNA-related knowledge is creating a range of investment opportunities throughout the value chain in diagnostics, genetic editing, research and treatment. The ‘life code’ represents an exciting new area of investment, exploration and discovery.”

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Investment space race

No wonder the technology giants are desperate to secure their places in the healthcare ecosystem, particularly as they already possess complementary expertise in fields such as big data, analytics and AI. However, they’re not the only investors in the game: financial backers in the venture capital and private equity space as well as institutional investors are also enthusiastic investors in healthcare technology.

For retail investors, though, the specialist knowledge required to analyse healthcare technology businesses and the fact that such businesses are often small companies at an early stage in their development means a collective investment vehicle almost certainly offers the best way into the sector. Direct investment opportunities do exist, including via tax-efficient schemes such as enterprise investment schemes, but these are only suitable for investors with well-diversified existing portfolios and expertise in the sector.

Top funds for healthcare tech exposure

Investors looking for a collective fund route into healthcare technology can choose between specialist vehicles and more generalist funds with exposure to the sector.

Juliet Schooling, research director at FundCalibre, says: “The obvious one is Polar Capital Global Healthcare Trust, which we like a lot, while Baillie Gifford Global Discovery has about 36% invested in the healthcare sector.”

At the more generalist level, she adds: “EdenTree Amity UK holds a number of firms involved in the medical sciences, including genetic research and genome sequencing, while Smith & Williamson Artificial Intelligence holds Sensyne Health, a spin-out from Oxford University working in partnership with the NHS.”

Justine Fearns, senior research manager at Chase de Vere, warns that the healthcare sector is often highly volatile and that the financial adviser is therefore very cautious about specialist healthcare funds.

She says: “AXA Investment Management has weathered the storm and still manages two funds that capitalise on developments and trends in healthcare: Framlington Health and Framlington Biotech.

“They have ongoing charges of 0.82% and 0.83% respectively, which is quite reasonable for specialist funds, and both are actively managed by experienced managers – although neither is for the fainthearted.”

Philippa Gee at Philippa Gee Wealth Management advises potential investors to be patient. She says: “Health investment may only pay o over a terribly long timeframe, and that becomes a big concern when performance is lagging.

“Moreover, such investments are high risk. You don’t just rely on companies’ individual performances and fund managers’ talents: regulation can also be an issue, as can the loss of a patent or the constant need for funding for research and development.”

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Comments

HEALTHCARE

MISSED out numerous other trusts & funds.

In particular WPCT ? !

You have to be patient not just in WPCT but in healthcare in general. For risk takers look at individual stocks.

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