“The case for digital transformation has never been more urgent or clearer. Digital technology is a deflationary force in an inflationary economy.”
Satya Nadella
As digitalisation has coursed through industries disrupting the way we live, work and play, healthcare has remained somewhat impervious. There are a multitude of reasons why – for one healthcare has always been a more conservative industry. It’s highly regulated, more resistant to the transition from analog to digital, and its incumbents are large corporations that provide lots of different services so the barriers to entry are sky high. Whereas innovation, new technology and competitors have driven affordable and accessible products and services across a host of industries from communications, to finance, to retail and media. The U.S. healthcare sector has just continued to get more expensive – and is now the world’s most costly system per capita – with national health total expenditures at almost 20% of GDP.
Healthcare costs are reaching untenable levels. And it’s not just the U.S. experiencing these challenges. An estimated half of the world’s population lacks access to essential health services. In the UK, the government is struggling with rising patient numbers and not enough doctors to treat them. Over six million people were waitlisted for planned NHS treatments in England last December: the equivalent of over 10% of the population.1 Add to the mix that healthcare workers are exhausted: with a recent study by the British Medical Association finding more than a fifth of doctors were considering leaving the NHS for another career.2 The industry is ripe for disruption.
Three Positive Trends Within Healthcare
The good news? The pace of change is picking up fast. As new technologies reach the point where they can dramatically improve healthcare processes and outcomes, healthcare, as we once knew it, is evolving rapidly. We believe there are three main trends driving innovation. The first relates to developments in molecular biology and genetics. In 2003, it cost $10-$50 million to generate a human genome sequence and took 122 days. By 2020, it cost $942 and took one day.3 Most diseases, from heart disease to cancer, have a genetic component. Innovative diagnostic tools and treatments are becoming more based on an improved ability to sequence (read out) and even edit DNA. The improvement in both the cost and time of gene sequencing can enable massive volumes of data collection for patients. We believe we are at the very early stages of a 20-, 30-, 40-year advancement in science.
Outpacing Moore's Law
At the same time, people are becoming more digitally connected. Most people in the developed world now own a smartphone, and the trend for wearable devices, apps and fitness trackers is accelerating. Fortune business insights projected the global fitness tracker market will reach $114.36bn by 2028 (from $36.34bn in 2020).4 These devices are reshaping health monitoring already and also hugely enhance the global health data available to researchers, driving further innovations.
Thirdly, we’re also seeing more powerful Artificial Intelligence (AI), Robotics, and Virtual Reality (VR) capabilities, from rapidly improving analytical capabilities (by finding patterns in complex data and algorithms). VR, Robotics and Augmented Reality (AR) are being used during surgical procedures making them less invasive and improving outcomes.
We believe these advances have the potential to disrupt the entire healthcare industry, creating opportunities for those companies at the forefront of this innovation. From record keeping to patient health monitoring to treatment and prevention – the whole sector is being revolutionised. This digital infrastructure has the potential to fundamentally change the costs, efficiency, treatment, and the quality and longevity of our lives. As thematic investors, we believe in diversified but targeted exposure to these companies using digital soultions to solve healthcare’s most demanding issues.
Healthcare in an Inflationary Economy
Healthcare has shown to perform well in an inflationary environment. While higher-beta and more growth-oriented names have struggled so far in 2022, the larger cap names in the healthcare sector can rely on a combination of financial moats and dominant market share allowing them to pass on the limited cost increases they are subject to.
Sources:
1 Institute for Fiscal Studies, 2022
2 British Medical Association, 2022
3 Statista, 2022. Costs exclude cost of analysis.
References to specific companies should not be construed as a recommendation to buy or sell shares or other financial instruments issued by those companies, and neither should they be assumed profitable. You should consider the fund’s investment objectives, risks, and charges and expenses carefully before investing.
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