Healthcare is starting to catch up with the rest of the world, says Henk Grootveld, head of trends investing at Lombard Odier.
He says that while digitalisation as a trend has been upending most sectors of the economy and society over the past decade, healthcare as a sector remained untouched by the advances in technology.
Grootveld notes many healthcare systems “were still reliant on fax machines”, but that amid the Covid-19 pandemic “hospitals, with their backs to the wall, began to talk to each other and now we see rapid growth in terms of online consultation and online pharmacy."
He adds: "As a result of Covid, patients were sent home and monitored, rather than kept in hospital. We saw two decades worth of the change that happened in other industries happen in a few months in healthcare.”
Will McIntosh-Whyte, multi-asset investor at Rathbones, says: “The key benefit of the new technology is that it can process data much more quickly, and so can weed out the unsuccessful drugs at an earlier stage, which makes the whole process more efficient. In terms of the larger pharmaceutical companies, one of the advantages of the current market is they can enter joint ventures with smaller companies, which allows them to spread the costs.”
In terms of what this means for investors, Grootveld says “healthcare now is like where e-commerce was at the end of the 1990s, and the investment opportunity may be in some of the software companies, and the online pharmacies, but we tend to take the basket approach: buying a number of the firms".
Grootveld adds: "The growth opportunity is huge, with ageing populations around the world and healthcare providers looking for ways to manage costs.”
Bryn Jones, head of fixed income at Rathbones, says environmental, social and governance investors are presented with a challenge when looking at healthcare companies because, while the work of producing medicines is obviously ESG-compliant, many such companies also engage in practices such as animal testing, which mean they need to be excluded from such funds.
Innovation
Michael Schroeter, co-head of sustainable healthcare equity investing at HSBC Asset Management, says innovation generally happens in an S shape, with initial progress later becoming the norm, until new innovations take its place.
He says in the healthcare sector, the latest innovations involve the use of artificial intelligence and machine learning to faster process medical data and understand the patient’s issues in a more personalised way than is typically the case.
Schroeter says the earlier stages of the of the healthcare innovation cycle included areas such as oncology and antibodies, which he says “now look expensive” as investments and have been replaced by AI and by telemedicine, and because he feels those areas remain at the start of their respective cycles, he feels there continues to be value in shares in those sorts of companies.
