Home Brokerage Why Healthcare Innovation Is Such a Strong Investment Theme

Why Healthcare Innovation Is Such a Strong Investment Theme

by internationalbanker

By Alexander Jones, International Banker


With the rapid advancements in technologies such as artificial intelligence (AI), data analytics and cloud computing accompanied by longer-term secular trends such as a steadily ageing global population and more funds being committed to government health funding, it is no wonder that healthcare innovation is yielding a multitude of investment opportunities. And that’s despite the cooling phase the technology and healthcare sectors have experienced in tandem with the global economic downturn since 2022. The ongoing blistering pace of evolution and disruption transforming traditional healthcare means that it will likely remain a strong investment theme for years, if not decades.

The coronavirus pandemic has further bolstered the healthcare-innovation theme, as healthcare companies have strived to leverage tech-based solutions to dispense vaccines and other forms of care to patients rapidly. Indeed, the development of messenger RNA (ribonucleic acid) (mRNA) COVID-19 vaccines represents just one notable result of such advancements, with genomics—that is, the total or part of the genetic or epigenetic sequence information of organisms—amongst the areas proving most ripe for disruption.

The complex codes underpinning human biology are now being understood and channelled to such an extent that many of humanity’s most debilitating diseases could potentially be treated and cured. And the rapid advancements in AI and machine learning (ML), as well as the astronomical growth in computer-processing power, are principally contributing to this more granular understanding of human genes. Doctors can detect the presence of many diseases much earlier and more comprehensively track their potential spreads. Gene editing and genomic sequencing are evolving at a breathless pace as a direct consequence of genomic innovation, helping to further the capabilities of cancer detection and treatment.

Such trends are spurring the pharmaceutical industry to work more closely with AI firms to combine healthcare and technology and deliver genuine improvements in genomics. American pharmaceutical firm Eli Lilly and Company, for instance, has partnered with AI and robotics specialist XtalPi to identify potential drug candidates for clinical and commercial development. “With a closed loop of AI and quantum physics algorithms working in sync with the data factory of large-scale robotics experiments, XtalPi is uniquely equipped to tackle challenging novel targets,” according to XtalPi’s chief executive officer, Dr. Jian Ma. “We are honoured that Lilly has chosen XtalPi’s AI plus robotics drug research and development (R&D) platform as a partner in achieving more fruitful pharmaceutical innovation and bringing much-needed treatments to patients worldwide.”

The American pharmaceutical firm has also bolstered its AI credentials through its partnership with ProofPilot, a leading provider of innovative clinical-trial automation, to offer Lilly’s highly rated sensor cloud platform, Magnol.AI, which enables the sophisticated management of high-frequency sensor data. “We are thrilled to collaborate with Lilly and leverage its industry-leading sensor cloud, further strengthening our commitment to provide our customers with the most advanced solutions and enable flawless execution of clinical research,” said Chris Venezia, chief executive officer of ProofPilot. “By integrating Magnol.AI into our platform, researchers finally have a one-stop, comprehensive solution to execute digital health research and deliver sensor data-driven insight with the highest quality.”

Along with genomics, the advancements being made in biotech are also largely credited to this seismic wave of healthcare innovation. This field is concerned with studying biology—typically through research on cells and organisms—to create new, innovative products and solutions designed to improve our lives, such as vaccines and medicines. And when combined with technology such as AI, the results can be profound. AI healthcare firms such as Insilico Medicine, for instance, are among the frontrunners of drug development, thanks to the machine-learning and deep-learning algorithms it is deploying that are trained on enormous amounts of data to determine the most effective drug treatments for various diseases and conditions. And backed by big-name investors such as Jeff Bezos (Amazon’s founder) and Peter Thiel (billionaire entrepreneur and co-founder of PayPal), anti-ageing firm Unity Biotechnology is focused on senolytic therapies that rid the body of dying cells associated with ageing and age-related diseases.

With genuinely phenomenal breakthroughs being achieved across the industry, therefore, investors are committing substantial amounts to healthcare innovation. Across 2020 and 2021, global venture-capital (VC) investment in biotech amounted to a mammoth $78 billion, $13 billion more than the previous four years combined, with biotech exchange-traded funds (ETFs) experiencing $7 billion in net inflows during this time. And while investment levels undoubtedly dipped last year along with the broader market, much evidence suggests that biotech funding stabilised once again during the first half of 2023. Investors have continued to help generate substantial value for biotech firms worldwide.

Elsewhere, key innovations are also being successfully leveraged across several additional healthcare sectors, with diagnostics enabling much earlier detection of diseases through such cutting-edge methods as liquid biopsies. Patient care via telemedicine—delivering healthcare services remotely through telecommunications infrastructure—is also hugely impacted by important tech and telecommunications achievements.

“A growing number of companies are exploring tests that can detect various diseases in the early stages, including cancer, where a late-stage diagnosis is a leading cause of death. New blood tests that can detect early-stage cancer may lead to better patient outcomes, not to mention lower treatment costs,” Morgan Stanley’s wealth management unit noted in March. “Increasingly sophisticated and connected medical devices are driving improvements in convenience and care. For example, wire-free adhesive heart monitors can now capture cardiac data and transmit it to a patient’s doctor, and pacemakers can relay data wirelessly to a patient’s smartphone.”

When one considers the digitalisation factors on both the healthcare provision and consumer sides through the likes of smartphones, 5G connectivity, the Internet of things (IoT) and more secure patient health-record storage facilities, it is clear that an entire global digital-health ecosystem could potentially bloom over the coming years. Indeed, as the industry continues to move from an analogue paradigm to a fully digital one, “big data” in healthcare will explode, according to JPMorgan Chase.

“Advanced diagnostics will power the shift from treatment to prevention. Personalized medicine will lead to targeted therapies that are right for the individual. Meanwhile, a focus on enhanced aging is expected to increase longevity,” the US bank noted in October 2021. “From a societal perspective, the implications of these trends are exhilarating. It seems the door is opening to new ways to treat, cure or prevent devastating diseases such as influenza and cancer that cause hundreds of thousands, even millions, of deaths every year.”

This means the digital-healthcare industry has lofty growth expectations over the coming decade. Grand View Research, for example, stated it sees the global digital-health market growing from $211 billion in 2022 at a compound annual growth rate (CAGR) of 18.6 percent from 2023 to 2030. The market-research firm has attributed this bullish outlook to several key factors, including the increasing penetration of smartphones, improving internet connectivity with the introduction of 4G and 5G technologies, developing advancements in healthcare IT (information technology) infrastructure, rising needs to curb healthcare costs, the growing prevalence of chronic diseases and the increasing accessibility of virtual care—these are just some of the major factors fuelling market growth.

Asia-Pacific is expected to witness the fastest growth rates during the forecast period, the report also noted, thanks largely to the rising adoption of eHealth platforms and increased healthcare spending in the region, which should drive significant growth in digital-health services. “Rising demand for remote patient monitoring and other telehealth services owing to an increase in government spending on healthcare is expected to propel the industry growth in the Asia Pacific,” the report added. “According to The World Bank estimates, in 2019, China’s healthcare spending was recorded at 5.4 percent of its GDP, while India’s healthcare spending was recorded at 3.1 percent of its GDP and Japan’s was at 10.7. The growing involvement of key market players in Asia Pacific has boosted the adoption of digital apps and platforms in the region.”

Such lofty growth expectations have come despite the sharp ongoing slowdown in the global economy, as central banks continue to raise interest rates to rein in inflation. Deloitte, for instance, conducted a data analysis of venture-capital deals in the health-tech space and interviewed nine executives from investment and startup companies between November 2022 and January 2023. “Interviewees believe that the health tech market holds much opportunity moving forward, and the sector continues to show strong signs of growth to disrupt health care,” the analysis, published in March, found. “For example, the median health tech deal in 2022 fetched a valuation of more than $57 million, which was substantially higher than the 2021 median (US$33.9 million) and that of years prior.”

To gain exposure to this sector, several exchange-traded funds focusing on healthcare innovation are worth considering. The iShares Healthcare Innovation UCITS ETF, for example, offers diversified access to companies across developed and emerging markets that are centred on innovations within global healthcare services. It tracks the STOXX Global Breakthrough Healthcare Index, which comprises companies from selected countries exposed to a defined set of themes: ageing population, automation and robotics, digitalisation and breakthrough healthcare.


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