Our Perspective.
“HEALTHCARE INVESTING IS ABOUT BEING ABLE TO SEE THE FUTURE AND WHAT IT HOLDS FOR HUMANITY.” ~ Bill Gates
Our quality of life today is significantly better than that of our grandparents. Indeed, our quality of life is not only better, but we live longer and experience significantly more than our ancestors. However, societies are also experiencing greater levels of illness, labour forces are shrinking, and inequality continues to rise. These demographic trends mean greater strain on governments and healthcare systems, with healthcare costs set to explode over the next decade. In the US alone, Medicare coverage is set to grow from $900bn in 2024 to $1.75tr in 2034. Whilst this represents only a 7% CAGR, it will significantly outpace GDP growth.
But this is also exactly the reason why investors should look for opportunities in healthcare. The need for change is the mother of innovation. And innovation is accelerating.
The life sciences industry is on the brink of extraordinary transformation, underpinned by the powerful convergence of genomics, robotics, and AI. We believe we are at the dawn of a new era in medical breakthroughs. A mix of integrating AI into R&D processes, supply chain shifts and innovation in therapeutic areas such as neurology, obesity, and oncology, are fuelling a resurgence of M&A activity and the IPO market following the depression of 2022 and 2023.
Exhibit 1: The extraordinary growth of social security and Medicare costs in the USA over the next decade, as projected by the CBO, will likely be funded by increasing debt and deficits:
Source: CBO, https://bipartisanpolicy.org/blog/visualizing-cbos-budget-and-economic-outlook/, 23/02/2024
Exhibit 2: Four economic scenarios according to Oliver Wyman analysis, with the most likely outcome somewhere between scenario 3 and scenario 4, in our opinion:
Source: Oliver Wyman analysis, health.oliverwyman.com
New business models will emerge whilst the biggest winners are likely to be those companies who are able to win consumers through brand loyalty and engagement. Undoubtedly many of these companies are still in the early stages of their life cycle or private companies in venture capital markets. But there might equally be opportunities in large, listed blue chips, and everything in between. A good example is the opportunity for GLP-1’s, which we discussed in a recent podcast, which you can listen to here. The extraordinary successes of early incumbents Novo Nordisk and Eli Lilly are severely underexploited due to supply shortages.
What is clear is that the opportunity cannot be taken advantage of through a passive or index-tracking fund, but rather investors will have to embrace active management. Investment teams will need a strong understanding of the science, the manufacturing and distribution risks, and the increasingly difficult regulatory environments these companies operate in. Sure, pricing pressures will likely remain, supply chains remain fragile which means volatility should be expected. But the opportunity for long term, patient investors into the Life Sciences space has never been more exciting!
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