Print this article

Healthcare Investing On The Front Lines

Jackie Bennion

18 January 2021

In a sign of what lies ahead, last week a consortium of big US health and technology names announced it has created a digital vaccination passport to help economies and workers get moving again. The Vaccination Credential Initiative, partially funded by the Rockefeller Foundation, with Microsoft, Oracle, the Mayo Clinic, joining a host of other marquee collaborators, said it is already working with airlines and governments in anticipation of rolling out a universal system to verify a person's COVID status before travel.

Investment has been pouring in to health care, and the sector is expected to grow to $1.3 trillion by 2027, with companies developing digital health services expected to attract the lion's share.

Developers in the space are hoping that the pandemic will transform the investment landscape in much the same way that climate risk has woken up capital markets.

“Globally, we have had to deal with Ebola, Zika virus, bird flu, and now COVID-19 in one decade, but the economy must adapt to a new future," said Paul Stannard, chairman and general partner of the Vector Innovation fund. The alternatives fund, administered from Luxembourg, invests in companies seen as best placed to transform global healthcare markets, and among many attracting thematic investors. He points to advances made in telemedicine “in just a few months” of lockdowns that have made it easier for doctors to monitor and support many more patients. The crisis has also proven that novel technologies few had the faintest grasp of a year ago can be commercialised in months, rather than years.

These pressing times have lit up the sector.

, is another drawing attention to the perils of current health systems.

“We know the bulk of your lifetime health expense will come in your later years, and we know you will enjoy increasingly more of these years. If we do nothing, the healthcare system will consume all our marginal wealth," he said.

"A significant double-digit percentage of doctors working in the UK weren’t trained in the UK. Training doctors is expensive and we are basically going around stealing other peoples’. It is great for us as a rich country, but morally very questionable,” and not sustainable, he said.

Health systems need to break their dependency on this high need for human capital, he added. "That's really what our fund is about, recognising that there are different ways to deliver healthcare."

The fund enlists three investment principles: can you enable doctors and caregivers to make better decisions; can you improve outcomes; and can you lower the cost? “You need to do all of those things to drastically improve the efficiency of any system," Major said.

It has invested in firms providing real-time information for patients managing chronic conditions; businesses making novel surgical robotics or using 3-D printing to fine tune orthopaedic tools for complex ankle and shoulder joints; and businesses providing diagnostics outsourcing for clinical trials, as a few examples.

The trust operates as an exchange traded fund, attracting mainly small to mid-size investors. "We don’t have many large multi-million investors in the fund," he said.

What has changed over the last 12 months among investors is a message getting through "that healthcare could actually all be done very differently," he said. “The NHS historically has not been the world’s most innovative organisation. But that is changing and COVID is a great example.”

Looking back at health investing over the last 20 years, clients have made the most returns from innovative treatments in the medical device and drug (therapeutics) category, Major said.

“If you look at healthcare spending, those areas amount to around 10 or 15 per cent of the total spend. All the boring things like admin, and in particular the intersection between doctor and patient, have never been the main sources of innovation or opportunities for investors to make returns. But they amount to 85 per cent of all the costs.”

That is the innovation gap that this pandemic has further exposed, he suggested. “Until now, we have basically been ploughing a very narrow furrow as investors.”

As for the immediate fortunes of vaccine delivery, "the challenge for the government, particularly the UK, is going to be convincing people that this is the right thing to do,” Major said. In his view, its credibility on COVID "is pretty much in the gutter and, frankly, exactly where it deserves to be."

He agrees that the UK government has done well in procuring for the nation and spreading its bets across the different approaches. It has also been clever in stating that it will donate any orders not used to other countries, he said. "Clearly the Gates Foundation, Gavi, WHO, all sorts of different donors are going to be involved in making sure this gets to everybody because it is an endemic global problem.

“It’s very interesting. The risks are all on you personally, and if you are in a lower age bracket, the benefits are to society not you directly so you are being asked to take an uncertain level of risk for a benefit that doesn’t actually accrue to you.

"When we all got vaccinated for measles, mumps, rubella, polio, we knew when we were kids that getting these diseases was bad stuff and we didn’t want to get it. Data with COVID is a lot more unequivocal.”