Jab in the arm for healthcare R&D
Increasing demand for effective treatments and an improving outlook for research and development support our positive view on the healthcare sector. We have witnessed many large pharmaceutical companies successfully navigate the ‘patent cliff’ of key drug sales losses and now see the first signs of how these companies can deliver future growth through successful design and development of new cost-effective treatments. Valuations have risen amid this strengthening sector confidence. The healthcare ‘bears’ would question the ability of company pipelines to deliver successful treatments, but we are confident we should be able to distinguish companies with true growth and innovation potential from those with less attractive prospects.
An exciting emerging trend we are following with interest is the shift towards targeted treatments. Traditionally, drugs have often been developed to treat a broad patient population or condition. increasingly, we see a move towards specialisation, whereby drugs are targeted at a defined group of patients, or a particular manifestation of a disease, for example a specific type of cancer. These targeted treatments should help companies to reduce their development times and testing costs as well as to improve the outcomes for patients. As long-term investors, the search for cost-effective treatments and signs of productive R&D form fundamental aspects of our analysis of growth potential.
As drugs become more specific, new types of data collection and analysis will become increasingly prevalent in the healthcare industry. The use and implementation of such techniques by regulators and payers could be a pivotal factor affecting the potential for future health care growth.
The development speed of hand-held devices and portable diagnostics equipment is one area of progress we are monitoring as investors. Development of new methods of drug administration is a further field of innovation potential, where it is no longer just the drug itself but the way in which it can be administered to (or by) the patient that may provide a company with a competitive advantage.
In with the new
It is not just technological innovation changing the health care industry: a perceptible shift in focus upon particular types of conditions is also underway around the world. Previously, more common conditions such as cardiovascular and gastrointestinal diseases were often the focus of treatments. Now, increasing attention is focused upon more difficult-to-treat conditions such as oncology (cancers), metabolic diseases (such as diabetes) and neurological disorders (such as Alzheimer’s). We understand part of this transition is born of changes in people and society. As people live for longer and as lifestyles across both developed and emerging markets improve, it is those conditions associated with older age and a richer (yet ironically poorer) diet and sedentary lifestyles which are becoming greater concerns for society. Correspondingly, this means that more government attention and spending will be focused upon these new areas.
Governments and geographies
The spotlight upon the advent of Obamacare in the US has brought to the fore the influence of government spending on healthcare and the various ways different governments may choose to meet the increasing healthcare demand. While the effects of US healthcare reform will unfold over the next three to five years, positive changes in emerging markets, such as China, which start from a lower base of coverage and treatment access, will evolve over a much longer time horizon. As investors, we see the contrasts in healthcare provision between developed and emerging markets as offering a range of opportunities. What is evident, certainly across developed economies in Europe in the wake of the financial crisis, is that concern over cost savings dominates the healthcare debate. In emerging markets, on the other hand, healthcare spending on both an individual and national basis is likely to increase.
We believe global healthcare offers many exciting opportunities for longterm investment and we will be keeping our finger on the pulse of new emerging opportunities in innovative treatments and services.
- Watch out for the companies likely to be impacted, both positively and negatively, by the roll-out of Obamacare in the US
- Expect to see the first signs of improving earnings prospects for a number of global pharmaceutical companies
- Keep a close eye on pipeline developments and regulatory approvals for drugs and treatments; these are often considered key sources of competitiveness