Healthcare innovation: A new universe of potentially attractive investments

In the UAE, the healthcare sector is among the fastest growing
Healthcare innovation: A new universe of potentially attractive investments
Steven Rees, Head of Investments for the Middle East and North Africa at J.P. Morgan Private Bank

The pace of innovation in healthcare has been rapid and is expected to accelerate considerably in the coming years. As the industry transitions from analog to digital, “big data” in healthcare is poised to explode. The progression from treatment to prevention will be driven by advanced diagnostics and personalized medicine will culminate in therapies that are specifically tailored to the individual. Meanwhile, a focus on enhanced aging is anticipated to increase life expectancy.

From a societal perspective, the implications of these trends are riveting. New possibilities appear to be emerging for treating, curing, or preventing debilitating diseases such as influenza and cancer, which result in hundreds of thousands, and even millions, of deaths every year.

Moreover, the implications for portfolios are profound. All of these trends are investible on their own, but when combined, they create a compelling universe of opportunities for investors.

In the UAE, the healthcare sector is among the fastest growing, with investments expected to increase by more than 300% over the next decade. Moreover, due to the growing international trust in the health sector, the country has also become a top health tourism destination.

Driving healthcare innovation


Technology, public funding, and demographic pressure are the three primary forces that are driving innovation in today’s healthcare sector.

Technology— Rapid innovation in the healthcare industry is being driven by cheaper processing power, cloud computing, and the accelerated sophistication of artificial intelligence (AI).

Public funding— Significant government research efforts and investment, often resulting in entirely new lines of medical advancement, has been another factor impacting the healthcare sector’s growth.

Demographic pressure—As the number of people over the age of 60 in the advanced world expands from 326 million today to an expected 405 million in 2040, the market for longevity and wellness innovation is sure to grow, luring more capital into the industry and accelerating innovation. Meanwhile, as government budgets are compressed, the market for more efficient treatments is expected to expand. Furthermore, patients’ rising expectations for customization and at-home service delivery are also reshaping the market.

Key trends in healthcare now


We are already observing remarkable responses to these drivers, and the coming years could bring new treatments and diagnostics that may alter not only how we combat various diseases, but also how we perceive certain medical prognoses.

Exciting recent developments within the healthcare sector include:

Messenger RNA (mRNA) technology—mRNA vaccines rapidly gained popularity as companies such as Moderna, BioNTech and Pfizer used this technology to develop lifesaving COVID-19 vaccines. It’s expected that mRNA vaccines will be used to fight many other diseases as well.

Advanced diagnostics and analytics—Recent advances in medical diagnostics have shown promise in changing how diseases are detected, allowing them to be identified in the early stages before they become serious health threats.

New testing and diagnostic methods, such as liquid biopsies, show particular potential to significantly improve cancer detection. Current methods include expensive and time-consuming procedures such as computerized tomography (CT) scans and magnetic resonance imaging (MRIs). Liquid biopsies promise to be a good alternative, as they are non-invasive, quick, precise, and relatively inexpensive.

Medical devices— Health monitoring is being redesigned. Fitness trackers have already made general health recording affordable to the masses. Devices aimed toward specific health concerns (such as glucose monitoring) are now becoming more widely available. We anticipate that the trend of wearable medical devices will continue to grow and contribute to the global health data sphere available to researchers, further accelerating innovation and discovery of new treatments.

The healthcare data stream is growing


Precision medicine— Precision medicine is reinventing the treatment and the potential cure of diseases. It leverages a patient’s complete medical profile (from genetic data, medical history, environmental factors, and even lifestyle) to develop an individualized therapy and preventative regimen. As the cost of genome sequencing decreases, a comprehensive understanding of each individual can become the focal point of healthcare.

Healthcare’s investment risks


Powerful and investable trends always necessitate careful consideration of the potential risks.

 Regardless of how compelling a trend may be, if a company’s initial valuation is extremely high, its future earnings growth may not be sufficient to generate a positive return for investors.  This bias is often exacerbated when investments are being made into a company that is currently generating losses and in the current market, the majority of healthcare start-ups are operating at a loss.

 As exciting as some of these early-stage innovators can be, a portfolio’s risk and volatility can be reduced by balancing exposure to these front-line organizations with those that are larger, more stable, and more established, but are still involved in these innovative developments.

It should also be noted that there is significant clinical trial risk in domains of healthcare, such as therapeutic innovation and to a lesser extent medical devices. To reduce risk in this area, it may be prudent to invest in businesses that have strategic partnerships with large, established organizations.

Furthermore, “platform” companies that assist in the manufacture, rather than the development of new pharmaceuticals may provide investors with a more predictable set of cash flow, while still delivering exposure to the innovative drug industry.

Disclaimer: Opinions conveyed in this article are solely those of the author. The information presented in this article is intended for informational purposes only. It does not constitute advice on tax and legal matters; neither are they financial or investment recommendations. Refer to our full disclaimer policy here.