According to a 2018 report by Credit Suisse, the ‘digital health’ market was worth $118 billion in 2017. By next year, 2020, the market’s value is expected to hit $206 billion. That phenomenal growth level is why the investment bank considers health tech an investment ‘supertrend’. Supertrends are defined as ‘long-term societal trends such as demographic shifts, socioeconomic changes and scientific progress’.
For long-term investors, gaining portfolio exposure to supertrends is an important way to future-proof investments as well as hopefully realise strong returns by buying into companies that still have plenty of growth ahead of them.
Source: Credit Suisse/Statista
In this article we’ll take define what ‘health tech’ and ‘digital health’ are and the kinds of companies, products and services they are developing. And what the options are for investors who are interested in potentially investing in the ‘supertrend’ this quickly growing market represents.
Health Tech Categories
Health tech is a relatively broad category and can include products, services and treatments based on hardware and software but also ‘biotech’ – the engineering of living systems and organisms for a particular use. But one thing every sub-category of health tech has in common is that it aims to lead to better health. That could be through either monitoring and prevention, diagnosis and treatment or rehabilitation.
This is by no means a conclusive list but some of the main trends and sub-categories of health tech are:
Wearables are probably the most immediately obvious, and so well-known, category of health tech. They can be broken down into two main groups. The first is wearables that have a general application that has universal value for anyone wearing the device. They monitor health metrics that are strong indicators of overall health or could indicate a problem such as heartrate, blood pressure, exercise levels and sleep patterns.
Examples of general health tech wearables are Fitbits, Apple Watches and even the general health apps that come pre-installed in most modern smartphones or can be downloaded either for free or fall a small fee. We don’t actually ‘wear’ a smartphone so it can’t easily monitor our bodies’ signals but because we carry them around with us they can quite effectively monitor daily or sports activity.
Consumer electronics companies are focusing more and more of building health tech into their devices as an integral part of their offering. Apple CEO Tim Cook stated in January of this year that he believed his company’s most significant contribution to mankind would be in health. The most recent Apple Watch model is fitted with an ECG (electrocardiogram) sensor that records the wearer’s heartbeat and rhythm.
All the big consumer technology companies are competing to include more and better health tracking technology into wearable technologies and promote these as their primary USP.
As well as wearables that monitor general bodily health signals, there are also specialised devices for people who suffer from particular health issues or concerns. One example is blood sugar monitoring patches that work together with an app to help diabetes sufferers track their glucose level.
Advances in health tech in consumer-facing wearables and specialist devices means that today, the kind of medical-grade technologies that could only previously be expensively by hospitals and clinics are now readily available at an accessible price point for most Western consumers. Polar Global Healthcare Trust’s manager Dan Mahoney has commented:
“Technology is helping to put medical-grade devices, some of them more advanced than those you would find in a hospital, in the hands of consumers.”
Remote Medical Care
Another branch of health tech that is expected to become big business is digitalised, remote health and medical consultancy, diagnosis and treatment. Doctors and specialists able to effectively conduct appointments virtually via computers and mobile devices offers significant cost savings compared with having to host most patient consultations on-site.
Of course, there is a percentage of doctor/specialist-patient meetings that have to be conducted physically, on location. But the reality is modern high definition cameras and screens and high speed internet connections mean a majority don’t have to be.
Teladoc is an example of one company in this market growing quickly. It doubled to 2 million the number of ‘virtual physician’ appointments its platform hosted in 2018 compared to a year earlier. The company itself and stock market analysts expect strong growth to be a feature for the foreseeable future.
Data generated by wearables and IoT technology will also combine to lead to huge improvements into the health insights doctors can have into particular patients. This is expected to help improve the speed and accuracy of correct diagnosis generally but to mean more and more of it can be accomplished remotely.
In biotech, significant progress is being made in gene therapies and gene editing technologies. Even just the last couple of years have seen leaps forward in the biotech behind gene therapy. Credit Suisse’s report on the meditech market references the approval of a retinal disease product produced by Nasdaq-listed Spark Therapeutics.
That development has sparked a flood of other gene therapy products across a wide range of conditions applying for regulatory approval. New generations of treatments targeting the root cause of genetic conditions can be expected to become common over the next decade or two.
AI is rapidly becoming a key technology in both diagnosis and drug and treatment development. Machine learning-based AI algorithms are increasingly being used to isolate patterns in huge reams of Cloud-based data. This is leading to new insights that wouldn’t have previously been discoverable.
AI in health and medicine is forecast by research company Tractica to become of near $20 billion market by 2025.
Investing In Health Tech – The Routes Available
For investors interested in a long term investment in the health tech supertrend, there are three main options available. Which is most suited to you as an investor will depend upon your financial circumstances, experience and personal preference. They are:
Buying Stock In Listed Health Tech Companies
Several of the companies mentioned already as demonstrating strong growth in the health tech sector are stock exchange listed. One investment route is picking a selection of these companies and buying shares in them through your online stockbroker/investment company.
Being listed on the stock exchange generally means that a company already has one or more commercial products or services and is generating significant revenues, even if not yet profitable. It also probably means they company has already attracted significant private investment in the run up to going public.
This means investing in listed health tech companies can generally be considered less risky than investing in start-ups, who might not succeed in successfully commercialising or gaining regulatory approval for products and services. However, successfully stock picking this kind of smaller, younger listed company is still a minefield that even professional fund managers notoriously struggle with.
A further option would be to invest in larger, more established companies, like Apple, that have exposure to the market. This balances the risk but also means the investment will be a less ‘pure’ play on health tech exposure because these companies will typically have different and much bigger revenue streams than those derived from health tech. The share price will be influenced by health tech, particularly if it’s a quickly growing part of the wider business, but will also be influenced, almost certainly to a greater extent, by its other none-health tech products and services.
Before taking the stock picking route, an investor should first understand and accept this risk and secondly have the knowledge and experience of analysing companies that will give a fighting chance of getting enough right to provide a good return.
Buying Funds Invested In Listed Health Tech Companies
For most private investors, the safer approach to investing in health tech is through a fund. A fund means the task of analysing and selecting a balanced and varied portfolio of companies in the sector is outsourced to qualified professionals. Investing in a fund also means risk is automatically spread so the investment won’t suffer too much if individual companies the fund is invested in don’t go on to be a success.
There are several options that are either specialised in the health tech or have significant exposure to the sector. Some examples, with the last 3 low-cost index trackers, are:
- Allianz Technology Investment Trust
- Polar Capital Global Healthcare Trust
- Polar Capital Biotechnology
- Baillie Gifford Global Discovery
- L&G Global Healthcare
- Pharmaceuticals Index Trust
- L&G Global Technology Index
Another option, best suited to higher net worth investors able to take on a higher level of risk, is to invest in earlier stage health tech companies that are not yet publically listed. Investment in still private companies can be done through EIS, if they have qualified.
EIS is a government-backed investment scheme designed to incentivise investment in promising young British companies with a focus on intellectual property and innovation. EIS investments offer an initial 30% income tax credit as well as being protected from capital gains and inheritance tax. Additionally, any subsequent losses realised on the investment are also tax deductible, reducing the total exposure to less than 40% of capital invested. EIS investments have to be held for at least 3 years to qualify for their full tax incentives.
EIS investments should be considered high risk and should only be considered by high net worth individuals who have a high risk to potentially very high reward portfolio allocation.
Another EIS option is to invest in an EIS VCT fund that specialises in health tech or has a significant allocation to the sector. This is the EIS equivalent of investing in a fund that buys listed health tech companies. It means spreading the risk between a range of health tech companies again selected by a professional. Investments in EIS VCTs qualify for the same tax relief as direct EIS investments do. Two examples are:
- Seneca Growth Capital VCT
- Downing Four Healthcare