As an industry, healthcare is exploding and is an increasingly interesting space for investors. If you’re thinking about taking the plunge and investing in the space, there are some broader macro trends to be aware of. Based on some extensive research by Thessalus Capital, who are experts in the healthcare field and come with a strong track record, here are five predictions about how the industry will evolve in the future and what that means for potential investors.
1. Specialty Diseases On The Rise
Historically, there has been a focus on disease states that affected more people instead of specialty diseases. However, these ‘orphan diseases’, chronic diseases and syndromes, that affect less than 200,000 people, are stepping into the spotlight. This, unsurprisingly, is primarily to do with the fact that they are lucrative: there is less competition, fewer existing treatments and require ongoing treatment. While this is good news for a lot of sufferers who have not had options, it is likely that these medicines will be expensive as they will have no competition. Principal partner of Thessalus, Mitchell Ng says “Smart investors should focus on pharma companies with specialty drugs for orphan diseases in the pipeline, regardless of market capitalization, these have greatest future revenue potential”.
Look For: companies with a healthy pipeline of treatments for ‘orphan’ diseases
2. More Mergers & Acquisition Activity
Over the course of the next ten years, $17 billion worth of patents for the big, blockbuster drugs will expire. And the big companies need to find a way to make up their losses. Developing new drugs is an expensive and timely endeavor (that slowed during the Obamas years as FDA measures were strict), and the outcomes are uncertain. While R&D will not stop, more and more pharmaceutical companies are likely to grow through acquisition. Ng says, “We’re likely to see more and bigger capitalization companies like Pfizer purchase smaller pharmaceutical companies that already have profitable drugs in the pipeline”. The big companies can help accelerate the growth of these smaller players through marketing, rebranding, production and distribution efficiencies and label expansions.
Look For: information pertaining to deal flow and merger and acquisitions negotiations, not just clinical trials.
3. Technical Breakthroughs
Thanks to some mind-blowing developments in molecular engineering and gene editing, there’s a whole new world of pharmaceuticals ready to explode. Specifically Chimeric Antigenic Receptor T-cell (CAR-T) and CRISPR-CAS9 gene editing technologies. CRISPR allows genetic material to be edited in every cell, which means eliminating diseases like Cystic Fibrosis, Muscular Dystrophy and Hypertrophic Cardiomyopathy looks more and more possible. And CAR-T technology has made big inroads towards the treatment of cancer. Ng says, “CAR-T allows personalized cancer therapy by programming body's T cells to attack tumor cells based on unique antigens expressed on one's own tumor cells”. Blockchain technology entering the healthcare arena is another space to watch, for its unqiue ability to put patients in control of their data. Dr. Rhea Mehta, CEO of Bowhead Health says, "After proving to be a robust decentralized platform that has disrupted the financial world, blockchain technology will provide the missing pieces for an integrated and high-value system of digital health records."
Look For: companies investing in these two technologies and focusing research and development in these arenas.
4. Increase in Generics
As patents expire, there will be more generics than ever before. Unsurprisingly, there’s strong pressure from society and politicians to control the exorbitant cost of drugs. Yet at the same time, there’s also strong pressure from pharmaceutical lobbyists wishing to protect their interests. In the coming years, we’re likely to see the FDA create more favorable policies towards generics. This will mean more generics will get approved and prices will come down accordingly. And may also force traditional pharmaceutical companies with over-the-counter brands, to innovate as loyalty will likely erode. As Max Spielberg, President of Genexa says, "OTC brands, many of which are antiquated, legacy brands, will be pressured to innovate to meet changing consumer demands."
5. Growth in Asian Markets
Like in most categories, Asia is on the rise and experiencing rapid economic growth. It will need similar pharmaceutical and medical device capabilities to those of the West in order to serve its market. China currently accounts for a quarter of the global healthcare market, and this number will only continue to rise. And the opportunities abound. Health insurance, in particular, is a completely untapped and undeveloped market. Ng says, “As the government emphasizes meeting its 'Healthy China 2020' plan, one stated goal is the transition to greater involvement of private insurers". Understanding that health insurance is a government priority suggests that the industry will bloom.