ESG: The robot will see you now


24 Apr 2024

With rising diagnosis of chronic conditions putting pressure on developed world economies, how can investors get people off the sick list? Mark Dunne reports.


With rising diagnosis of chronic conditions putting pressure on developed world economies, how can investors get people off the sick list? Mark Dunne reports.


Predicting the future is easy. In the year 1900 a group of experts across a range of fields described what they believed life would be like in the year 2000. The rise of women in the workplace, space travel and machines playing a greater role in our lives have proved to be accurate predictions.

However, even experts cannot always be right. One of their more ambitious forecasts was that by now we would all be living in perfect health.

Indeed, diseases that were around at the time of the survey, such as scarlet fever, tuberculosis, typhus and typhoid, are now rarities in the developed world, but they have been replaced by an array of new health conditions as our lifestyles changed dramatically during the last century.

Healthcare systems are struggling under the rising volume of people suffering from cancer and heart disease as well as chronic conditions for which there is an on-going need for treatment and support, such as stroke, diabetes, obesity, arthritis and dementia. All of the above are believed to be linked to bad diets, smoking, alcohol abuse, pollution, a lack of exercise and aging.

They also have a big impact on the economy.

Indeed, in January 2023, 28% of the unemployed were not working because they suffered from a long-term illness – up from 23% four years earlier. Illness was the most popular reason for economic inactivity.

At the end of October, 3.2 million people were claiming Personal Independence Payments, which are for those who suffer from illness, disability and mental health conditions, such as depression and anxiety.

This was 3% higher than at the end of July. But the problem stretches beyond this. The government is forecast to spend £90.9bn on illness and disability benefits in 2028-29 up from £65.7bn this year, say the Office for Budget Responsibility.

These payments eclipse the £17bn that is expected to be paid in pensions in 2028-29, according to Paul Johnson, director of the Institute of Fiscal Studies.
 These health issues are so complex that developing a new bottle of pills will not fix them. There are wider issues to consider in how they are treated and cared for, so it is clear that the healthcare industry will have to innovate to combat the growing lifestyle-causing healthcare issues.

Technology is at the heart of this search for treatments, and cures to not just reduce taxpayer spending on healthcare and benefits, but to make more people contribute to the economy rather than be dependent on it.

Feeling good

It is clear that with economies in the developed world suffering from low productivity, healthcare budgets are not going to be expanded to develop the next generation of cures and treatments. So private capital needs to step in and it could be a rewarding move.

“It is important to note that when you are investing in healthcare companies, you are investing in impactful companies, companies that are developing medicines to improve people’s overall health,” says AJ Ziegler, a sector and thematic product strategist at BlackRock.

But it is not only about little bottles of pills. Such companies are also developing new therapies and healthcare technologies. Then there are those supporting healthcare’s infrastructure through building and equipping hospitals and GP surgeries. “There is a lot of inherent good that comes from investing in healthcare companies,” he adds.

But the sector also offers a sound long-term investment case. Ziegler says that in the past 10 years healthcare as a whole has outperformed the broader equity market, and with less volatility.

Indeed, the MSCI World Health Care index made an absolute return of 131.11% in the 10 years to the end of February, while the MSCI All Country World index gained 123.49% during the same period.

“I don’t like using the phrase: ‘doing good makes you feel good’, but there is a double benefit for investors of strong risk-adjusted returns and making a positive impact on society,” Ziegler says.

Straight to video

One area where technology is changing healthcare is how it is being accessed. One such innovation is telemedicine where patients connect to a doctor through a screen on their phone rather than visit their office. This is an innovation born of necessity during the Covid pandemic.

“Setting up a video call with your doctor is not super ground-breaking, but it makes everything a lot more efficient,” Ziegler says.

From my own experience, using Teams makes it easier to speak to a doctor, but Ziegler sees much greater potential for using such systems. “In emerging markets people might not have access to a doctor on site, so why can’t they connect to a medical professional anywhere in the world,” he says. “There is no reason why that should not be the direction of travel.”

There will, of course, be times when you need to physically visit a doctor’s office. “But for prescriptions or more basic issues, telemedicine can take on a lot of that,” Ziegler says.

So Covid has been a big influence on driving innovation in healthcare. “It sure put the spotlight on healthcare,” Ziegler says. “It emphasised the importance of innovation. It emphasised that this sector is critical to our society.”

Starving obesity

One of the biggest innovations in healthcare has been the discovery of GLP-1s, which are anti-obesity drugs that are also used to treat diabetes. “On a global scale, this is a massive, massive market,” Ziegler says.

Indeed, in 2021, 537 million adults were living with diabetes, a number which is predicted to reach 643 million by 2030 and 783 million 15 years later, according to the IDF Diabetes Atlas. “Recent enhancements to GLP-1 technologies by Eli Lilly and Novo Nordisk have made these treatments significantly more impactful, leading to weight loss of 15% to 20%. That reduces the risks of cardiovascular disease or kidney disease and just makes people a lot healthier,” Ziegler adds.

One of the more niche markets within healthcare is gene therapy, where living cells are altered to treat, prevent or cure disease or medical disorder. “The cost of genome sequencing 16 years ago was $1m per genome; it is about $1,000 today,” Ziegler says, quoting figures from the National Human Genome Institute.

The benefits of the cost of genome sequencing drastically falling include incentivising healthcare companies to fund more research into genetic diseases. It also opens the door for new entrants into the market who perhaps would not of had the budget needed more than a decade ago.

Aging problems

It is clear that within healthcare the opportunities are quite diverse.
“When people think of healthcare, they typically think of giant pharmaceuticals and the more innovative and ground-breaking biotechs,” Ziegler says. “But there are two big gaps in there.”

 The first is the insurance companies, which provide critical services to healthcare’s infrastructure. Then there is medical technology. “One of the coolest areas in this segment is robotic-assisted surgery,” Ziegler says.

This is not robots operating on people, it is devices that are operated by doctors. “[Robotic-assisted surgery] is proven to reduce the human risk of the procedure and often leads to faster recovery times for patients,” Ziegler adds.

Another innovation that will drive average recovery times higher are known as smart bandages. Developed by Stanford University, they have sensors that can increase blood flow to the wound helping it to heal faster.

And it appears that rising longevity will fuel the growth of such procedures to tackle the symptoms of aging that are not fatal, such as knee replacements. “If we are going to live into our 90s or hit the century mark, the chances of us needing elective procedures goes way up,” Ziegler adds.

In 2019, around a fifth (19%) of Britain’s population, or 12.3 million people, had celebrated their 65th birthday. This was a 23% increase in 10 years, despite the broader population climbing by only 7%.

The older generation in the UK is projected to continue rising, with people aged 65 and over making up almost a quarter (24%) of the population by 2043 (17.4 million people). The proportion of Britain’s citizens aged 75 and over is projected to rise from 8% in 2018 to 13% in 2043, while those aged 85 and over are expected to double to 4%.

AI is OK

One of the more fascinating areas of our lives at the moment, which is the subject of much debate on the influence it is having on the world, is artificial intelligence (AI). The question here is: what role, if any, is it playing in making the medical breakthroughs we need?

Well, algorithms are being used to detect, diagnose and treat diseases, such as cancer. For example, AI can spot breast cancer 30 times faster than through using a biopsy, and speed is crucial in boosting survival rates.

BlackRock is looking at companies that are seeking to use AI for drug discovery. Although, if this is to be achieved, it could be many years until companies can reliably use AI to make medical breakthroughs.

“That is the next level, but it will take some time. Right now, when you think of using AI, it is basic. You cannot type into Chat GPT: ‘give me the cure for cancer’. You need a much more sophisticated data set, and a lot more training,” Ziegler says.

“What we see in the future of AI is there is going to be different models that can be tailored for different industries, and healthcare is one of them.”


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