Healthcare: investing beyond the pandemic

Like many of the industries that have been radically reshaped by the pandemic, the healthcare sector has gone through significant change over the last two years. Covid has shone a spotlight on achievements that are possible with collaboration, but also the resource constraints that many healthcare systems face around the world. Investing in healthcare through the pandemic has been especially volatile. Covid vaccine manufacturers and test producers (also known as diagnostics) have generally outperformed, whilst non-essential treatments and early-stage clinical trials have suffered due to lockdowns, supply chain issues and resources being focused on fighting the pandemic. It has also become increasingly clear that that the provision of healthcare is not equal across society, with access largely dependent on a person’s gender, geography, income and ethnicity. Investing in the future of healthcare needs to focus on rectifying these imbalances, as well as improving the efficiency of delivery to ease the strain on staff and equipment. Health and wellbeing remains one of the core investable themes of the UN Sustainable Development Goals (SDGs), and, with the rapid rate of innovation currently being seen in the space, there are opportunities for impact investors.

Health equity

Health equity can be defined as the absence of unfair, avoidable or remediable differences in the access to and provision of healthcare, given a person’s socio-economic factors 1 . The health disparity that existed between higher and lower income countries has been exacerbated by the pandemic, which has contributed to the first rise in global extreme poverty in over twenty years 2 . Even within more developed countries, historically marginalised groups are also those that are most disadvantaged within health systems. For example, the death rate for breast cancer is 41% higher amongst African-American women than for other ethnicities 3 , and in the UK, less than 2.5% of publicly funded research is dedicated to reproductive health, despite the fact that one in three women will suffer from a reproductive health problem 4 . If the pandemic has taught us anything, it’s that illness and disease do not discriminate: all human beings are vulnerable to the same health issues. The discrimination lies in healthcare systems. This inequity is now being increasingly recognised within the healthcare sector, and flexible pricing models are beginning to influence investor engagement with healthcare companies, alongside long standing engagement from the non-government organisation (NGO) sector. Some companies are choosing to lead here although a more global, collaborative, equitable and open source approach to orphan and broader drug development and deployment 5 via intellectual property (IP) waivers still has some way to go. Some leading companies are beginning to specifically target the health of previously underserved groups, combining treatment with education programmes to address societal imbalances. At Tribe, we actively look for companies that demonstrate these characteristics.  

The relationship between healthcare and the environment  

According to the Natural Resources Defense Council, the health costs of climate change and air pollution to the US economy are over $800bn per year 6 . This comes in the form of respiratory illness, forest fires/flooding, drought, as well as the implications of changing socio-economic factors that can drive health inequity. Globally, pollution is now killing 9 million people a year according to new research published in Lancet Planetary Health 7 . The death toll from pollution far exceeds that from road traffic deaths, HIV/Aids, Malaria and TB combined. It also exceeds that from drug and alcohol misuse 8 . The economic impact of pollution deaths is estimated at $4.6tn (£3.7tn) which is the equivalent to about $9m a minute 9 . The research also found air pollution caused almost 75% of the 9 million pollution deaths and that toxic chemicals resulted in 1.8 million deaths, including 900,000 deaths from lead pollution.

Healthcare itself is also a major cause of climate change, responsible for 4.5% of global emissions 10 . Many treatments require specialist storage facilities such as freezers, and healthcare equipment is especially energy intensive to run. It’s therefore crucial that management teams implement measures that reduce the energy demands of their operations. One route to achieving this is for healthcare companies to invest in localised renewable energy infrastructure, which has the added benefit of strengthening the security and resilience of their energy supply.

On the issue of plastic pollution, the healthcare industry is limited in that many processes require the use of virgin, single use materials. Regardless of this, healthcare companies have a responsibility to reduce their plastic output where possible and are increasingly being required to do so by law. The historic resolution in March 2022 at the UN Environment Assembly to create a Paris style, legally binding agreement on plastics 11 , illustrates the regulatory risk posed to companies that don’t have clear methods to reduce their use of the material.

There’s also the intersect between healthcare and biodiversity. Between 50,000–70,000 plant species are harvested for medicinal products, with nearly half of modern drugs derived from nature 12 . The role of healthcare in the preservation of our biosphere is critical given its reliance on it. Arguably the healthcare industry should be the biggest advocate and champion for tackling the nature crisis we’re in.

The future of medical science/growth drivers for the future

Innovation in the healthcare sector can be broken down into two segments: scientific and technological. At the cutting edge of scientific research is genomics: the study of the structure and function of genetic material. In the fifteen years since the first human genome was fully sequenced, the cost of doing so has fallen from $2.7bn to just a few hundred dollars 13 . Understanding the structure of a person’s DNA is a critical step in determining which diseases they may be predisposed to. Within the spectrum of genomics comes the development of messenger RNA (mRNA) vaccines. These treatments work by synthetically stimulating the body to produce certain proteins, such as antigens.

Advances in technology are increasingly being utilised to enhance the delivery of healthcare. We now have heart pumps that can send real time updates remotely, as well as machines that can test for twenty pathogens at once. These technological innovations have the potential to significantly improve patient outcomes whilst also increasing the efficiency of care delivery.

The marrying of scientific and technological innovations is a feature of the biotech industry, a rapidly developing frontier in healthcare. For example, artificial intelligence can be used by vaccine developers to track the symptoms of a disease, thus streamlining the drug development process. The current global biotech pipeline includes more than 250 vaccine candidates 14 . Europe is a central hub for biotech, with 43 of the top 100 global life sciences universities based on the continent 15 . There are numerous avenues for investors to access these high growth markets, including via liquid, publicly traded vehicles.

Moving away from diagnostics and pharmaceuticals, physical infrastructure is another interesting area for investors, especially given the ageing population. Investing in critical primary healthcare infrastructure is fast becoming a mainstream investment activity given ageing hospitals and the need for more specialist care facilities. There are significant projected increases in the global rates of Alzheimer’s and Parkinson’s – in 2020 it was estimated that there were over 55 million people worldwide living with dementia 16 . This number will almost double every 20 years, reaching 78 million in 2030 and 139 million in 2050 17 . Our ageing population will require specialist housing and care facilities to accommodate their needs, alongside those with other complex requirements (including those with physical and mental health needs).

Investing in healthcare is a means to addressing not just SDG 3: Good Health and Well-Being, but also a range of the other Goals, including Gender Equality (5), Zero Hunger (2), Sustainable Cities and Communities (11) and Reduced Inequalities (10). The need for private capital in the sector is great, given the high initial costs and long development pathways for treatments. The opportunity set in healthcare extends far beyond diagnostics and treatments, and investors can create a tangible difference to patient outcomes by financing a wide range of opportunities, from medical technology, to real estate, to food education. What might first appear to be a thematic lens that is quite narrow in focus, upon deeper interrogation can offer a wide and varied landscape of investment opportunities.