Why Investing in Healthcare Innovation Is So Appealing
Healthcare is everybody’s business. It is the only topic that concerns all people, irrespective of their age, social status, lifestyle, or location. Everyone wants to be healthy and feel good. Last century brought along remarkable health gains such as eradicating polio in most of the world and dramatically improving infant mortality rates. Despite all the advances, there is an incredible amount to be done to improve healthcare, including its business practices and costs. Because of this gap between what people need and what is currently available, there are few, if any, areas of investing as appealing as healthcare.
1. The market is massive
The market for any particular good or service will generally vary geographically or demographically based on people’s necessities, resources, and interests. When it comes to healthcare, the market is incredibly vast because of its scope.
By definition, healthcare encompasses everything from treating a simple acute infection to performing a complex surgery. Incorporated within this broad spectrum are countless therapies, drugs, tests, and devices. Overlaying all of the direct applications of healthcare are the indirect functions associated with providing and coordinating these services like record keeping, delivery models, financing, and insurance.
The United States alone spends approximately $3.4 trillion a year on healthcare. For comparison, that’s six times the annual government spending on education. A recent study estimates that by 2024 1 in every 5 dollars spent will be on healthcare. Not only does healthcare apply to everyone, but demand is actually increasing because people are living longer but facing more chronic diseases. A key driver for this expanding demand is that the fast-growing market demographic is also the largest consumers of healthcare. Put simply, as the Baby Boomer generation ages, there are 10,000 people a day in the US alone turning 65.
2. The market is permanent
Trends come and go. Things that used to be popular, or even considered as essential, have become obsolete. People’s needs and interests are ever-changing based on a variety of factors and market forces. This is where healthcare differs; it is hard to imagine there will be a time––at least in our lifetimes––when people won’t have need of health services due to chronic malady or minor acute issue. Wanting to feel healthy and live longer is a timeless desire.
Compare this to today’s demand for social media. Is posting pictures and short phrases reflective of a permanent characteristic of who we are? If we fast forward 20 years, will social media sustain itself in our day-to-day as something needed to sustain our lives? There is a very real risk that the fascination with this relatively unproductive activity will one day diminish greatly if not disappear.
In contrast, the goal of wanting to be healthy has minimal chance of disappearing. From an investor’s perspective, it makes more sense to bet on something that won’t easily become obsolete or irrelevant. Of course, optimistically speaking, certain diseases and treatments will be eliminated in time. But, at least for the foreseeable future, striving to stay healthy is a universal goal, and therefore a timely investment.
3. The marketplace is ripe for technological advancement
There are certain instances where healthcare has adopted leading edge technology like robotic surgery, 3D printed customized prosthetics or personalized drug treatments. However, these are the exceptions, not the norm. Consider how annoying it is to complete a comprehensive medical history questionnaire each time you visit a new doctor. In recent years there has been some advancement in electronic health records, but today’s state of affairs pales relative to what is technologically possible and done, maybe even commonplace, in other industries.
It is for that reason that healthcare ripe for disruption. There is a never-ending stream of new products that work with a mobile phone to diagnose or monitor a host conditions. But do they work effectively? Much needs to be done for this newly generated data to be integrated and utilized in a comprehensive manner that impacts people’s lives.
If optimized, technology can accomplish multiple objectives of driving costs efficiencies and increasing access while concurrently improving the quality of care. These advancements may manifest themselves in new approaches and capabilities, or in streamlining a cumbersome manually intensive process. They may apply to a specific condition affecting the health of an individual or how a segment of the healthcare ecosystem operates. Across the board, there are enormous opportunities to generate favorable returns by incorporating available and emerging technologies into aspects of healthcare.
Technological advancements in healthcare may emanate from a large well established company outside the traditional healthcare field or as a spin-out from a medical research institution looking to commercialize their work.
4. Improving healthcare improves people’s lives
Healthcare is about improving the health of a population. Making people feel better and healthier will make their lives happier, richer, and more productive. Aside from these very tangible and significant rewards, improving health care can reduce a tremendous amount of economic waste that can be better deployed by an individual, charitable organization, or government.
For investors, the “Do Good” element associated with healthcare is a rare opportunity to generate revenue while doing something unquestionably positive for the individual and society at large. In the best of cases, the result of an investment can be transformative or even life-saving. Few investments offer this potential benefit.
As an investor, it is difficult to find a market with such compelling features––that also prove so timely. From doctor to patient and policy maker to administrator, everyone can agree that healthcare, particularly in the United States, can do better.
There are many potential healthcare investments and their risk / reward propositions will vary widely based on the specific market segment they are addressing. On one extreme there is investing in a start-ups to commercialize the innovations from a university whereas the opposite may involve investing in a well-established sizeable company who is devoting more of it’s attention and resources to healthcare. Both of these approaches and everything in between may be appealing. Like any investment, the key will be investing at the right time with the right team.