Charities investing in the healthcare revolution
Health foundations and indeed many other charities should have an interest in both health and generating an investment return to allow them to sustain their charitable aims. So, what better place to start than by investing in the companies spearheading a revolution in healthcare?
Healthcare is on the cusp of monumental change, thanks to converging technologies and a rapidly advancing understanding of human biology. Medicine is likely to be transformed as it shifts towards prevention and cure, helping us live healthier and longer lives. This transformational change will not necessarily be driven by the big, traditional pharmaceutical companies which currently dominate the healthcare sector, but instead those sparking creative and powerful solutions to the world’s healthcare needs.
This creates opportunities for health foundations and medical charities in particular to meet their social purpose by seeking investment strategies that align with their own mission and values.
By investing in a new generation of companies tackling big health challenges - such as diseases, pandemics and access to medicine - health foundations can help us all live longer and healthier lives both from their charitable activities and through their long term investment choices.
Complexity of human biology
What is sparking this change is that we are finally beginning to unlock the secrets of human biology. Until recently, our understanding of human biology was constrained by the large numbers and huge data sets involved. Within each of us are millions of individual components which are vital to our health and which can go wrong at any time, causing disease and suffering. This complexity makes it difficult to pinpoint underlying sources and causes of disease.
Without the means to collect and process this vital information, it was extremely difficult to identify new treatments. However, a millennium of accumulated knowledge is now bearing fruit, leading to an acceleration of innovation and a coming together of different technologies, transforming healthcare.
This represents exciting investment opportunities for charity investors. They have the power to speed up this healthcare revolution by providing longer term capital and support to companies which are operating in the intersections of these new technologies.
In this era of a great convergence, advances such as artificial intelligence (AI), genomics and digital technologies make it possible to comprehend the enormous numbers and complexity of human biology. This is driving medical advances across even the most difficult diseases.
Gene sequencing is one example where progress is dramatically accelerating. It took 13 years and $13 billion to sequence the first human genome in 2003. Today, it can be done in less than an hour at a cost of $600. Pioneering company, Illumina, sequenced the coronavirus in just a few days, compared to six months for SARS in 2003. This also exemplifies another broad trend in healthcare – what was expensive and rare just a few years ago is becoming affordable and pervasive today.
This convergence is driving innovation in drug development, devices and the operational side of human healthcare, while driving costs lower. For decades drug discovery has largely been a process of trial and error with low success rates. But a cohort of biotechnology companies are emerging, built upon technologies which may be reusable across multiple diseases.
One of those at the forefront of this development is Moderna, which makes drugs based on mRNA, enabling us to introduce instructions into human cells to make proteins that treat or prevent disease. Moderna’s success has not come easy and the company has been investing in its mRNA platform for a decade. Whilst the coronavirus vaccine is Moderna’s first commercial product, it is the tip of the iceberg and further drugs or vaccines could be developed faster and cheaper.
Another of the new technologies coming to the fore that helps doctors to diagnose and view diseases is Butterfly Network’s portable ultrasound, currently being used in hospitals for Covid-19 patients. A machine that normally weighs about 100 kilograms has been shrunk to a simple, easy to use device that fits in the palm of your hand, carried like a stethoscope, connected to a mobile phone.
Identifying long term winners
Companies such as these which succeed in delivering substantial improvements to human health are likely to create sustainable competitive advantages and attractive investment returns. For this to happen, it is crucial for investors to work patiently and in partnership with these companies, allowing them to focus on long term ambitions and protecting them from takeovers by competitors.
Investing in healthcare innovation means searching for more companies like Moderna with the ability to bring multiple drugs to market as a means to sustainable and profitable long term growth. Having one drug approved is already challenging - on average only one in 10 drugs tested on humans make it through the approval process.
Only the true outliers can hope to repeat that success time and time again. In hunting for extraordinary biotech companies, charity investors should be considering some of the following fundamentals which can increase a company’s chance of repeating success over time.
Focusing on science aspects
Biotech is a science-based business and, like any other business driven by cutting-edge scientific innovation, there is inherent uncertainty of whether the science works or not. This question can only be answered by lots of experiments and clinical trials. However, instead of trying to outsmart the scientists or shying away from the uncertainty that underlies the upside attraction of equity investment, one should focus on three aspects of the science: is it credible, scalable and differentiated?
People and culture
Investors should place strong emphasis on management and culture when analysing businesses, but even more so for biotech, which is as much a people-based business as a science-based one. Drug discovery and development is an incredibly challenging process with a series of experiments and trials. These are conducted and led by humans, who must make decisions at crucial points about whether to proceed with research or prioritise resources elsewhere.
Decision-making is likely to involve behavioural biases, and if the people and culture of the organisation are not a good fit, sub-optimal decisions may be made that will be detrimental to the company further down the line.
For investment managers, assessing people and culture is a long term task that requires close observation and relationship building with management teams. Charity investors should be expecting their investment managers to look for teams whose vision and ambition match the charity’s long term interests, and whose culture is conducive to innovation, which is the lifeblood of biotech.
Capital and funding
Drug development is a capital intensive, lengthy process. One of the industry’s main problems is a lack of long term funding caused by the misalignment of interests and time horizons between companies and investors.
Getting the quantity and quality of capital right at the outset is important for a biotech’s future. Insufficient funding can prevent a company from investing in its technology platform and its pipeline, thereby depleting its ability to withstand setbacks and reducing its chances of succeeding. Management are also more likely to be reluctant to kill bad programmes early if all their eggs are in one or two baskets.
Despite the challenges, one should be excited about the number of innovative healthcare companies which are transforming the way we combat disease and provide care for patients. When investing in these companies charities should see themselves as an integral part of the health ecosystem. They shouldn’t just want to pick the best fruit, they should also want to grow it.
So investment can lead to creating networks across the healthcare universe to connect the people, ideas and capital that can bring about meaningful change to society - connections to enhance businesses and accelerate progress. Some of the noteworthy companies which reflect all this include:
- Alector and Denali (USA) – two early-stage biotech companies developing treatments for Alzheimer’s and other neurodegenerative diseases based on new technologies and disease hypotheses. This is an area that urgently needs fresh approaches to overcome the lack of treatment options.
- Ambu(Denmark) – a global pioneer of single-use endoscope technology that prevents the risks of cross-contamination during procedures – a great concern during pandemics. Ambu’s self-inflating bag, which helps patients with breathing difficulties, is used in many emergencies and critical care.
- Argenx (Belgium) – developing antibody-based medicines for patients suffering from cancer and auto-immune diseases – when the immune system mistakenly identifies part of its own body as an invader and produces antibodies to attack its cells.
- Teladoc and Ping An Health & Technology (USA and China) - the two largest telemedicine platforms in the US and China respectively. They offer convenient, cost-effective services for both patients and doctors, helping to solve the challenge of access to care around the world. The current pandemic shines a light on the value and importance of telemedicine, which may become the model in the future.
Investing to make a difference
The future of healthcare looks bright, thanks to an increasing ability to unlock the mysteries of biology and apply this knowledge through rapidly innovating and converging technologies. What seemed impossible yesterday is matter of fact today.
These amazing steps forward in how we approach human health can be influenced by health foundations with a long term investment mindset – investing supportive capital into companies which can make a difference to our health and wellbeing, and that of future generations. Charities have a crucial part to play in speeding up the healthcare revolution.