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As Asia’s rich pours funds into health-tech, how can retail investors ride the growth?

Sharanya Pillai
Sharanya Pillai • 8 min read
As Asia’s rich pours funds into health-tech, how can retail investors ride the growth?
SINGAPORE (Nov 26): Health is wealth — and quite literally so, for Asia’s richest. High-net-worth individuals (HNWIs) in Asia are investing more in health technology companies, says Swiss bank UBS. Even anecdotally, the growing popularity of health-te
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SINGAPORE (Nov 26): Health is wealth — and quite literally so, for Asia’s richest. High-net-worth individuals (HNWIs) in Asia are investing more in health technology companies, says Swiss bank UBS. Even anecdotally, the growing popularity of health-tech investments is visible, notes Patricia Quek, UBS country he ad for Ultra HNW (UHNW) and global family office in Southeast Asia.

Speaking at a briefing during the UBS Healthcare Summit on Oct 19, Quek says: “Last night, over dinner, we [had] investment professionals, private equity fund managers, doctors… and many of them actually choose to invest in biotech, followed by medtech and artificial intelligence. There’s a very strong investment focus on health-tech.”

Broad global trends such as ageing populations and lengthening lifespans make health-tech appealing to this segment of investors, adds Kelvin Tay, regional chief investment officer of UBS Global Wealth Management, at the briefing. In this year’s UBS Investor Watch, a recurring survey of HNWIs globally, close to half of over 400 Singapore millionaires surveyed believe that they will live to 100. About 65% have made investments in an area of health with a view of creating a positive social impact.

The interest in health-tech is also driven by rising healthcare costs, compounded by the prevalence of lifestyle diseases as well as inflation. “What can we do to stem this inexorable rise in healthcare costs? One thing: The use of technology to make it more efficient. The healthcare industry is one of the least digitalised. We don’t make use of computer technology… as much in the healthcare industry as we do in other industries like finance and insurance, and media,” Tay notes.

And yet, investing in health-tech can be “pretty complicated”, he concedes. “We believe that health-tech as a sector is in its infancy stage. And therefore, it is likely to evolve [and] be very different in five to 10 years’ time than what it is now. And a lot of [money] is actually invested via venture capital [and] via private investments,” he says.

Separately, DBS Group Research analyst Rachel Tan notes that health-tech has gained more interest among investors, but requires a high risk appetite. “While the healthcare and medical technologies sector has promising growth and development, such investments are typically made at the R&D or initial stages in order to reap high returns and make the most of its growth [potential]. However, [these] investments typically have higher risks as these are highly technical and regulated segments where success rates may not always be guaranteed,” she says.

How can the ordinary retail investor participate in the growth in health-tech? One way would be to look at funds that invest in a variety of liquid, reputable companies in the industry, says Jean-Dominique Seta, global equity fund manager at CPR Asset Management, a subsidiary of European fund giant Amundi. “[Healthtech] is a sector with a lot of news flow, but with very high expectations and high valuations. If you want to invest… you need to have a diversified vehicle,” he says.

One broad area investors can look out for is healthcare incumbents with a foot in emerging technologies, and especially those with exposure to rising silver economies such as China. Other, less obvious, opportunities could be IT plays poised to ride the boom in healthcare data management.

Innovative incumbents

An emerging mega trend in health-tech is “personalised medicine”, which refers to the use of genomic and other clinical data to customise treatment for an individual. For example, a course of medication could be tailored to a specific pathology in a specific patient. Personalised medicine is becoming more mainstream among big pharmaceutical companies, owing to intense competition from generic drugs, notes Samantha Fitzpatrick, investment director for global equities at Aberdeen Standard Investments.

“In recent times, we’ve seen a wave of mass-market blockbuster drugs coming off patent, leading to huge revenue and profit declines,” Fitzpatrick says. “At the same time, pricing pressure in commoditised, generic drugs has never been so severe. As a result, big pharma companies have taken steps to redirect their research and development efforts towards more innovative, focused and potentially lucrative products. This has been aided by a deeper understanding of disease biology and technical advancements.”

Another way companies can gain a competitive advantage is through mergers and acquisitions, in other words, buying over a company with a potentially lucrative drug or treatment in development. “Competition in some of the newer treatment classes is emerging, for example in the field of immuno-oncology,” Fitzpatrick notes.

Established pharma plays that have ventured into personalised medicine include Amgen, which last year gained a licence approval from the US Food and Drug Administration (FDA) to use colorectal cancer drug Vectibix on patients with a specific gene type. Amgen has a “buy” call from Jefferies, with a price target of US$220.

Medical device manufacturing could be another interesting segment. CPR Asset Management has a medtech fund in Japan, though it is not available to Singapore investors. Among its top 10 holdings is Intuitive Surgical, the creator of da Vinci, one of the first robot-assisted systems cleared by the US FDA for minimally invasive surgery. The company is a well-established health-tech play with a strong niche, Seta notes. “It is the No 1 company in robotic surgeries… Robots are taking over in the [operating] room,” he says. The stock trades at 52.9 times earnings.

CPR’s medtech fund in Japan also includes “well-diversified large caps” such as Abbott Laboratories, medical device manufacturer Boston Scientific and tech conglomerate Danaher. Abbott has multiple product lines and growth drivers that give it momentum, Seta notes. The stock has an “overweight” call from JPMorgan, with “standout” growth in the medical device segment, the research house notes in an Oct 16 report. Abbott could indirectly serve as a proxy to up-and-coming healthcare markets like China.

Aberdeen Standard has a position in Tokyo-listed Sysmex Corp in both its global healthcare and global equity funds, gaining some exposure to China. “It manufactures reagents and equipment for clinical tests including blood and immune tests… Sysmex is the market leader in its field, driven by superior technology and an innovative management team. It is a global player with good, long-term growth opportunities particularly in China, where the ageing population and low number of tests currently carried out bode well for the future,” Fitzpatrick says.

Whatever the case, there will definitely be “winners and losers” along the way, especially in areas like pharmaceutical plays. So investing in a diversified portfolio could be one means for investors to gain exposure, Fitzpatrick adds.

Data explosion

Another key enabler of health-tech is data management companies. The global market for big data in healthcare is expected to hit US$68.75 billion ($94.4 billion) by 2025, according to a recent report by market intelligence firm BIS Research. North America was the largest market with a 55% market share last year, and is expected to remain the largest revenue-generating region.

Likewise, a June UBS report on longer-term investments in health-tech estimates that healthcare data will amount to 2.2 zettabytes, or 5% of all data generated by 2020. This data boom calls for “population health software that applies big data analytics to proactively manage the health of a large group of patients at lower cost than current volume-driven approaches,” write analysts Lachlan Towart and Sundeep Gantori.

The report cites Amazon.com as a case study of a technology company moving into healthcare. At the start of this year, Amazon announced a joint venture with JPMorgan and Warren Buffett’s Berkshire Hathaway to improve patient satisfaction and reduce healthcare costs, likely starting with their own employees.

This is a “high-profile experiment” in how health-tech could evolve, the report notes. “[Early] comments suggest it will employ big data, “virtual technology” and telemedicine, while attempting to offer patients choice and engagement through wellness and lifestyle programs,” the report notes.

What other healthcare IT plays are there? Well-known examples would include Allscripts Healthcare Solutions, Cerner and NextGen Healthcare. These companies are currently facing tough conditions, notes JPMorgan in a Nov 12 report. Although Allscripts is trading at a cheap 7.2 times 2020 earnings, JPMorgan thinks “the competitive landscape and weak hospital purchasing environment will result in an uphill battle [in] the foreseeable future”.

While many healthcare data management stocks are listed in the US, Asia-Pacific is an emerging market for this sector. Alibaba Health Information Technology, for instance, had more than 7,500 drug and supplements companies signing up to join its Ma Shang Fang Xin platform as at end-March. The platform tracks the products’ life cycles to ensure regulatory compliance. The company has also made inroads into telemedicine. As at end-March, over 23,000 medical practitioners had signed up with Alibaba Health to provide online consultation services.

Another popular proxy to the rise of telemedicine in China is Hong Kong-listed Ping An Healthcare and Technology Co, also known as Ping An Good Doctor. While it is essentially a recently listed start-up with a loss-making history, JPMorgan has an “overweight” call on the stock due to the aggressive growth of its user base. “Given competition in the industry, lifting its customer base at this early stage in development requires delaying monetisation and increasing marketing costs,” the research house says in an August report.

Ultimately, as much as analysts and HNWIs may be enthusiastic about early-stage health-tech, the risks are likely never far from sight. After all, it was only a few years ago that blood-testing start-up Theranos was discovered to run on dubious technology, burning investors including News Corp executive chairman Rupert Murdoch and US Secretary of Education Betsy DeVos. While mom-and-pop investors are not making hefty bets like the big guns, investing in early-stage health-tech would require a stomach of steel.

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