The global pandemic has caused a recurring theme in 2020 – change; from the small addition of face masks in our everyday lives to the potentially irrevocable damage inflicted upon some industries and businesses. The pandemic has also provided opportunity for personal reflection; re-evaluating our priorities, our health and our futures.

Already in our previous series we have seen how the pandemic is acting as a catalyst, accelerating the pre-existing and underlying structural trend of disruptive innovation within industries.

This same effect can be seen in another of our long-term investment themes; Healthy Futures, which is why in this series we want to explore the global healthcare industry and some of the key challenges that it faces, as it stands on the cusp of such enormous and rapid change.

Cost Control Challenges

Healthcare is one of the biggest costs to governments across the world, with approximately $7.8 trillion being spent on healthcare globally per annum. However, the healthcare system is also fraught with waste. The estimated cost of this in the US alone is between $760 billion - $935 billion, meaning staggeringly a quarter of US healthcare costs are wasted.¹ It was clear even before the pandemic that more needed to be done with less, and this is especially true of the US healthcare system, the most expensive in the world.

There is an unbalanced equation of demand and funding globally. The UN predicts the global population aged over 60 will double by 2050 to 2.1 billion people. In tandem with rising chronic diseases, many countries are experiencing shrinking younger populations fuelling this demand-funding gap.

The pandemic has exacerbated this situation, directly increasing healthcare costs. It is estimated in the US for every 1 million people that seek treatment, an additional $5.3 billion of costs, from testing to treatment, will be incurred.² This does not include the indirect costs yet to be realised as a result of treatment delays and the later diagnoses of other medical conditions.

It’s not just governments facing these financial burdens. In the US some individuals face crippling medical bills. According to America’s Health Insurance Plans the average cost for a patient admitted to intensive care for COVID-19 is $31,000.³

Healthcare for All

The pandemic has also magnified issues around access and equality to healthcare. Risk of infection has created new physical barriers to accessing services but this is another area where technology has provided solutions. Traditionally laggard systems like the NHS have rapidly adopted virtual or telephone consultations, which has proved so successful some estimate ~60% of GP appointments could be conducted this way post-pandemic.

In the year of the most publicised clinical trials, the scientific community has also moved at breakneck speed to provide answers and combatants to the new virus. Whilst the threat of drug pricing reforms in the US is still not off the table, Big Pharma have played a vital role in providing hope, with many developing vaccines or aiding through manufacture and distribution. Only this week Pfizer provided an update showing their vaccine candidate to be 90% effective in preventing COVID-19, boding well for other vaccine candidates.

This does raise several issues however. Firstly logistics; the Pfizer vaccine requires storage at temperatures of -70 C, so the distribution and safe local storage of this super-cold vaccine will be a complex operation. Secondly, with only 50 million doses of this vaccine estimated this year and multiple countries already with orders in place, this raises questions of access and equality - who gets it first? The solution therefore doesn’t lie with just this one single vaccine. In fact, other candidates have more favourable storage requirements akin to existing vaccines, ranging from 0 to -20 C.

A country’s success thus far in containing the virus can be partially attributable to the strength of existing testing & laboratory networks, and the accessibility of these to the people. All the while a vaccine can’t be delivered on a global scale, testing and treatments will remain vital.

Prevention Prevails

The importance of proactive action when it comes to health can never be overemphasized whether it be through quicker, more accurate diagnostics or healthier lifestyles. Obesity increases the chance of dying from COVID-19 by 40-90%.⁴ Even before the pandemic, obesity was the fifth leading cause of death globally, killing 2.8 million per annum as a result of secondary conditions.

Given education’s role in socioeconomics, it is the driver of lifestyle which has an enormous impact on health. A UK study showed that children from lower socioeconomic background were more likely to be overweight, due to rising cost of healthy eating, rise in access to cheap junk food and lower access to outdoor spaces for exercise.⁵

Embracing Healthy Futures

Against the backdrop of COVID-19 the Healthcare industry has been thrust into the spotlight as it spearheads the frontline response to the virus. But as we can see from the nature of the challenges we’ve discussed today, the industry was already faced with a need for large-scale, transformational change prior to the pandemic; COVID-19 has simply forced a need for it to be embraced a lot quicker.

Looking past COVID-19, there are many deadly diseases we are yet to fully understand and treat. COVID-19 has killed an estimated 1.2 million people so far this year, yet cancer is responsible for around 8 times as many deaths as this each year.⁶ It is very easy to lose sight of these long term battles in 2020. Whilst there has been enormous progress in understanding, preventing and treating an array of diseases, there are also still significant gaps ripe for innovation such as cancer, Alzheimer's and inherited diseases.

In future weeks we will explore this varied sector in more detail; the companies that operate within it, and the services that they offer in pursuit of furthering the provision of healthcare – its effectiveness, efficiency and accessibility.

The pandemic has exposed globally our healthcare strengths, but also weaknesses. It is catalysing rapid change, and the companies that adapting to this and providing innovative solutions will be the ones to thrive. As such, we will see throughout this series that the healthcare industry is ripe with opportunity for us as responsible and sustainable investors.

Sources

1. https://jamanetwork.com/journals/jama/article-abstract/2752664

2. https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/understanding-the-hidden-costs-of-covid-19s-potential-impact-on-us-healthcare#

3. https://www.ahip.org/wp-content/uploads/AHIP-COVID-19-Modeling.pdf

4. Covid-19: England’s obesity strategy will fail without tackling social factors, warn doctors. https://www.bmj.com/content/370/bmj.m2994?ijkey=cc9a13a2865c63d110aa9ec0f7a7ecc36e5670df&keytype2=tf_ipsecsha

5. https://www.thelancet.com/journals/lanpub/article/PIIS2468-2667(18)30045-8/fulltext

6. https://www.who.int/health-topics/cancer#tab=tab_1