Thematic investing focus: a new era for medical innovation

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2024-09-30
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A variety of secular trends are spurring innovation and disruption in the global economy and creating what we believe are compelling thematic investment opportunities. In this series of articles, we take a close look at some of these trends, the breadth of the opportunity set and the related risks. 

Here, we focus on medical innovation — how advances in science, tools and technologies are paving the way for treatments that are more effective, more precise and come with fewer side effects. Leveraging research insights from both our thematic team and our global industry health care experts, we specifically examine how two key areas of innovation — biotechnology (biotech) and medical technology (medtech) — are transforming the face of health care.

Among our key conclusions:

  • A number of structural forces are supporting innovation and investment in health care, including an ageing global population, the growing prevalence of chronic diseases and increasing demand for access to health care within emerging markets.
  • Several decades of scientific advances, accelerated by progress made during the COVID pandemic, are helping to drive forward innovative approaches to treat diseases and relieve suffering. 
  • Artificial intelligence (AI) will likely help advance innovation through potentially assisting with data analysis, drug discovery, personalised medicine, and medical imaging and diagnosis.  
  • Key areas of innovation include biotech and medtech, where new methods and technologies such as gene editing and messenger RNA may be able to diagnose and treat critical diseases previously thought to be untreatable. 
  • Geopolitics offers another potential tailwind for US companies: biotech is one of the three technology areas the US government considers critical in industrial policy and national security.

Biotech and medtech: two key areas of innovation

Resolving the root causes of diseases at a molecular level — By making use of cellular and biomolecular processes, the biotech industry has the potential to identify and treat the root causes of diseases.  

Gene therapy — a form of treatment designed to introduce genetic material into cells to compensate for abnormal genes — is one example of this approach. If a mutated gene causes a necessary protein to be faulty or missing, gene therapy may be able to introduce a normal copy of the gene in order to restore proper function. 

Another area where we are seeing significant advances is gene editing, which is moving from concept to reality. New technologies within the space bring increased accuracy and precision, nudging us closer to finding a cure for a range of neurological and cardiac conditions as well as blood disorders such as sickle cell disease. In time, gene editing may be able to address any disease caused by mutations in a single gene, such as Duchenne muscular dystrophy, cystic fibrosis and Huntington’s disease. 

Cell therapy is another key development we are monitoring. Cell therapies aim to harness living cells to combat cancer, address autoimmune conditions and produce missing proteins. Recent approvals of several chimeric antigen receptor (CAR) T-cell therapies represent major advances in the treatment of blood cancers. 

The technologies and devices transforming treatment — Powerful innovation within medtech is revolutionising our ability to treat complex illnesses and conditions, as advances in hardware, software and bioinformatics combine to drive more effective treatments. 

For example, robotic-assisted surgery penetration has grown as improvements in hardware and software have led to greater efficacy. Initially relegated to a few specialities in urology, robotic surgery is increasingly being used for multiple categories within general surgery that were historically performed via laparoscopy or open surgery, as the technology allows complex procedures to be performed with greater precision, flexibility and reproducibility. We anticipate data playing a bigger role, for example empowering health systems to leverage informatics to compare surgical KPIs  and monitor surgeon quality. Future advances will further transform surgery, with a focus on areas such as improved pre-surgical visualisation and biopsies, enhancing both accuracy and access to treatment, as well as continued informatics.  

Genetic sequencing technology has evolved significantly, developing brand new ecosystems both on the front end and back end of treatment algorithms; these technologies can both screen and diagnose genetic abnormalities earlier as well as treat later-stage disease with targeted therapeutics. The sector's leading companies have driven tremendous advances during the last 15 years, making a once laborious process faster and more streamlined. Hardware has also improved; DNA sequencing tools continue to evolve, with “third-generation” technologies able to detect more obscure genetic variants as well as drive down the cost curve of whole genome and exome sequencing costs. Genetic testing is essential for both diagnosing patients as well as deploying the most effective targeted therapeutic; once a mutation is identified, the patient can be matched to the most effective drug developed to target their individual disease. Bioinformatics tools and resources are further speeding up the process of developing, optimising and testing drugs (Figure 1) and we expect advances within AI to further assist with drug discovery, by quickly identifying more promising drug candidates and improving the speed of the entire process.

Figure 1

thematic-investing-focus-a-new-era-fig1

Within medical devices, there have been several large advances across a broad range of therapeutic categories. In cardiology, dramatic improvements in treating aortic stenosis offer far less invasive approaches, such as transcatheter aortic valve replacement (TAVR), and in the next decade we envisage this expanding to mitral valve disease. Traditionally, much of the focus for devices has been in the acute treatment space; however, we see significant opportunities where devices are combined with data, helping transform prevention and patient monitoring. A combination continuous-glucose monitor and insulin infusion pump offers the potential to improve patient outcomes in diabetes, allowing the pump to automatically deliver the right dose of insulin based on real-time sensor data and proprietary algorithms. This is the closest innovation yet to an artificial pancreas, allowing treatment without burdening the patient and significantly improving both efficacy as well as quality of life.  

The investment opportunities and risks

We believe these trends will benefit a variety of companies, including: 

  • Innovative companies within the biotech universe, with the deep fundamental research and technical expertise critical to addressing unmet needs in medicine; and
  • Providers of advanced medical technology, enabling the transition towards a more precise and customised approach to health care and treatment.

However, there are risks to the outlook, as with any investment theme. For example, ethical concerns surround gene therapy and gene editing, especially around the question of what constitutes a “faulty” gene. As an untested technology, gene editing is subject to numerous health concerns; while an edited gene may deliver short-term improvements to an individual, the long-term impact, or indeed any impacts to future populations, won’t be clear for many years. That said, we believe the market for innovative technologies and therapies is expanding at a rapid pace, and there is a significant opportunity for investors to identify promising beneficiaries poised to transform health care. 

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