Healthcare Innovation Monthly Report | June

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Key Takeaways

• Google[1] & Microsoft[2] both announced huge deals recently (HCA & Nuance).
• COVID has been a huge gamechanger for Tech & Healthcare industry
• The pandemic has fast-tracked digital adoption across Telemedicine, Data/Analytics, Wearables, Biotech, Gene Editing & Robotics.
• Cloud-based hospital spending is one of the fastest growing sectors of the IT space.
• Biden’s $6 trillion budget[3] is likely to result in big US Govt healthcare spending and insurance plans as the industry embraces digital health.
• Gene Editing & mRNA therapeutics are increasingly mainstream following the COVID vaccine success and Biden’s support. 

Performance Review

Health ETF performance

Past performance is no guarantee of future performance. Source: Solactive, HANetf * 12 Month figures based on 31.05.20 - 31.05.21. as fund performance.

HAN-GINS Indxx Healthcare Megatrend UCITS ETF (WELL) lost 3.4% in May.  It is up 19.7% over 12 months and has rebounded during June showing overall positive gains for 2021.  

The leading subtheme contributors to these gains continues to be in Biological Engineering (Biotech), Genome Sequencing and Medical Devices. They represent the majority of the 10 best performing holdings in May. (See table below).

For 2021, a key theme is the merging of Tech and Healthcare.  Large recent deals by Google and Microsoft shows the digital revolution is moving into the healthcare space aggressively.

We expect further acquisitions in this space[4] from Big Tech who are driving up valuations across Healthcare, particularly in the genomics, biotech, trackers/wearables and telemedicine space. US government spending on gene sequencing via the Biden stimulus plan is likely to boost this area further.  

The global genomics market size was valued at USD 20.1bn in 2020 and is expected to expand at a compound annual growth rate (CAGR) of 15.35% from 2021 to 2028.[5]

Past performance is no guarantee of future performance. Source: INDXX. Data as of 31.05.2021

HAN-GINS Indxx Healthcare Innovation UCITS ETF – Performance (As of 31.05.21)

Past performance for the index is in USD. Past performance is not an indicator for future results and should not be the sole factor of consideration when selecting a product. Investors should read the prospectus of the Issuer (“Prospectus”) before investing and should refer to the section of the Prospectus entitled ‘Risk Factors’ for further details of risks associated with an investment in this product. Source: Bloomberg / HANetf. Data as of 31/05/2021

Industry News

Connectivity and digitalization are the future of healthcare:  Wearable devices that provide real-time tracking of various aspects of health, including sleep and physical activity, are seeing a surge of investment. The global wearable medical devices market reached $16.6bn in 2020, with an expected compound annual growth rate of 26.8% between 2021 and 2028.[6] 

The Pandemic has boosted Cloud-based hospital spending - speeding up digital transformation beyond just Telemedicine. Data management is being upgraded as Healthcare Analytics becomes a fast-growing subtheme.  Big Tech players are targeting this space as seen with the recent Nuance-Microsoft $16bn deal.[7] 

The US healthcare industry is embracing new treatments in a drive to enhance productivity and offer more precision medicine. The two big winners that have enjoyed upward reratings are Gene Sequencing and Biotech companies. 

CRISPR gene editing is enabling the development of innovative therapies. It makes it much easier to determine the genes and proteins that cause or prevent disease.  Consequently, it helps identify new targets for potential drugs. As of the 2nd quarter 2020, there were 724 active companies globally focused on developing CRISPR technology and almost 50 clinical trials involving CRISPR.[8] 

mRNA has been a huge breakthrough during COVID, providing key vaccines at record speed. The potential is huge for mRNA and includes therapies being developed to treat malaria, cancer and multiple sclerosis.  It’s likely more mRNA-based vaccines will be created to fight a host of future infectious diseases. As of February 2021, CB Insights reports more than 520 ongoing clinical trials worldwide that were applying mRNA technology to more than 20 disease classes.[9]

Innovation is a critical driver in the healthcare sector. Increasing rates of innovation can be seen in the sharp rise of U.S. patents granted for pharmaceuticals and medical devices in recent years. Between 2013 and 2019, more than 60,000 pharmaceutical patents and more than 125,000 medical device patents were granted. Today, there are more than 18,500 drugs at various stages of the development process worldwide.[10] 

The medical device industry, projects revenues of $54.5 billion over the next four years – it remains a key innovation player. (Source: Curran, J. (2020, August). Medical Device Manufacturing in the US. IBISWorld.)

Such growth is catching the attention of investors. In 2020, health tech startups raised approximately $14 billion in venture capital funding, nearly double that of 2019. (Source: Micca, P., Gisby, S., Chang, C., & Shukla, M. (2021, February 26). Trends in Health Tech Investments: Funding the Future of Health. Deloitte Insights.)

CB Insights estimates there are now 51 healthcare unicorns, defined as startups valued at $1 billion or more.

HEALTH-TECH VENTURE FUNDING REACHED RECORD LEVELS IN 2020

For illustrative purposes only. Source: Deloitte analysis of Rock Health’s Digital Health Funding Database: https://www.wraltechwire.com/2021/06/15/a-pandemic-positive-technology-is-turbocharging-life-science-innovation/

Constituent News

In April our Health ETF expanded its underlying themes to include standalone themes Telemedicine and Healthcare Analytics. At least 100 holdings will always comprise WELL. Gene Sequencing and Biotech’s weightings have risen, while Medical Devices saw its weighting decline.   

Key changes include the following:

• Holdings now all equally weighted - emerging healthcare well represented.
• Biotech, Genomics, Healthcare Analytics & Telemedicine - larger now
• Good exposure to Large, Small- and Mid Cap stocks.
• Increasingly global – with the US at 71%. Asia 17% and Europe 12%.
• Benchmark holds minimum 100 companies, plus an ESG screen.

This ensures more innovative smaller players receive a slightly larger weighting than before.  An ESG screen has also been added.  A total of 10 subthemes are now covered by WELL:

• Robotics
• Nanotechnology
• Genome Sequencing
• Healthcare Trackers
• Biological Engineering (Biotech)
• Bioinformatics
• Neuroscience
• Medical Devices
• Telemedicine
• Healthcare Analytics

WELL’s broad holdings have helped it participate in strong gains across Telemedicine, Healthcare Analytics and Medical Device themes.

• WELL is increasingly global - the US represents 71%. Japan 7.2%, China 6.6% and Switzerland 3.3% follow as our largest country weights.

These subthemes are expected to benefit from significant increased US government healthcare spending under a Biden presidency.  Faster adoption rates of digital healthcare due to COVID continues to boost WELL’s holdings in the medical device and biotech areas.

Top Contributors – May 2021

Past performance is no guarantee of future performance. Source: INDXX. Data as of 31.05.2021

Outlook

WELL’s benchmark has benefited significantly from large holdings across three key subthemes – typically all above 20% weightings. These include Genome Sequencing. Medical Devices and Biological Engineering (Biotech).

The chart below shows WELL’s benchmark outperformance versus competitor HEAL since 2016.  The major outperformance has occurred in the past 2 years due to the large subtheme holdings referenced above.

The recent Nuance deal reinforces the fast-growing Healthcare Analytics and AI-Software theme in medicine. Key features that this deal highlights for the future of healthcare include:

• Nuance digitizes doctors & hospital conversations from patient visits – facilitates clinical documentation.
• Nuance’s speech-recognition software capitalizes on demand for better Healthcare software.
• Microsoft’s Cloud (Azure) - ensures Nuance’s software become more easily accessible globally.

The Cloud Healthcare market is expanding rapidly across hospitals[11] – and is likely to dominate IT spending in this space for the next few years. Cybersecurity spending is also likely to see a big increase in the healthcare space - as privacy concerns and potential hacks, increasingly concern most hospital groups.

For illustrative purposes only. Past performance is no guarantee of future performance. Source: Bloomberg. Data as 0f 31/05/2021

Learn more about the HAN-GINS Indxx Healthcare Megatrend Equal Weight UCITS ETF here