Telemedicine is going to experience very rapid growth, but we question whether it is sustainable...
Kim: Hello again, thanks for joining us. This is the AFTERMATH Series, and today we are going to talk Healthcare with Sam Cottrell. Hi Sam, how are you doing?
Sam: Hi Kim, I’m well, thank you.
Kim: I see we are both sporting lockdown beards. I hope the audience doesn’t get put off. Sam, give us in a nutshell what is your take on healthcare as things stand today given the COVID-19 experience.
Sam: Sure, I think the answer is going to vary geographically. So, if we think about a country like the US, with a healthcare expenditure as a percentage of GDP of around 18%, there is not a lot of scope to respond to COVID with huge amounts of incremental spend. They are already constrained, as we have known for years, in terms of how they think about deploying budgets. So, it is a question of cost savings and efficiency gains.
If we think about developing markets, a nation like China, which spends 7% of GDP on healthcare, has the opportunity to really create a digitally-enabled, forward-looking infrastructure and avoid concerns over stranded assets for example.
I guess one common theme to both though, would be cyber security. As we move to a more digitally enabled healthcare system, there is going to be literally billions of patients with very sensitive data who would need that data protected.
Kim: That makes a lot of sense. So, if we take it a step further then and think about it from an investor’s standpoint, the reading I have done, the research I have done certainly shows that there are a number of sub-sectors that may be of interest. How would you go approaching this, or describing the opportunity?
Sam: So, I think it comes back down to still doing the fundamental bottom-up analysis of stocks. So, if we think about a space like telemedicine, obviously the growth is currently stratospheric, and we move from a situation where you have basically done close to 0% of physician interactions via telemedicine to now 30% of all interactions. And in some markets, like behavioural, it’s possible to do something towards 80% of health interactions via an application of your phone for example.
That said, we don’t actually think that this is necessarily an industry that has high barriers to entry, and we are already seeing multiple IPOs this year in the space. So, for us, we try to think about industries where there is a sustainable tailwind for example from recent changes, but where industry dynamics might be more attractive.
So, we think remote monitoring for example, where you still effectively have a medical device, in a digital eco-system, is more sustainable, more value-add, has a clear value proposition for payers and therefore secures pricing power for the long term.
Kim: That’s great Sam. So, you are on the GLTU (Global Long Term Unconstrained) team, what companies have you found in this space that have particularly strong business models in your opinion?
Sam: Sure, so one example would be a company that’s dual-domiciled in the US and Australia called Resmed.
So, what the device basically does is maintain airflow as you are asleep, in your oesophagus, and these devices are entirely connected and the physician can see how a patient is coping on this device. They can interfere in a patient’s healthcare pathway early on and prevent issues getting worse and escalation to say A&E (Accident and Emergency) which we know is a multiple tens of thousand-dollar event in the US. So, this is very clear for payers to see a saving up-front from their investment. And because it’s a regulated medical device, there are pretty high barriers to entry for this space.
Kim: Thanks very much Sam. Sounds good. Keep up the good work. Thanks everybody for following. See you next time.
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