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Rights (and wrongs) of sustainable healthcare investment

Why affordability and accessibility, rather than the conventional benchmarks of sustainability, have become the key metrics of future performance
01 November 2021

    The global trend towards sustainable investing may be unstoppable, but investors who let conventional ESG (environmental, social and governance) benchmarks guide their decisions are going to miss some important dynamics in the sector. While environmental themes garner most of the headlines in the financial pages, important though they are, they are not the most important facet of sustainability in healthcare, says Dr Michael Schröter, co-head at the Global Equity Sustainable Healthcare Fund.

    In this emerging era of squeezed healthcare budgets and growing demand for care, it is the S, not the E of ESG that matters most. In short, ensuring the broadest possible access to healthcare across a given society within tight financial constraints is going to become a central theme in Europe, the US and beyond.

    In many cases, companies routinely increase prices for their products twice a year in the most important healthcare market – the US – without adding any new value, says co-head at the fund, Dr Nathalie Flury. Such an approach will meet with increasing resistance, she adds. “It is not sustainable from an affordability point of view.”

    This is a blind spot for a number of healthcare investment funds with a sustainability label, which do not give value and affordability its due weighting, says Flury. “They invest in large cap names and add their ESG filters – but if you look at their pipeline and pricing, there are no sources where you can receive more details on the social part of the ESG equation for healthcare companies,” she says.

    A new approach

    This is central to Global Equity Sustainable Healthcare’s approach. “We could not buy this data in; we had to build out ourselves,” says Flury. “You have to complete data by talking to healthcare management and key opinion leaders, going to the literature to assess the value of a product and what makes health economic sense – and what it brings to society.”

    Things are changing slowly. Big pharma has started to address this issue, and is starting to focus more on demonstrating better outcomes and their value to payers. However, it is in the mid market where much of the innovation in value, efficacy and outcomes is happening. A therapy that reduces a hospital stay and returns a patient to work, saves on the cost of care and gets that individual back contributing to economic growth and to the tax base, for example. “When a new product is brought to market, increasingly the developer will look to show the health economics data and the cost implications to the system,” says Flury. “If you price a therapy at a fair price that makes sense on a health economic level, payers will pay."

    An increasing number of biotech players are conducting such research. Independently the US Institute for Clinical and Economic Review (ICER) also analyses products and calculates an optimal and fair price for each of them, boosting the chances of reimbursement in the US if the institute attests positive health economics, says Flury. Global Equity Sustainable Healthcare applies such an approach broadly in conventional biotech, and beyond pharmaceuticals, as well, looking for innovation across products, business models and services that help make health budgets go further or that improve healthcare access equity.

    Clinical and cost benefits combined

    The fund is interested in drugs that offer clinical efficacy and competitive pricing to health systems, either by simply coming in cheaper than rivals or, more often, by offering to save payers other costs. Such products could obviate the need for adjacent therapies, prevent the progression of a disease to a more complex and expensive stage, or prevent rehospitalisation. “We identify companies that offer that clinical benefit along with cost savings,” says Schröter.

    The fund also pursues investments beyond the molecule in areas including medical devices, services, diagnostics and digital, which integrate technology into care pathways to drive better outcomes and save costs. One example is diagnostic services paired with medical devices, such as insulin pump/continuous glucose monitor combinations that can dramatically improve diabetes care management and patient lifestyles.

    Innovators that work out how to bring “big” data to bear to improve outcomes by identifying optimal treatments, or ways to target follow-ups for the most at-risk patient groups to ensure they receive timely interventions are another example. Wearables that help patients work with clinicians to manage their conditions better, and digital therapeutics – for example, apps that help patients to change behaviours and manage their mental health – are further exciting areas of promise.

    It is an investment approach that offers a clear win by identifying opportunities that innovate beyond the conflicting trends of rising drug costs and constrained healthcare budgets. Along with the more sustainable health systems that such products will help to create, a sustainable stream of profits for investors will be established over the long term.

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