Challenging and changing markets – Healthcare's new paradigm, Meghan FitzGerald, Managing Partner L1 Health

Three trends in healthcare are driving the rapid pace of change and creating global investment opportunities.

Healthcare is undergoing a paradigm shift. Every few decades, new ideas produce the kind of disruption that sparks a transformation of clinical practice. Technology has enabled the world’s brightest innovators, scientists and researchers to push the boundaries of healthcare in pharmaceuticals, surgical techniques and value-based delivery. These and other improvements help people live longer and generate greater demand for healthcare services.

Technology is pushing the boundaries of healthcare and creating investment opportunities.

Meghan FitzGerald,Managing Partner L1 Health

Three trends in healthcare are driving the rapid pace of change and creating global investment opportunities.

First, groundbreaking research in biopharmaceuticals and genomics promises more treatments to prevent, fight and cure disease. Big pharma will increase its spending on research, development and manufacturing as it explores this new frontier. The Trump administration has pledged to reduce high drug prices, but its promise to make the FDA’s drug approval process more lenient will likely spur research spending. Companies that contract with big pharma to provide their research and manufacturing services are poised for growth.

Second, the world’s population is ageing and living longer with multiple chronic conditions. By the year 2030, the number of people older than 65 in the US will have doubled compared to 2000. In most countries, the population over 85 is growing more rapidly than any other age group, generating enormous demand for healthcare services. People living with multiple chronic diseases represent 86% of US healthcare spending, while the sickest 5% account for 50% of spending. This will drive utilisation of pharmaceuticals and medical devices, providing opportunities for innovation.

Third, value-based care is coming of age. Healthcare systems worldwide are looking for ways to balance increased utilisation with cost containment while improving quality. In the US, healthcare spending at almost 18% of GDP has added urgency to the search for value. The result is that healthcare delivery is moving out of the hospital and into the home. Generic drugs are now 88% of prescription volume. Patients want better access at lower prices.

This has helped drive M&A activity in almost every segment of healthcare as companies harness economies of scale and scope. The Trump administration’s plans for healthcare, which include block grants for Medicaid and greater use of managed care, will likely put pressure on margins. Companies that can provide innovative pathways and networks for delivery of value-based care will benefit.

As the market shifts, L1 Health is well positioned to capitalise on opportunities. We have chosen to focus investments on the pharmaceutical services sector where fragmentation with top-tier players controlling only a quarter of revenues has created attractive acquisition opportunities. In life science tools, where innovation is largely incremental, fragmentation provides opportunity for consolidation. Healthcare distribution is another large and growing component of the healthcare industry that is ripe for investment.