Can technology disrupt and democratise drug development?

Pharmaceutical research and development is critical and offers health and hope to millions…. but it’s very expensive. A Deloitte study from 2018 reported that the cost to develop a new drug from discovery to launch ranges from $1bn to $4bn (average about $2.2bn) and this has been rising ahead of inflation for decades.  It also takes between 5 and 10 years to bring a drug to market (average 6.7 years).  This trend of stubborn inflation (or friction) is in sharp contrast to most technological disruption we see today.  Given these high and rising costs, it is easy to understand why pharmaceutical companies are predominantly focussed on generating a return on these investments. It is the economics (i.e. potential number of patients multiplied by the achievable price) and not societal benefit, which are the ultimate determining factor. It’s all about size, scale and pushing prices up. Furthermore, cultural frictions and conflicts of interest clearly arise within the system, thus delaying the development of promising new discoveries.


Source: Deloitte 2018: Measuring the Return from Pharmaceutical Innovation

In short, the barriers to drug development are very high and research and development productivity is low. Navigating your way to and through a phase III trial is a monumental undertaking for any scientist or entrepreneur, so success is highly unpredictable.  It’s a hero or zero binary outcome that even the experts have difficulty predicting.  Factor all this into the context of treating rare diseases (i.e. developing ‘orphan drugs’) and it is also obvious why they receive relatively limited resource. This is probably fair in an economic context, but that’s not much comfort to those who might have been cured.


Source: Deloitte 2018: Measuring the Return from Pharmaceutical Innovation

The appropriate mechanism(s) for encouraging new drug development – whilst also ensuring safety, efficacy and keeping prices low – is fraught with politics, but there are some things that everyone can agree would be good…..

  1. Increase the efficiency of the drug discovery / screening process
  2. Improve data quality & quantity throughout the process to maximise R&D resource allocation
  3. Increase the efficiency of human trials to minimise suffering, reduce time and reduce costs
  4. Improve drug efficacy and reduce side effects via more personalised medicine (without an associated decrease in the returns on investment)

We do not directly invest in any pharma or biotech companies within our representative global sustainable equity strategy, but we do invest in companies that are focussing their efforts on solving at least one of the above problems within the R&D process.

Company Country Kames Sustainability Area of focus Brief description and examples of positive disruptive potential
PeptiDream Japan Improver Drug discovery platform A proprietary drug discovery platform which contains trillions of peptides and allows researchers to screen for new drugs hyper efficiently versus traditional methods. Peptides have relatively high potency, high selectivity and low toxicity versus traditional antibodies. This means a much higher chance of finding efficacious drugs which have less side effects. As a result, peptide drugs have the potential to vastly expand the number of addressable and ‘drugable’ targets, including rare diseases.
Medidata US Leader Drug R&D data analytics platform A software as a services (SAAS) platform specifically developed for the drug R&D process. This mission-driven business was formed specifically to help bio-tech & pharma companies do detailed and dispassionate data analytics on nearly all aspects of a clinical drug trial. This improves resource allocation, increases success rates and drives cost efficiencies. Medidata are also pioneering the concept of “synthetic” trials which could dramatically reduce the required number of human participants needed.
Illumina US Leader Genomics Illumina are the global leader in gene sequencing or ‘genomics’, a rapidly evolving industry at the intersection of biology and technology. Illumina enables researchers to better understand genetic variations and thus unlock potential new treatments. Illumina has driven down the cost (per genome) which we believe has led to an inflection in research activity across a range of unsolved disease classes and under-researched rare diseases.
Icon Ireland (US listed) Improver Drug trial management A clinical research organisation (CRO) used by pharma & biotech industry to accelerate and improve their drug trial process. CRO’s add value by leveraging their experience and data in large scale late stage trials. CRO’s also provide small biotechs with access to this scale, thus meaning small players can hold on to and commercialise their own IP rather than selling out to big Pharma.

Technology-led innovations typically drive up the chances of success whilst also taking cost out of the system but such trends have been very slow to manifest within pharmaceutical R&D. We believe some technologies are now reaching tipping points that could provide a step change in productivity across multiple areas in this R&D process. This would be a win / win for everyone, including – we believe – the shareholders of companies who enable such positive advances.

Source: Illumina, JP Morgan healthcare conference presentation, January 2019

About the author

Craig Bonthron is an investment manager in the Equities team, responsible for actively co-managing high conviction global equities portfolios. He focuses on analysing disruptive and sustainable investment trends within the technology, healthcare, industrial and consumer sectors in order to identify high conviction stock specific investment ideas. He joined us in 2014 from SWIP, where he was an investment director in global equities. Prior to SWIP, he was a portfolio manager at Kleinwort Benson Investors. Craig has a 1st Class honours degree in Building Surveying and an MSc with Distinction in Business Information Technology Systems from Strathclyde Business School. He has 18 years’ industry experience. (As at 30 April 2019).

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Everybody’s Free (To Wear…. Earplugs)

Mary Schmich’s article, which Baz Luhrmann adapted into the 1999 smash hit “Everybody’s Free (To Wear Sunscreen)” offers advice and warnings which intend to aid the listener to live a happier, healthier life.

Wear sunscreen, stretch, be kind to your knees, get plenty of calcium, dance.

Sunscreen will help protect you from skin cancer. Stretching daily and taking care of your joints will reduce the likelihood of arthritis. Studies suggest that a regular intake of calcium can protect us from brittle bones and even high blood pressure. And an active lifestyle is recommended to avoid diabetes.

I’ve linked the advice to a number of the most prevalent chronic physical health conditions in the US today. However, there’s one missing and it’s the third most common behind diabetes and cancer; hearing loss.

I wouldn’t blame Schmich for the exclusion – it’s a largely unrecognised health problem but almost one in four adults in the US suffer from some form of hearing difficulty. The Centers for Disease Control and Prevention (CDC) states that hearing loss is associated with decreased social, psychological, and cognitive functioning” and is “inversely associated with distress, somatization, depression, and loneliness among all age groups”.

Ok, time to look outside the US. The World Health Organisation estimates that, globally, 466 million people live with disabling hearing loss. 34 million of them are children.

And due to recreational exposure (nightclubs to personal headphones and everything in between!), over one billion young people (12-35) are at risk of it. Public health campaigns to raise awareness on the issue are paramount as it is largely preventable amongst children.

For hearing loss that has already occurred, I’m going to highlight two companies that are trying to make a difference.

Amplifon supplies hearing aids and has over 65 years’ experience in retailing and fitting the devices. Founded in Milan in the 1950’s, the company now operates in over 20 countries and provides an end to end service. It really excels in this area, evidenced by receiving the “Best in Italy – Champions of Service” award for the past three years. Allan commented on Amplifon’s acquisition of GAES last month. Take a look here.
  Cochlear provides ear implants and over 450,000 people of all ages, across more than 100 countries, now hear because of Cochlear. The company designs, manufactures and supplies three implants for different medical situations. It has the most reliable products on the market and its implants for children rank as the second best healthcare expense, on a cost benefit analysis (behind neo-natal care), according to a Stanford study.

Perhaps if Baz Luhrmann was to re-release the hit “Everybody’s Free (To Wear Suncreen)” it would include the line; “To Wear…. Earplugs”?

Well, there’s a reason I didn’t make it as a songwriter.

 

In case you missed the reference… Baz Luhrmann – Everybody’s Free To Wear Sunscreen

You may not have heard that it was national ‘Quiet Day’ last week… National Quiet day

About the author

Euan Ker is a sustainable investment analyst. He is responsible for analysing and monitoring environmental, social and governance factors within the Global Sustainable Equity Strategy. Euan joined us in 2014 as an investment implementation analyst with responsibility for implementing macro investment decisions across a number of fund-of-fund mandates, totaling some £13 billion under management. Prior to moving to the ESG Research team in 2018 his responsibilities also included asset class, regional and currency hedging overlays through derivatives. Euan has a 1st Class Honours degree in Management with Economics from Robert Gordon University. He has the IMC professional qualification and has 4 years’ industry experience (as at 30 June 2018).

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Mental health – signs of progress

The approach to mental health has changed significantly in recent years, with the stigma that is often associated with it diminishing somewhat.  

Imagine you’ve broken your arm, but you shouldn’t tell anyone or ask for help. What if it makes you look weak and unstable? People might question your abilities, worry about whether you’re ‘capable’. It sounds ridiculous doesn’t it? But if you replace ‘broken arm’ with ‘depression’ or ‘anxiety’, people often feel they are in a different, helpless situation.

Attitudes seem to be changing though. A 2015 study showed that 2.5million people in the UK have improved attitudes towards people with mental health problems, compared with 2011. Not quite there yet, but improving.

The World Health Organisation defines mental health as “a state of well-being in which an individual can realize his or her own potential, cope with the normal stresses of life, work productively and make a contribution to the community”. This is not just about the absence of a specific mental health condition, but is inextricably linked to the concept of human development: the creation of an environment in which people can develop to their full potential and lead productive and creative lives which add value.

A recent NHS study showed that one in three ‘sick notes’ handed out by GPs are now for mental health problems, with more than 5 million people being signed-off work every year. It is estimated that mental ill-health costs the UK around 4.5% of GDP per year in lost productivity at work, higher benefits spending and health care costs. Numerous studies have shown that a positive work environment supports productivity both in and out of the workplace, which in turn reduces stress and anxiety.

Throughout our sustainability analysis for the Kames Global Sustainable Fund we look at three dimensions:

  1. The product (the what)
  2. How the company operates (the how)
  3. The direction in which the company is going in terms of sustainability (ESG momentum)

We assess these three dimensions through factors which we believe are of material value to the particular company / sector.

We believe that employee health and wellbeing is material to every company we invest in. All of the companies we have classified as sustainability ‘leaders’ have established employee welfare programmes for staff to utilise both in and out of the workplace. These programmes include support available through private health schemes to in-house initiatives with a focus on mental healthcare.-

 

Leader As well as access to environmentally rich surroundings, Mohawk have provided 13 Healthy Life Centres for staff with health coaches. Around 80% of staff have used the facilities at one point whilst employed.
Leader Many health issues associated with hearing difficulties such as cognitive decline, falling and depression can be helped by hearing solutions. Amplifon has designed its whole retail experience around reducing the anxiety often associated with medical experiences.

Improver Mindbody connects consumers with local therapists, providing a range of activities with proven positive mental health benefits: yoga, meditation, pilates and more.

About the author

Georgina Laird is a sustainable investment analyst. She is responsible for analysing and monitoring environmental, social and governance factors within the Global Sustainable Equity Strategy. Georgina joined us in 2015 from Russell Investments where she was an index analyst. She joined Kames as a performance analyst before moving to the ESG Research team in 2016. Georgina has a BSc in Mathematics from Heriot-Watt University in Edinburgh. She has the IMC professional qualification and has 5 years’ industry experience*.

*As at 28 February 2018.

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Human Life: A cost-benefit analysis

Healthcare is expensive and stubbornly inflationary, particularly in the US. Despite spending the most per capita on healthcare, the US underperforms all other developed nations in terms of life expectancy.

Whilst care for the well insured is world leading, it is also very expensive. But, an estimated 27 million (Source: US census bureau) US citizens are ‘uncovered’ and thus have very limited access to healthcare, leading to poorer population health and a higher burden on the most expensive, emergency care. Emergency medicine is necessarily reactive and inefficient, whilst having almost no preventative impact. 

What is the value of a human life? Apparently 90% of healthcare costs come in the first and last six months of a human life (unverified claim). Does this mean that a ‘survival of the fittest’ attitude would be cheaper? Not necessarily. The net contribution to society of these groups is very difficult to measure.

National healthcare systems such as that in the UK have independent bodies like NICE that undertake the daunting task of human life cost-benefit analysis. NICE use the buying power of the NHS to negotiate prices down and prevent treatments being covered if they are deemed too expensive.

Meanwhile in the US, the ‘Obamacare’ act sought to gain healthcare coverage for an additional 23 million people (the US census bureau estimated 48 million or 15.4% of under 65s were uninsured pre-Obamacare). This has increased healthcare costs in the short term and ‘value-based care’ has been a focus since. A shift from a simple price negotiated with the healthcare supplier towards an evidence-based demonstration of value. In plain English, healthcare suppliers need evidence that treatments are worth the cost.

The long-term implication for investors is clear. Healthcare products and services that offer demonstrable value will gain share and be able to maintain prices versus the questionable and overpriced. Evidence is becoming more valuable. Capturing data, knowing how to analyse it and then using it to improve outcomes is ever more critical. The good companies we speak to realise this and want to be on the right side of this shift.

The answer to the challenge of reducing costs in the healthcare system lies in the power of technology. Whether it is an innovative medical device, a new drug or redesigned hospital protocol, technological and business model innovation, and its deflationary impact, is probably the most likely and sustainable solution.

We believe that each of the companies below is leveraging technology in a meaningful way to improve health outcomes and reduce cost, whilst capturing value for shareholders in the process. We see it as our job as sustainable investors to seek out these win-win outcomes:

 

Company  What they do
Cochlear and Amplifon Cochlear and Amplifon are providers of cochlear ear implants and hearing aids respectively. Cochlear implants in children rank as the second best healthcare expense on a cost-benefit analysis (behind neo-natal care) according to a Stanford study. Hearing loss in old age is increasingly associated with dementia and reduced social interaction, reduced mobility and increased depression.
Insulet Insulet offers innovative ‘tubeless pump patches’ for type-1 diabetics that automatically deliver insulin. This patch demonstrably improves quality of life for patients – particularly children and their parents – whilst also improving long-term outcomes for the patients (reducing the healthcare burden). Indeed, reduced ‘hypo’ events alone (which cost ~$30k per event in the US) justify the increased cost of the device versus multiple daily injections.
 Medidata and Icon Drug discovery and development has remained stubbornly inflationary with drug prices rising year-on-year for decades. Medidata is a cloud-based analytics company that is becoming the industry standard for increasing the efficiency of this process. By objectively assessing the progress of the pipeline via data across multiple processes and disciplines, it helps allocate resources to the most promising drugs and accelerate the process. Icon is an outsourcing Contract Research Organisation that works for biotech and pharma companies to efficiently take proposed new drugs through trials to market more efficiently.

About the author

Craig Bonthron is an investment manager in the Equities team, responsible for co-managing global equities portfolios. He joined us in 2014 from SWIP, where he was investment director in global equities. In addition Craig also had analysis responsibilities for the tech, energy and utility sectors. Prior to SWIP, he was a portfolio manager at Kleinwort Benson Investors, a member of the global environmental equity team. Craig has a 1st Class honours degree in Building Surveying, an MSc with Distinction in Business Information Technology Systems from Strathclyde Business School. He has 16 years’ industry experience (as at 31 October 2017).

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An ounce of prevention is worth a pound of cure

The 2018 Winter Olympics is upon us and all over the world people are making piecrust promises (fragile and easy to break) to take up skiing, or at least go ice skating this weekend. But instead of just buying a token tennis racquet when Wimbledon is on, people are more conscious now than ever about the long-term health benefits of a fit and healthy lifestyle.

It is the prescription drug that can reduce stress and anxiety, forestall many chronic illnesses, help to control blood pressure and cholesterol, make you happier, and it doesn’t need to break the bank… all for just a little bit of dedication. Not to mention it’s totally on trend.

It seems every day there is a new study reaffirming the profound positive health benefits of regular physical activity. And doctors are able to prescribe exercise as treatment for a range of conditions, through social prescribing schemes. The health and wellness scene has grown exponentially over recent years, and continues to do so. Everyone has a fitness tracker on their wrist and is your phone even a phone if it’s not recording your steps? ‘Wellness’ now means far more than being free from illness, it’s dynamic, encompassing a state of complete physical, mental and social well-being.

Below are two examples of companies that we believe are both investable and promote wellness.

Technogym
The leading fitness equipment and technology supplier, Technogym, is pioneering connected wellness solutions. As an official supplier to the Olympics, the company’s founder Nerio Alessandri has been talking of ‘wellness’ in this sense as far back as the 90s.

Technogym launched the first cloud-based fitness platform, ‘mywellness’. The app can do everything wellness related. It can talk to the machine you’re running on, use its AI-driven coaching platform to set goals and targets for users, allowing them to compare themselves to others through its ‘Movergy Index’. It can connect to wearable devices like Fitbits and other health apps allowing it to track heart rate so you can see all things wellness in one hub.

Technogym’s founder is also working to transform the Romagna region in Italy into the first international wellness district, with a broad focus on both physical and mental health.

Planet Fitness
Offers low-cost gyms that are self-branded ‘judgement-free zones’. Planet Fitness has been successful in creating affordable judgement-free gyms. How do we know? Well if anyone in the gym is caught grunting, flexing, topless, dropping weights or judging others they will sound their ‘lunk alarm’, a staff-operated siren designed to encourage the offenders to stop…

Mindbody
Provides an integrated software and payments platform to the wellness industries. Mindbody connects consumers with local wellness providers, allowing wellness entrepreneurs globally to run, market and build their business with ease. Fast Company recently ranked Mindbody #2 most innovative company in wellness in 2018.

About the author

Georgina Laird is a sustainable investment analyst. She is responsible for analysing and monitoring environmental, social and governance factors within the Global Sustainable Equity Strategy. Georgina joined us in 2015 from Russell Investments where she was an index analyst. She joined Kames as a performance analyst before moving to the ESG Research team in 2016. Georgina has a BSc in Mathematics from Heriot-Watt University in Edinburgh. She has the IMC professional qualification and has 5 years’ industry experience(As at 31 October 2017).

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