Capitalising on the longevity economy Investment Conference 2019 - PowerPoint PPT Presentation

Capitalising on the longevity economy Investment Conference 2019

Healthcare opportunities Alex Gold Portfolio Manager Fidelity International

Healthcare opportunities presented by the longevity economy ▪ Healthcare - structural growth driven by an ageing population: The sector has clear, long-term structural growth, driven by demographics, changing lifestyles and emerging market growth - all of which drive increased healthcare spend. ▪ A focus on innovation to deliver better outcomes and help reduce costs: Rising healthcare costs place a strain on the system. It’s important to identify companies with innovation - both evolutionary and revolutionary - which can help reduce these costs. ▪ Focused on quality and growth: Selective stock picking gives investors access to the highest quality companies - not just large index positions in large cap Pharma & Biotech - with good returns, cash flow and growth prospects. ▪ A differentiated approach delivering superior risk-adjusted returns: Aligned to the focus on quality is a focus on risk management, which helps drive differentiated stock picking and sector allocations. Source: Fidelity International, 2019

The world has changed - we are living longer Life Expectancy globally and by world regions since 1770 Europe Oceania 80 years Americas Asia 70 years World Former Soviet Union 60 years Africa 50 years 40 years 30 years 20 years 10 years 0 years 1770 1800 1850 1900 1950 2015 Globally life expectancy has increased from c33years in 1900 to 70 years currently Source: Fidelity International, 2019, Life expectancy - James Riley for data 1990 and earlier, WHO and World Bank for later data (by Max Roser) OurWorldInData.org/life-expectancy/ * CCBY

The population will continue to age; a structural, predictable demographic trend By 2050, the 65+ population is expected go from c. 620m to 1.6bn by 2050 2015 2050 CAGR 11.0 65+ 8% 16% 2.7% 9.5 World population (in billions) 8.0 55-64 9% 11% 1.5% 45-54 12% 12% 0.8% 6.5 35-44 13% 13% 0.7% 5.0 25-34 16% 14% 0.4% 3.5 15-24 16% 14% 0.3% 2.0 Under 14 26% 21% 0.2% 0.5 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 An ageing population has a significantly greater healthcare need Source: Fidelity International, United Nations World Population Prospects 2019 https://population.un.org/wpp/Download/Standard/Population/

Healthcare needs are increasing due to lifestyle & ageing Primary cause of death no longer infections Lifestyle changes & increased wealth is correlated with but chronic diseases increased disease incidence such as cancer 1200 Duphtheria, 40.3 Senility, 50.2 1000 Cancer, 64 No. of deaths / 100,000 Accidents, 72.3 Nephopathies, 88.6 800 Cerebrovascular disease, 106.9 Suicide, 12.2 600 Heart disease, 137.4 Diabetes, 22.3 Alzheimers, 27 Gastrointestinal Noninfections infections, 142.7 airways, 44.6 400 Cancer, 185.9 Accidents, 38.2 Tuberculosis, 194.4 Nephopathies, 16.3 200 Cerebrovascular disease, 41.8 Pneumonia or Heart disease, 192.9 influenza, 202.2 Pneumonia or influenza, 16.2 0 1900 2010 Source: Fidelity International, 2019 https://www.nejm.org/doi/full/10.1056/NEJMp1113569 (primary cause of death)

Diabetes: 10% of all adults globally have diabetes Global diabetes prevalence is increasing and 629 million people are expected to have diabetes by 2045 Around 10% of all adults globally have diabetes The number of people with diabetes is expected to increase by 48% by 2045 J&K: Japan & Korea; AAMEO: Africa, Asia, the Middle-East and Oceania; Source: Adapted from International Diabetes Federation: LATAM: Latin America. Source: International Diabetes Federation: Diabetes Diabetes Atlas 8 th edition 2017 Atlas 1 st edition 2000 and Diabetes Atlas 8 th edition 2017

Cancer: Increasing due to ageing & growing population Number of people with cancer by age, World Total number of people with cancer, differentiated by age. This is measured across all cancer types. Source: Fidelity International, https://www.nejm.org/doi/full/10.1056/NEJMp1113569 (primary cause of death)

Hearing aids: c15% of adults worldwide have some degree of hearing impairment Around 15% of adults have some degree of hearing impairment Market penetration Hearing problems by age group Market penetration Profound 70% 15% >75 <64 Moderate 50% 65-74 Mild 10% With hearing system Without hearing system Source: Fidelity International, https://www.who.int/en/news-room/fact-sheets/detail/deafness-and-hearing-loss

Healthcare spending is expected to grow Healthcare spend (US$ bn.) is expected to continue Healthcare spend as % of GDP growing CAGR (2015-2020) US Switzerland Global Germany 4.3% Sweden France North America Japan 4.3% Canada Norway Western Europe UK 4.0% OECD35 Spain Asia & Australasia Italy 5.0% Greece Poland Latin America Brazil 2.4% Mexico Middle East & Africa Russia China 4.2% India Transition Turkey Economies Indonesia 7.5% 0 5,000 10,000 0.0% 5.0% 10.0% 15.0% 20.0% 2020 2015 Source: World Industry Outlook, Healthcare and Pharmaceuticals, The Economic Intelligence Unit, June 2017. Source: OECD Health Statistics, November 2017.

Healthcare costs have risen much faster than inflation Increased emphasis on innovation and cost effectiveness 250% 221% 200% 203% 158% 150% 138% 88% 100% 75% 56% 42% 50% 42% 20% 31% 17% 0% 1999 2003 2007 2011 2015 Workers' Contribution to Family Premiums Health Insurance Premiums for Family Coverage Workers' Earnings Overall Inflation Source: Fidelity International, Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2015, Bureau of Labor Statistics, as of 31 December 2015.

Buying companies with innovation Innovation can be revolutionary or evolutionary Healthcare is one of the highest R&D Revolutionary spenders in the market ▪ Gene therapy $200 Healthcare ▪ Robotic surgery Computing $180 and Electronics Software and ▪ Targeted cancer therapies $160 Internet ▪ Genetic sequencing $140 Auto US$ billions $120 Evolutionary Est. $100 ➔ ▪ Surgery: From open surgery → minimally invasive surgery Industrials $80 ▪ Diabetes: From recurrent finger prick tests → continuous glucose $60 monitoring systems $40 Chemicals ▪ Hearing Aids: From analogue → wireless connectivity Made for and Energy Aerospace $20 iPhone hearing aids and Defense $0 ▪ Rheumatoid diseases: From regular monthly anti inflammatory 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 infusions → daily oral pill therapy for the most common rheumatoid diseases Source: Fidelity International, 2019, Capital IQ data. Thomson Reuters Eikon data, Strategy & Analysis.

Gene sequencing Rapid cost reduction and huge potential use Costs have come down materially… … which will lead to multiple, game changing applications ▪ Precision medicine; targeted cancer treatments The Start of the NGS Story Cost/Genome $100000000 ▪ Early cancer routine screening 1.5 Today: ~1.5m ➔ <0.01% $10000000 Species Sequenced ▪ Pre-Natal testing $1000000 $100000 1.0 # of Genomes (m) <0.01% ▪ Newborn screening Human Genomes $10000 Sequenced ▪ Population sequencing $1000 0.5 <1% ▪ $100 Life sciences research Variants in Human Genome Fully $10 Genomes Characterized Sequenced $1 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Fidelity International; Illumina, Inc. cited at https://www.forbes.com/sites/kenberman/2019/02/21/genome-sequencing-stocks-on- the-rise/#4f93f6071f51

Robotic surgery Improving outcomes and reducing readmittance rates Mako - robotic assisted joint surgery Lower readmission rates = cost savings Episode Length 30 Days 90 Days Allowed per Allowed per Readmission Readmission Metric readmission readmission rate (%) rate (%) (%) (%) Non-robotic 1.10% 15,881 4.20% 25,286 Robotic assistance 0.70% 15,009 3.50% 10,328 % Difference 36.36% 872 16.67% 14,958 Overall readmission 40% 66% cost reduction A retrospective analysis of the OptumInsight commercial claims database (2013-2015) by Baker Tilly, LLP, at the request of Stryker, demonstrated that lower all-cause readmission rates associated with Mako Partial Knee procedures in the database population translated to 40% lower readmission cost @ 30 days and 66% lower readmission costs @ 90 days, compared to manual partial knee surgery – a savings per episode of $14,958 @ 90 days. Source: Fidelity International, 2019

Minimally invasive surgery Improving outcomes and lowering hospital / payor costs TAVR - moving aortic valve replacement from open-heart Urology - moving treatment of an enlarged prostate from surgery to minimally invasive surgery an inpatient operation to a day care procedure …. From an invasive From open heart valve surgical procedure repair requiring requiring an inpatient extensive in-patient hospital stay and stay…. extensive morbidity/ discomfort …. To TAVR performed through a …. To a water based minimally invasive leg treatment to decrease puncture where the the prostate done in an patient can be outpatient clinic discharged the next day Source: Fidelity International, 2019