The median age of people worldwide is steadily climbing higher. The United Nations predicts there will be over two billion people aged 60 years or over by 2050, up from 962 million in 2017.

In fact, the age group of retirees is growing at a faster pace than any younger age group. This has far-reaching consequences for society and our economies, creating opportunities for companies and investors, but also new challenges.

Research conducted by the European Commission (EC) suggests that the healthcare sector is one with ‹high growth› potential as a consequence of this demographic shift. Two-thirds of Europe’s healthcare budget or over 300 billion euros is already spent on patients aged 50 or over and increasing steadily.

Rising Healthcare Costs

By 2025, the EC expects health spending for this demographic to total three-quarters of all health spending, worth 465 billion euros. The reason is that many costly diseases are related to age. Among them diabetes, certain types of cancer, heart failure or memory loss. At first glance, it makes sense to conclude that cancer drugs and nursing homes specializing in dementia care have a bright future ahead of them.

However, it is not enough for companies to simply latch onto the aging demographic trend to tap into a sustainable growth opportunity. While today’s retirees are powerful spenders, the brunt of the cost raked up on healthcare over the course of a person’s life is not coming out of their own pocket.

Current Reform Proposals

The bill is picked up by insurance companies and – to a greater extent – governments. And governments are starting to crack under the increasing cost burden. In a few years’ time, they might simply have the money to care for an Alzheimer’s patient the way we are striving to do today.

In recent years, this discussion has started to move into the limelight. Just think of the ongoing public and highly politicized debate in the USA regarding the price of prescription drugs, a stone kicked lose by Hillary Clinton when she was running for President back in 2015. While we are not sure that current reform proposals on drug pricing will end up moving the needle if the government wants to tackle overall healthcare costs, the public uproar has at least shown that the subject is close to heart to the electorate.

Increasing Pushback

What we do view as a given is that there will be increasing pushback on adding to the already high burden of cost borne by the healthcare system. In fact, our own measure of innovation has always been based not only on the clinical benefit to the patient but also on a company’s capacity and focus on reducing overall cost and reducing inequalities in accessibility.

Simply put, we are looking for drugs that let a patient cut out other treatments or that delays or prevents the onset of a costly disease, all while being accessible to as many people as possible.

Investing in Innovation

With the golden age strategy, we at Lombard Odier Investment Managers are looking to invest in companies that have staying power over the long run. High-quality companies that create value for themselves and their shareholders. Companies that avoid pitfalls and risks that are tolerated a little less each day, such as treating their employees or less fortunate patient groups with contempt.

And companies that have come up with means to meet some of the challenges associated with megatrends such as an aging population – in the case of an aging population first and foremost rising healthcare costs.

Is Tailor Made Medicine a Solution?

Our view at Lombard Odier Investment Managers is that one way to reduce cost on prescription drugs is to make treatments more targeted. By making sure a drug is given only to patients in which the likelihood of it working is high.

We think drug manufacturers are increasingly likely only to get paid if the drug does perform in a patient or – to take it one step further – be paid in installments, a bit like leasing a car.

This stands in stark contrast to large blockbuster drugs of the past that tended to be handed out without asking too many questions.

However, taking personalized therapies to the extreme may not always be the ideal solution either. Tailoring a treatment to a patient’s individual genetic makeup, for example, often introduces waiting times, costs and high hurdles on access and affordability.
This is why we remain on the lookout for those companies capable of innovating with a clear focus on the patient, the overall cost and on accessibility.

Today's Megatrend

An aging population is one of today’s megatrends that is forcing us to rethink a number of established norms. New challenges require new solutions and healthcare is a key area where the urgency of rising costs spurs a great number of exciting innovations and investment opportunities.

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