Healthcare is a long-term, daniel mahoney 2secular growth sector as an older population drives the demand and the need for increased healthcare provision.  Global healthcare spending was over $7.6 trillion in 2014 and is projected to grow faster than GDP.  The political conundrum is how to deliver better healthcare to more people for less money.


We see the solution emerging; healthcare has begun the process of major structural change, with information technology a key driver, finally disrupting 20th century healthcare infrastructure around the world.

Over the next decade, we expect a revolution in the way our health is managed, delivered and paid for. As a result, the competitive structure of the healthcare industry is already changing but many investors seem unaware of the ramifications.

There will be winners and losers in the sector, we think management teams that recognise and adapt will deliver stable earnings growth and compounding returns for investors.  Importantly, there are really exciting investment opportunities that extend well beyond some of the more familiar pharmaceutical companies.

As a team we believe successful companies can be divided into two categories.  Firstly, the consolidators, large companies that recognise and adapt to change. Then there are the innovators, smaller companies with new products, services or business models that drive disruption in the sector.

Our original investment thesis back in 2010 was that healthcare stocks were significantly undervalued; the sector was unloved and under-owned; and that the price to earnings (P/E) ratio for the sector would return to the long-term average over the life of the Company. At that time, investors were pessimistic about the outlook for the pharmaceutical sector and questioned the ability of these companies to replace lost revenues from drug patent expirations in the 2010 to 2015 period and to grow in the future.

We held a contrarian view based on three key assumptions.  Firstly that the earnings impact from patent expirations would not be as bad as feared; emerging markets could provide a source of revenue growth; and finally too little value had been applied to R&D pipelines and that the sector could return to growth.

This investment thesis has now played out and we think investors now need to focus on the impact of ageing population on healthcare. The needs and demands of an ageing population are putting pressure on healthcare systems around the world – the healthcare costs of a 60 year old are double those of a 40 year old.

In large part, this is because people aged 60 today expect to be far healthier and more active than their parents’ generation at the same age.  New medical technology has played a critical role in healthy living but it comes with a cost. For example, products such as hip and knee implants and the use of stents for cardiovascular disease were not as widespread 30 years ago but are now standard procedures in all developed countries.

The information technology sector has been responsible for the major disruption of a number of industries over the last decade but the impact on healthcare has, until recently, been modest. You can see this starting from the way we interact with our GP surgery, it is only in the last couple of years that most people in the UK are now able to book an appointment online.

Advances in information technology, especially data analytics, are beginning to help governments and health insurers predict the healthcare needs of a population and to measure the value of a product or a service.

Healthcare is likely to remain high on the political agenda and that governments will continue to look to the healthcare industry for new technologies and modes of delivery that can improve the efficiency of healthcare systems.

The need to improve efficiency is already beginning to have consequences for companies operating in the healthcare sector driven by the principal entities that pay for healthcare – governments and insurers.

The move to value-based reimbursement is a significant change to the way that healthcare will be delivered and managed.  Companies that do not adjust to these changes, and are not seen as part of a solution to the problem, are likely to face pricing pressure and lose significant market share.  Conversely, companies that adapt to change and take advantage of the new market opportunities should gain market share and grow.

Importantly, structural change is set to affect all healthcare companies providing both products – drugs and devices – and healthcare services and so the focus on pharmaceutical companies no longer seems an appropriate investment strategy.

With any major structural change there are risks and opportunities – especially for the incumbents.  Large companies need to embrace the digital transformation of healthcare so that they can benefit from the long-term demographic changes and so deliver steady and reliable free cash flow growth.

There is a new trend for healthcare companies to use consolidation as a route to improving efficiency.  In this way, companies can create economies of scale, broaden product portfolios, standardise products and processes, lower cost of goods, take market share and, most importantly, deliver cheaper solutions to their customers.

We are also excited by the emergence of digital health – an all-encompassing term that covers a broad array of products and services arising from the convergence of information technology with healthcare.  Moreover, digital health could make the concept of patient-centric care a reality and give individuals access to cutting-edge medical technology that could help them in their home and daily life to monitor and prevent disease.

All these factors lead to exciting opportunities for investors and is why we are recommending proposals to change the Polar Capital Global Healthcare Growth and Income Trust.  These proposed changes are seeking to extend its life to March 2025; see a change to the investment mandate to focus on growth, while continuing to pay a modest bi-annual dividend.

These proposed changes are being implemented by the Polar Capital Healthcare Team, a team of six highly experienced individuals, with the ability to ask the experts the right questions, leading to the right answers in terms of investment decisions.  The team undertakes high levels of due diligence with doctors, clinical experts and scientists and meet the management of companies, giving a real competitive advantage.  All of the investment ideas are generated internally among the team, which has over 100 years of combined investment experience.

Strength and depth aside, the Polar Capital Healthcare Team have been very early to recognise and react to structural changes going on in the healthcare industry. And those structural changes have and we believe will continue to offer some interesting investment opportunities.  The industry is incredibly fast moving and experience is what is critical in terms of prioritising information and then using it to make investment decisions.

Subject to shareholder approval, the reconstructed Polar Capital Global Healthcare Trust will commence trading on the London Stock Exchange on 20th June 2017. Further details are available at


Healthcare Disruption – The New Opportunity: two minute video


Polar Cap vid


Daniel Mahony, PhD
Fund Manager, Polar Capital Healthcare Team

Daniel joined Polar Capital to set up the healthcare team in 2007. He has 25 years of healthcare experience, comprising more than 17 years’ investment experience in the healthcare sector, with over seven years as a Portfolio Manager and nine years as a sell-side analyst. Daniel received his PhD from Cambridge University in 1995 and a first class honours degree in biochemistry from Oxford University in 1991.



The contents of this document have been prepared in connection with Polar Capital Global Healthcare Growth and Income Trust plc (the “Company”) by and are the sole responsibility of Polar Capital LLP (“Polar Capital”) and have been approved by Polar Capital solely for the purposes of section 21(2)(b) of the Financial Services and Markets Act 2000, as amended.

Copies of the Prospectus are available from the Company’s registered office and on the Company’s website at

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