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Daily Intelligence Briefing
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Identifying Change-Driven Investment Themes – Five sections, explained here.
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We bring you our Daily Intelligence Briefing courtesy of McAlinden Research Partners. The report is provided to Hedge Connection members for free. Below is snapshot, login to view the full report. Not a member? Join today. McAlinden Research Partners is offering a complimentary one-month subscription to receive the Daily Intelligence Briefing – to Hedge Connection clients/friends. Activate yours by contacting Rob@mcalindenresearch.com and mentioning “Sent by Hedge Connection”
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I. Today’s Thematic Investment Idea
A deep dive into a market driver with alpha generating potential.
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Digital Therapeutics Bring Additional Disruption to Health Care →
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Summary: The prevalence of chronic diseases combined with their sky-high price tags is drawing interest to digital therapeutics (DTx), a new class of medicine that relies on software programs to prevent, manage, and treat diseases. The fact that Big Pharma and Insurers now want in on the action is the latest sign that the DTx market is on the cusp of rapid growth and should be on every health care investor’s radar. Read more +
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Source material for today’s market insight
Summaries of articles related to today’s featured topic.
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DTx: How digital treatments could be a $9 billion opportunity by 2025
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DTx: Digital Medicine Movement Is Growing Up And That’s A Good Thing
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DTx: Virtual Therapy Apps Are Trying To Disrupt The Mental Health Industry
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DTx: Novartis backs away from marketing Pear digital therapeutics
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II. Updates of Themes on MRP’s Radar
Follow-up analysis of key market drivers monitored by MRP.
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Blockchain: Blockchain Startup Backed By Big Banks Ushers In New Era Of Banking
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Insurance: ‘Medicare for All’ likely to keep private payers, but erode margins: Moody’s
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Payments: Amazon to install its Go technology in hundreds of retail stores by 2021
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Cannabis: Budweiser brewer could launch cannabis-infused drinks in Canada
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Oil: The Warning Signs Are Flashing For U.S. Shale
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Batteries: How the Battery Sector Is Looking to Improve Lithium-Ion
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Asset Allocation: Investors have been rotating out of EM debt
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IV. Active Thematic Ideas
MRP’s active long and short themes, with an archive of follow-up reports.
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See Them Here →
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V. Macroeconomic Indicators
Key data releases relevant to MRP’s Active Thematic Ideas.
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See Them Here →
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Digital Therapeutics Bring Additional Disruption to Health Care
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Summary: The prevalence of chronic diseases combined with their sky-high price tags is drawing interest to digital therapeutics (DTx), a new class of medicine that relies on software programs to prevent, manage, and treat diseases. The fact that Big Pharma and Insurers now want in on the action is the latest sign that the DTx market is on the cusp of rapid growth and should be on every health care investor’s radar.
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A new class of medicine ― digital therapeutics (DTx) ― has emerged, offering a novel means of treating the swelling number of patients with chronic diseases and keeping associated costs down. This subset of health care designs tech-enabled, evidence-based therapies that either replace or complement prescription drugs for managing or treating health conditions.
Treatment usually involves behavioral and lifestyle changes usually spurred by a collection of digital impetuses packaged into the convenient form of a consumer-facing mobile app. Because of the digital nature of the methodology, data can be collected and analyzed as both a progress report and a preventative measure. But, we’re not talking about your average digital health app. DTx solutions must be approved by regulatory bodies, so displaying proof-of-concept is at the core of their model.
Furthermore, they target serious ailments like chronic diseases which are steadily on the rise worldwide. Here in the United States, 6 in 10 adults have a chronic disease while 4 in 10 have two or more chronic diseases. In fact, these conditions are the leading causes of death and disability in the nation, and the primary drivers of America’s $3.3 trillion annual outlay to cover health care costs.
The prevalence of chronic diseases combined with their sky-high price tags is drawing interest to the DTx market, where treatments are being developed for the prevention and management of a wide variety of conditions. These include type II diabetes, congestive heart failure, obesity, Alzheimer’s disease, dementia, asthma, substance abuse, ADHD, hypertension, anxiety, depression, and several others.
Benefits to Stakeholders Across the Health Care Ecosystem
With consumer adoption surging, the global digital therapeutics market is projected to expand by 21% annually, and to reach a value of nearly $9 billion by 2025. Moreover, different stakeholders across the health care ecosystem stand to benefit from increased development and adoption of DTx products.
- Payers benefit from improved population-level clinical and economic outcomes through increased engagement and lowered cost of care, while also increasing access to care for previously difficult-to-treat chronic conditions.
- Providers leverage DTx to deliver and support clinically proven therapies outside of a care setting while providing reliable patient engagement and wellness data streams which can be integrated into provider workflows and care management processes.
- Pharma partners with DTx products in conjunction with existing drug therapies, driving improved efficacy through increased medical adherence and capturing valuable real-world evidence.
- Patients receive personalized, flexible care to meet individual patients’ needs and schedules, while also providing targeted, reliable, evidence-based interventions as needed to promote patient adherence to care plans.
Big Pharma is Already Moving In
While digital therapeutics is largely dominated by small players, large healthcare, pharmaceutical, and insurance companies have begun to take interest in this space.
Last year Cigna began offering Omada Health’s product to their plan subscribers to control costs through chronic disease prevention, and cemented this relationship by leading a Series C round of investment worth $50 million. Likewise, a growing number of major pharmaceutical and healthcare companies including Roche, GSK, Novartis / Sandoz, and more recently, Bayer and Sanofi have recently invested in or partnered with digital therapeutic companies. These moves are part of an effort to broaden revenue streams and offset the high costs of drug development.
Bayer’s investment and license agreement with One Drop, a digital health startup that specializes in hardware and software to help people manage their diabetes is just the latest example. About 1.5 million people in 195 countries use One Drop’s tools for diabetes management, including a Bluetooth-enabled blood glucose meter, test strips and lancets, coaching programs and a mobile app that connects to smart devices like FitBit, the Apple Watch, and Dexcom’s glucose monitoring systems.
The licensing agreement allows Bayer to leverage One Drop’s platform to improve medication adherence among its own customers. For context, nonadherence costs drain the US healthcare system of more than $300 billion each year. Boosting adherence benefits Bayer, as more consistent medication usage should translate to more regular drug refills and increased revenue for the pharma company.
In another recent example of drug makers teaming up with DTx companies, Sanofi and Happify Health signed an agreement last month to develop a prescription digital tool for treating depression among individuals living with multiple sclerosis (MS). Approximately 35% of MS patients suffer from depression, which can worsen other MS symptoms, like cognitive changes and pain.
If Sanofi and Happify are able to bring an FDA-approved mental health DTx to market for MS patients, that would be an attractive proposition for payers: Medicare doled out $79,000 per 1,000 members in 2016 for MS treatments, a tenfold increase over the $7,700 per 1,000 members spent a decade prior.
These types of partnerships signal that there is significant interest in a wide spectrum of digital therapeutic products and the associated positive patient and financial outcomes. As is often the case when the power of technology is being harnessed to disrupt an existing market, many unrealized promises were made in the early days of digital therapeutics. But that initial exuberance is being tempered now that large companies with real payment models and demanding shareholders are joining the race.
VC Investors See Returns from Public Markets
One indication of the market approaching an inflection point in its development is the fact that venture investors are beginning to see returns from public markets. Over $34 Billion in private funding has gone into digital applications in healthcare in the last decade, peaking with $9.5 Billion last year. This summer saw a handful of exits through high-value initial public offerings (IPOs). In other words, financing risk is being transferred from venture insiders to public markets, which usually demand profits and have a low tolerance for promises.
With these recent IPOs, the portfolio of publicly-listed digital health companies is now worth around $20 billion, collectively. Some of these companies are experiencing over 2X annual revenue growth, which suggests payers are also voting with their pocketbooks. Public investor money helps validate the digital healthcare business model.
The ROBO Global Healthcare Technology and Innovation ETF (HTEC), which debuted this summer, provides exposure to global health care technology companies that generate a portion of their revenue from medical and health care technology. The fund provides exposure to many subsets of the MedTech and HealthTech markets, including diagnostics, lab process automation, regenerative medicine, precision medicine, data & analytics, telehealth, robotics, genomics, and medical instruments.
As for investors interested in the private markets, CB Insights has just published an impressive list of the most promising 150 private digital health startups, and that list features no less than 18 Digital Therapeutics companies.
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HealthTech vs Biotech vs Healthcare Providers vs S&P 500
3-Month Chart
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Source material for today’s market insight…
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Digital Therapeutics
How digital treatments could be a $9 billion opportunity by 2025
The digital therapeutics market is set to triple in size over the next six years, blossoming into a $9 billion opportunity ― and Business Insider Intelligence predicts consumer adoption of the digital treatments will grow more than 10-fold by 2023.
The sea change sparked by the advent of digital medicines threatens to reshape the entire healthcare value chain. Because drugs interact with nearly every healthcare stakeholder, DTx solutions are leading a variety of players to carve out room for digital solutions: Pharmacy benefit managers (PBMs) are creating logs for DTx as they would drugs, insurers are linking their members up with digital solutions in an effort to mitigate spending, and entrenched pharma and medtech companies are tying up with DTx vendors to dip into new revenue streams.
Proactive pharmaceutical firms and medical device makers can benefit from DTx’s proliferation through tie-ups with vendors that give the incumbents access to piles of real-time data as well as the possibility to expand revenue opportunities through commercializing new products and programs ― but sluggish drug- and device makers risk waving goodbye to consumers opting for digital solutions.
Those that choose not to get on the DTx bandwagon might miss out on a massive opportunity ― and we think laggard drugmakers and medical device makers that don’t jump at the chance of linking up with DTx providers could put themselves at risk of losing market share to new competitors.
Read the full article from Business Insider +
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Digital Therapeutics
Digital Medicine Movement Is Growing Up And That’s A Good Thing
Groups such as the Digital Medicine Society (DiMe) and Digital Therapeutics Alliance (DTA) are helping ensures this new field is evidence-based with effective and safe treatments. Industry meetings are now focused on reimbursement and partnerships, not just cool shiny digital apps.
The Digital Therapeutics (DTx) East conference was held on the Harvard Medical School campus. Attendance nearly doubled since the previous year and focus was on reimbursement, IPOs, partnerships and payors. The conference theme was integration of digital therapies into the healthcare system, which is code of course, for “How are we going to pay for this stuff?”
Earlier themes centered on promoting science and excitement grew around positive clinical studies, which caught the attention of venture investors. But the field needed to mature and show that early speculators can get returns on their invested capital. This summer we saw a handful of high-value initial public offerings (IPOs), which means that financing risk is being transferred from venture insiders to public markets, who usually demand profits and have a low tolerance for promises.
Even government regulators are helping. Recently the FDA issued a statement on new steps to advance digital health policies that encourage innovation and enable efficient and modern regulatory oversight. This includes a draft of practices for artificial intelligence (AI) and machine learning (ML) based software as a medical device.
Conditions are ripe for a digital medicine inflection point in America. There are hundreds of millions who suffer from multiple chronic conditions or behavioral health issues including substance abuse. The sheer volume of need overwhelms the few thousand healthcare professionals who serve such populations. The average doctor visit is just 12 minutes and most people see their physicians only 2-3 times per year.
Read the full article from Forbes +
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Digital Therapeutics
Virtual Therapy Apps Are Trying To Disrupt The Mental Health Industry
As the mental health industry has grown in recent years, so has the number of tech startups offering virtual therapy, which range from online and app-based chatbots to video therapy sessions and messaging. Still a nascent industry, these companies say they aim to increase access to qualified mental health care providers and reduce the social stigma that comes with seeking help.
While the efficacy of virtual therapy, compared with traditional in-person therapy, is still being hotly debated, its popularity is undeniable. Its most recognizable pioneers, BetterHelp and TalkSpace, have enrolled nearly 700,000 and more than 1 million users respectively.
The cost of [traditional] mental health therapy runs between $75 to $200 a session in most places. But, web therapists don’t have to bear the expense of brick-and-mortar offices, and are able to pass these savings to clients. BetterHelp offers a $200-a-month membership that includes weekly live sessions with a therapist and unlimited messaging in between, while Talkspace’s $260-a-month subscription offers unlimited text, video and audio messaging.
Meanwhile, automated chatbot Woebot uses artificial intelligence to provide therapeutic services without the direct involvement of humans. There’s no need to schedule appointments weeks in advance and users can receive real-time coaching at the moment they need it, unlike traditional therapy.
And investors are taking notice. Funding for mental health tech startups has boomed in the past few years, jumping from roughly $100 million in 2014 to more than $500 million in 2018, according to Pitchbook. In May of this year, the subscription-based online therapy platform Talkspace raised an additional $50 million, bringing its total funding to just under $110 million since its 2012 inception.
Read the full article from Forbes +
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Digital Therapeutics
Novartis backs away from marketing Pear digital therapeutics
Novartis’ Sandoz division is backing out of a co-promotion agreement to market Pear Therapeutics’ prescription digital therapeutics, launched last year for treating substance and opioid abuse, respectively. In announcing the change Tuesday, the companies said Pear’s current commercial infrastructure is sufficient to handle sole marketing for the digital medicines, known as reSET and reSET-O.
Pear and Sandoz launched reSET, the first prescription digital therapeutic cleared by the Food and Drug Administration, in November last year. They won FDA authorization for reSET-O, for opioid use disorder, the following month.
Pear’s digital therapeutics work in conjunction with outpatient care. With a smartphone or tablet, patients can use the application to get cognitive behavioral therapy lessons, track progress in battling their dependence, and report cravings, triggers and substance use. ReSET-O also includes reminders to take buprenorphine, a medication used to treat addiction.
Patients are rewarded with gift cards for completing lessons or getting a negative drug test. Therapists, in turn, can use the information shared by patients to better tailor their treatments.
Sandoz is still committed to prescription digital therapeutics, said division spokeswoman Leslie Pott. The Swiss drugmaker remains “an active member” of the Digital Therapeutics Alliance, while the Novartis Institutes for BioMedical Research will continue a separate collaboration with Pear in schizophrenia and multiple sclerosis.
Read the full article from BioPharmaDIVE+
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Select a theme to see when and why we added it. Also included is a link to all recent Market Insight reports we’ve written about that theme, allowing you to track its progress.
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China New Home Prices Rise the Least in A Year
Average prices of new homes in 70 Chinese cities increased by 8.4% in September 2019, the least since September last year, following a 8.8% advance in the previous month. On a monthly basis, new home prices went up 0.5%, the same as in August, remaining the weakest monthly rise since February.
A series of government curbs and a slowdown in the economy have weighed on the housing market, but renewed fears that prices may rise due to looser credit conditions have prompted policymakers to clamp down on speculative buying.
Click here to access the data +
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Japan Trade Balance Swings to Deficit
TJapan unexpectedly posted a trade deficit of JPY 123 billion deficit in September 2019, shifting from a JPY 124.1 billion surplus in the same month a year earlier, missing market expectations of a JPY 54 billion surplus. Exports declined 5.2%, the tenth straight month of decline, while imports fell at a softer 1.2%.
Click here to access the data +
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Hong Kong Business Confidence Lowest since 2009
Business confidence in Hong Kong fell to -25 in the fourth quarter of 2019 from -8 in the previous period. It was the lowest business confidence since the second quarter of 2009, as expectations for the business situation deteriorated in manufacturing (-24 from -8 in Q3); construction (-45 from -7); import/export trade and wholesale (-23 from -8); retail (-61 from -24); accommodation and food services (-44 from -17); transportation, storage and courier services (-26 from -9); financing & insurance (-21 from -6); real estate (-12 from -10) and professional & business services (-25 from -3). Meanwhile, expectations improved in information & communication (6 from 10).
Click here to access the data +
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Colombia Posts Largest Trade Gap in Nearly 4 Years
Colombia’s trade deficit widened to USD 1.65 billion in August 2019 from USD 0.90 billion in the corresponding month of the previous year. It was the largest trade gap since November 2015, as exports fell 11.6% over a year earlier to USD 3.26 billion, mostly due to lower sales of fuels & mining products (-21.3%), namely petroleum, petroleum products & related (-16.7%); and manufactured goods (-4.3%), of which chemical products (-9.9%).
Meantime, imports increased 7.3% to USD 4.91 billion, driven by higher purchases of fuels & mining products (63.3%), in particular crude oil (100.7%); agricultural products, food & beverages (16.6%), led by food & live animals (28.1%).
Click here to access the data +
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US Stocks Close Lower on Friday
Wall Street traded in the red, as the Chinese economy grew by 6% in the third quarter to book a low since 1999, while earnings season continued with mixed results. Despite global growth concerns and declines mostly nudged by tech shares, indexes closed the week in the green. Of the 73 S&P companies that have reported earnings so far, more than four-fifths have beaten consensus. The Dow Jones was down 256 points or 1%, the S&P 500 12 points or 0.4% and the Nasdaq 67 points or 0.8%.
Click here to access the data +
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Commodities: Coffee +3.01%, Oat -1.59%
TTop commodity gainers are Coffee (3.01%), Copper (1.45%) and Wheat (1.14%). Biggest losers are Oat (-1.59%), Lumber (-1.51%) and Brent (-1.47%).
Click here to access the data +
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MARKET INSIGHT UPDATES: SUMMARIES
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Blockchain
Blockchain Startup Backed By Big Banks Ushers In New Era Of Banking
Fnality, a London-based company is banking on blockchain technology to usher in an era of digital financial markets. They are betting that the financial markets are going to tokenize.
According to Fnality’s CEO, Rhomaios Ram, “if the markets are moving to a new model, they will need a secure infrastructure for digitizing payment and settlement on a global basis. We are creating a new financial market infrastructure, a new payments system [for wholesale banking].” Wholesale banking refers to lending and borrowing between banks, or with large customers such as the government, pension funds, and big corporations.
Backed by a consortium of financial institutions, including some of the world’s most important banks, Fnality will offer the Utility Settlement Coin (USC). Notably, the USC will be fully backed by cash collateral held in accounts at central banks around the world.
To start, the USC will represent five different currencies: U.S. dollar, euro, UK pound sterling, Japanese yen and Canadian dollar. The cash collateral ensures that the value of the USC remains stable, while the Fnality platform enables interoperability through its connection to any blockchain network or legacy system.
Ram notes that the Fnality platform will not supplant systems that are currently in place for traditional banking. Their plan is to create a financial infrastructure to serve the digital marketplace that is to come. The USC will allow banking participants to clear and settle transactions virtually instantaneously, improving efficiency, and reducing cost and risk.
Read the full article from Forbes +
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Insurance
‘Medicare for All’ likely to keep private payers, but erode margins: Moody’s
As 2020 Democratic presidential hopefuls tout healthcare reform plans from beefing up the Affordable Care Act to “Medicare for All,” Moody’s, Harvard Medical School and others are weighing in on the cost and likely disruption to the health sector.
Their conclusion: Medicare for All would not only be costly to implement, it could drag on profit margins throughout the healthcare sector and prove a significant threat to traditional insurers. By contrast, an ACA expansion could push the nation close to universal coverage without extensive sector trauma.
A Medicare for All type system is endorsed by presidential candidates Sens. Elizabeth Warren, D-Mass., and Bernie Sanders, I-Vermont, while a public option and further expansion of the Affordable Care Act has been championed by former Vice President Joe Biden and supported by other moderate candidates.
The Commonwealth Fund/Urban Institute report examined a variety of options, ranging from expanding the ACA to moving to a single-payer system.
The most cost-effective solution appears to be the expansion of tax credits to purchase coverage. According to the data, that would drop the number of uninsured or underinsured from 34.6 million to 6.6 million, a decrease of more than 80%. That would cost the federal government $161.8 billion a year, but cut national health spending by $19.1 billion per year.
By contrast, a single payer “lite” solution – where the ACA is expanded to all Americans and they pay no premiums, would only cut the number of uninsured down to 10.8 million, while costing the government $1.5 trillion per year. A complete single-payer program – Medicare for All – would eliminate all uninsured, but cost taxpayers nearly $2.9 trillion per year.
Read the full article from HealthCareDIVE+
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Payments
Amazon is looking to install its Go technology in hundreds of retail stores by 2021
Amazon is in talks to bring the autonomous checkout technology that powers its Amazon Go stores, where consumers can grab items and walk out without stopping to physically check out, to third-party merchants for the first time.
Amazon is reportedly discussing the opportunity with airport retailer Cibo Express, Regal Cinemas, and concession stands at baseball stadiums. The company wants to begin installing its technology for outside retailers in Q1 2020 and have “hundreds” of stores set up by the end of 2020.
By licensing Go technology to retailers, Amazon can win revenue from third-party in-store retailers and hold off startups in the autonomous checkout space. Amazon is reportedly considering charging a percentage of sales from stores using Go technology or taking a monthly fee after charging for the technology initially.
Either strategy would enable Amazon to win revenue from third-party merchants in-store just as it does on its online marketplace, and since e-commerce still only accounted for 10.1% of US retail sales in Q2 2019, brick-and-mortar provides a valuable opportunity.
Amazon needs to begin forming partnerships with retailers quickly if it wants to capitalize on its technology, as autonomous checkout startups including Standard Cognition, Zippin, and Grabango have been announcing their own partnerships, so there will be significant competition to provide the technology.
Read the full article from Business Insider +
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| There is much more to this report! McAlinden Research Partners offers Hedge Connection members weekly access to the Daily Intelligence Briefing research for free – click here to view. (You must be logged in first). Not a member? Join today. McAlinden Research Partners is offering a complimentary one-month subscription to receive the Daily Intelligence Briefing – to Hedge Connection clients/friends. Activate yours by contacting Rob@mcalindenresearch.com and mentioning “Sent by Hedge Connection” |
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