By Liz Klein, Investment Director at Calculus
In the last couple of years, the healthcare sector has exhibited a mixed performance. The listed markets have faced challenges with relatively poor returns and few IPOs.
In contrast, the private markets have experienced success as companies have been raising funds privately rather than going public. Larger venture capitalists have not been exiting investments due to this trend thus the cycle of cash has been hampered. At the same time, the COVID-19 pandemic has driven innovation in the healthcare market and companies have been forced to focus more on cash flow and business strategy, resulting in improved management and risk mitigation. Both of these situations have created more opportunities for investors like Calculus.
Pros & cons of investing in healthcare
Investing in healthcare comes with its own set of pros and cons. On the positive side, there is a significant demographic trend with people living longer but are not necessarily healthier in old age. This has led to an increase in diseases of aging which require solutions. Governments are also unable to manage healthcare in the same traditional way, creating a requirement for advancements in healthcare, disease management, and digital innovation. These trends present significant investment opportunities as innovative companies work to address these issues. On the negative side, healthcare investments involve inherent risks and long timeframes. Only c. 10% of drugs that begin clinical development make it to market, and the average time to bring a drug to market is 15 years.
A couple of interesting companies for 2024
- Scancell: Scancell recently achieved a significant milestone by validating its cancer vaccine platforms. They are conducting a trial to assess the effectiveness of their ImmunoBody DNA cancer vaccine SCIB1 in combination with standard-of-care checkpoint inhibitors in patients with advanced unresectable melanoma. Recently the company delivered early but very encouraging data:
- Of the 16 patients that have received SCIB1 in combination with CPIs, 11 patients reached 13 weeks on trial and have been evaluated. 9 out of these 11 pts have shown an objective response equating to an ORR (objective response rate) of 82% with no increase in toxicity. This is better than the trial’s target and better than the 50% ORR reported in patients receiving current standard of care alone.
- In addition, a 69%-94% reduction in tumour volume was seen for the 4 pts who reached the 25 weeks evaluation and an 87%-94% reduction for the 2 pts who reached the 37 weeks evaluation.
- Spectral AI: Spectral AI has been awarded a contract valued at up to US$149 million by BARDA. The contract includes funding for clinical validation work and US FDA clearance of Spectral AI’s DeepView® technology for commercial marketing and distribution. This is a multi year award and it places up to 30 DeepView® devices at various burn centres and emergency rooms to support the study. These deployments will enable Spectral AI to conduct health economic and outcome research to support broader clinical adoption of the DeepView® System. The contract follows $123m of BARDA contracts awarded to date.
The outlook for the healthcare sector is promising. There is a growing trend of increased investment by large corporations, particularly big pharmaceutical companies, and a surge in mergers and acquisitions (M&A) involving innovative healthcare companies. This influx of investment and M&A activity is expected to drive growth in the healthcare sector for the next five years. Notably, the positive impacts of substantial investments in dementia-related research and development, as well as increasing the efficiency of disease management over the past 2-3 years are starting to manifest, further contributing to the sector’s positive outlook.