Featured Article: Finding Health and Wealth

This article was published in the Personal Wealth section of The Edge Malaysia Weekly from 7 Oct to 13 Oct 2019.

The Roman poet Virgil said 2,000 years ago that “the greatest wealth is health.” Today, as the health and self-care economy emerges as a powerful investment opportunity, Virgil may have meant this literally.

Socio-political turmoil and economic hardship are making us live longer, work longer, sleep less, and generally feel more stressed and unhappy, all of which are contributing to a decline in our wellbeing. But these factors are creating a huge demand for physical, mental and spiritual solutions, which is why the wellness economy reached US$4.2 trillion in 2017, according to the Global Wellness Economy Monitor, published last year by the US-based Global Wellness Institute (GWI).

Investors are definitely starting to notice a long-term shift in consumer behavior, Jay Jacobs, head of research and strategy at U.S.-based Global X Funds, an exchange-traded fund (ETF) provider, said in an email interview. Survey results show consumers are becoming more focused on proactively improving their health by improving their diet and exercising more, he added.

One factor driving this shift is changing consumption trends as younger generations, especially millennials, show greater affinity for healthier lifestyles and conscious consumerism, while another, less encouraging aspect, is healthcare cost inflation.

Citing internal research data, Jacobs points out that a quarter of Americans between the ages of 25 and 34 describe themselves as vegan or vegetarian. The influence of this preference is so great that The Economist magazine aptly declared 2019 the year of the vegan.

“What’s more, more than half of parents who consume organic food are millennials, and this number is expected to grow rapidly in the coming years. This is influencing where they shop, what foods they buy, and which restaurants they go to,” Jacobs says.

Wellness has become a kind of religion for some consumers, with a rise in non-traditional solutions aimed at achieving healthier, happier and more balanced lifestyles, according to machine intelligence platform CB Insights.

As more consumers become more conscious, companies are jumping on the trend, Jacobs said: “According to Impossible Foods, their plant-based meat substitute that replicates the taste and texture of beef produces 89% less carbon dioxide emissions, uses 87% less water, 96% less land and reduces water pollution by 92% compared to a burger made with real beef.”

“In addition, healthcare costs are rising. With an ageing population around the world and the rising costs of drug development, healthcare costs continue to rise, leading people to actively look for ways to prevent disease.”

These factors are consistent with the GWI findings: The global wellness industry grew 12.8% to US$4.2 trillion in 2017, up from US$3.7 trillion in 2015.

From an economic perspective, the wellness industry grew at 6.4% annually, nearly twice as fast as the global economy’s growth rate of 3.6% in 2017. The wellness industry currently accounts for 5.3% of global economic output.

After analysing 10 wellness markets, the GWI report concluded that growth rates were as follows: spa industry (9.8%), wellness tourism (6.5%), wellness real estate (6.4%), hot springs/mineral springs (4.9%), workplace wellness (4.8%), fitness and mind-body (4.8%), personal care, beauty, anti-aging (4.1%), healthy eating, nutrition, weight loss (4.1%), preventive, personalized medicine and public health (3.7%), and traditional and complementary medicine (no official growth rates were provided).

Katherine Johnston, a senior research fellow at GWI, said in the report that wellness — the quality or state of being healthy — is evolving “from rare to routine, from occasional to essential, from luxury to primary lifestyle value.” “This profound shift is driving strong growth,” she added.

Malaysia is also part of this global trend: the country’s health and wellness sector is already a billion-dollar industry, according to online platform International Investor Malaysia, and is set to grow further in the coming years. The business intelligence platform adds that Malaysia has become a major growth market for wellness tourism, with tourism spending and visitor numbers growing at an average annual rate of 17% between 2013 and 2015.

Malaysia’s wellness industry, particularly the spa sector, is expected to contribute about RM400 million to the country’s gross national income and create 3,500 new jobs by 2020.

The growth potential of “happiness economics”

The real beneficiary of this boom is technology, which is not only fueling the fitness craze but also spurring improved health-related services under the banner of digital health.

“Healthcare is broadly the last market to be disrupted by technology,” said Jun Deng, investment partner at US-based Joyance Capital Partners, a venture capital firm that invests in early-stage healthcare startups and “fun moment” companies.

The company has invested in a wide range of technologies that could help people live happier lives and ultimately better health, including genetics, neuroscience, virtual and augmented reality, food science and interactive technologies. “These scientific fields constitute a powerful technological vector of happiness,” the company’s website says.

Deng points out that technological advances in healthcare have historically been slow, so the market opportunity has only become clearer over the past decade. “It’s only now that technologists and engineers are realizing that there are tons of levers to disrupt this space,” Deng says.

Digital health, the concept of using technology to improve an individual’s health and wellness, is a broad field, Deng said, including everything from robots, wearables and sensors to mobile health applications and artificial intelligence (AI).

According to Deng, global digital health market revenue is expected to grow from $196.3 billion in 2017 to $536.6 billion by the end of 2025, a compound annual growth rate of 13.4%. The sector is gaining momentum because of the multiple exit paths for investors, rather than public listings or acquisitions, Deng said.

“This is still a young market, so it’s too early to talk about an exit. Traditionally, when a medical device company raises capital, it’s through an initial public offering. But for digital health companies, they have the option of merging with other healthcare startups, forming a strategic partnership with a private equity firm, or even exploring an acquisition by a large tech company,” she added.

“Investors also believe that as these companies achieve more milestones, such as receiving reimbursement, they are receiving more approvals. [returns on investment] They adhere to regulatory standards. In terms of business models, these companies have validated business-to-business and business-to-consumer models. This validation is encouraging further investments.”

Technology has opened up long-term growth opportunities in the health and wellness sector, Jacobs says: “For example, Internet of Things-enabled medical devices can now collect, store and analyze all kinds of medical information that is important to patients.

“Some wearables track heart rate, calories burned, steps taken, and even blood glucose and insulin levels. For example, if you have diabetes, a continuous glucose monitoring device that tracks your blood glucose levels throughout the day can help you make better treatment decisions and better understand the impact of the foods you eat and the exercise you need.”

“That information can then be shared with family members and doctors. Using connected devices to gather real-time information introduces an innovative approach to blood glucose monitoring, as opposed to the traditional method of pricking a finger several times a day. Access to real-time data can alert patients and doctors to take necessary steps much sooner than an intermittent process.”

He added that companies that offer products and services aimed at promoting wellness, such as fitness equipment and technology, sportswear, nutritional supplements and organic and natural foods, will benefit from this theme.

The Global X Health & Wellness Thematic ETF (BFIT) is expected to grow about 8% annually, Jacobs said, adding that this projection seems low compared to the high revenue growth of major athleisure companies and the growth in wearables sales.

The Nasdaq-listed ETF tracks 63 stocks in the Indxx Global Health & Wellness Thematic Index. The ETF offers investors exposure to companies listed in developed markets that offer products and services aimed at promoting physical health through active and healthy lifestyles. As of June 30, the fund had net assets of $17.75 million.

BFIT was trading at US$20.13 (RM84.45) per share as of Sept 30, and has generated three-year returns of 9.47% and one-year returns of 3.25%. The firm mainly invests in companies that make sportswear and fitness equipment, such as Britain’s JD Sports Fashion Ltd, Germany’s Puma AG, China’s ANTA Sports Products Ltd and the US’s Lululemon Athletica Ltd.

Meanwhile, Joyance has investments in a broad portfolio of US-based healthcare technology companies including FIGUR8 Inc, Lark Technologies Inc and Thryve Inc.

FIGUR8 is the first diagnostic platform to deliver real-time analysis of body movement control. The technology captures 3-dimensional skeletal motion coupled with muscular output, providing trainers, therapists and physicians with objective measurements of musculoskeletal performance and recovery.

Lark is leveraging AI to deliver scalable healthcare to people suffering from or at risk of chronic diseases. The platform incorporates an AI nurse to provide year-round personalized health guidance for conditions like diabetes and hypertension, while Thryve is a company focused on gut health with personalized probiotics and microbiome testing.

Deng says Thryve and Lark are led by great entrepreneurs and are in her company’s focus areas. “Thryve is a great business as it is, but it’s also a step toward fully personalized microbiome therapy. Lark not only delivers the care people desperately need right now in a way that fits right into current practices, but also points the way toward entirely new digital care models. It’s the combination of current value and even greater potential that attracted us to these two companies.”

Unlike demand-driven industries, the trend of incorporating personalized health data into daily life isn’t going away anytime soon, Deng said: “This isn’t just hype, or we wouldn’t be investing in this.”

“This year, nearly 60% of investments in digital health have come from repeat investors, signaling the investment community’s confidence in this market.”

But as with any type of investment, knowing the risks associated with this space is crucial to making a successful investment. From a venture capital perspective, the most common risks associated with investing in startups are top companies running out of money, others suffering from weak leadership, and a lack of product-market fit, says Deng.

She adds that domain expertise plays a big role in the digital health space: “The healthcare industry is incredibly complex and you definitely need domain experts who know how the systems work. You need co-founders who really understand health technology and the healthcare industry and have realistic timelines for how long it will take to achieve milestones.”

Intellectual property protection is also crucial in the digital health sector, as technologies are not as well protected as knowledge protection in the biotechnology and nanotechnology sectors. “It’s often about how well you understand the market, your customers, your business model, and who has first-mover advantage. It’s also about knowing who can really help market quickly and provide the perfect platform for customers,” says Deng.

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