Capitalising on the longevity economy Investment Conference 2019 - - PowerPoint PPT Presentation

Capitalising on the longevity economy

Investment Conference 2019

Healthcare

• pportunities

Alex Gold

Portfolio Manager Fidelity International

Healthcare opportunities presented by the longevity economy

Source: Fidelity International, 2019

▪ Healthcare - structural growth driven by an ageing population: The sector has clear, long-term structural growth, driven by demographics, changing lifestyles and emerging market growth - all of which drive increased healthcare spend. ▪ A focus on innovation to deliver better outcomes and help reduce costs: Rising healthcare costs place a strain on the system. It’s important to identify companies with innovation - both evolutionary and revolutionary - which can help reduce these costs. ▪ Focused on quality and growth: Selective stock picking gives investors access to the highest quality companies - not just large index positions in large cap Pharma & Biotech - with good returns, cash flow and growth prospects. ▪ A differentiated approach delivering superior risk-adjusted returns: Aligned to the focus on quality is a focus on risk management, which helps drive differentiated stock picking and sector allocations.

0 years 10 years 20 years 30 years 40 years 50 years 60 years 70 years 80 years

2015 1770 1800 1850 1900 1950

The world has changed - we are living longer

Source: Fidelity International, 2019, Life expectancy - James Riley for data 1990 and earlier, WHO and World Bank for later data (by Max Roser) OurWorldInData.org/life-expectancy/ * CCBY

Life Expectancy globally and by world regions since 1770

Europe Oceania Americas Asia World Former Soviet Union Africa

Globally life expectancy has increased from c33years in 1900 to 70 years currently

Under 14 26% 21% 15-24 16% 14% 25-34 16% 14% 35-44 13% 13% 45-54 12% 12% 55-64 9% 11%

The population will continue to age; a structural, predictable demographic trend

Source: Fidelity International, United Nations World Population Prospects 2019 https://population.un.org/wpp/Download/Standard/Population/

By 2050, the 65+ population is expected go from c. 620m to 1.6bn by 2050 An ageing population has a significantly greater healthcare need

65+ 8% 16% 2015 2050 CAGR

0.5 2.0 3.5 5.0 6.5 8.0 9.5 11.0 1950 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100

World population (in billions)

2.7% 1.5% 0.8% 0.7% 0.4% 0.3% 0.2%

Primary cause of death no longer infections but chronic diseases Lifestyle changes & increased wealth is correlated with increased disease incidence such as cancer

Healthcare needs are increasing due to lifestyle & ageing

Source: Fidelity International, 2019 https://www.nejm.org/doi/full/10.1056/NEJMp1113569 (primary cause of death)

Pneumonia or influenza, 202.2 Pneumonia or influenza, 16.2 Tuberculosis, 194.4

Gastrointestinal infections, 142.7

Heart disease, 137.4 Heart disease, 192.9 Cerebrovascular disease, 106.9 Cerebrovascular disease, 41.8 Nephopathies, 88.6 Nephopathies, 16.3 Accidents, 72.3 Accidents, 38.2 Cancer, 64 Cancer, 185.9 Senility, 50.2 Duphtheria, 40.3 Noninfections airways, 44.6 Alzheimers, 27 Diabetes, 22.3 Suicide, 12.2

200 400 600 800 1000 1200 1900 2010

• No. of deaths / 100,000

J&K: Japan & Korea; AAMEO: Africa, Asia, the Middle-East and Oceania; LATAM: Latin America. Source: International Diabetes Federation: Diabetes Atlas 1st edition 2000 and Diabetes Atlas 8th edition 2017

Around 10% of all adults globally have diabetes The number of people with diabetes is expected to increase by 48% by 2045

Diabetes: 10% of all adults globally have diabetes

Global diabetes prevalence is increasing and 629 million people are expected to have diabetes by 2045

Source: Adapted from International Diabetes Federation: Diabetes Atlas 8th edition 2017

Source: Fidelity International, https://www.nejm.org/doi/full/10.1056/NEJMp1113569 (primary cause of death)

Number of people with cancer by age, World

Total number of people with cancer, differentiated by age. This is measured across all cancer types.

Cancer: Increasing due to ageing & growing population

Source: Fidelity International, https://www.who.int/en/news-room/fact-sheets/detail/deafness-and-hearing-loss

Around 15% of adults have some degree of hearing impairment

Market penetration

Hearing aids: c15% of adults worldwide have some degree of hearing impairment

Market penetration

Profound Moderate Mild 70% 50% 10% With hearing system Without hearing system

Hearing problems by age group

<64 >75 65-74

15%

Source: OECD Health Statistics, November 2017.

Healthcare spend (US$ bn.) is expected to continue growing Healthcare spend as % of GDP

Healthcare spending is expected to grow

Source: World Industry Outlook, Healthcare and Pharmaceuticals, The Economic Intelligence Unit, June 2017.

5,000 10,000 Transition Economies Middle East & Africa Latin America Asia & Australasia Western Europe North America Global 2020 2015

CAGR (2015-2020) 4.3% 4.3% 4.0% 5.0% 2.4% 4.2% 7.5%

0.0% 5.0% 10.0% 15.0% 20.0% US Switzerland Germany Sweden France Japan Canada Norway UK OECD35 Spain Italy Greece Poland Brazil Mexico Russia China India Turkey Indonesia

0% 50% 100% 150% 200% 250% Workers' Contribution to Family Premiums Health Insurance Premiums for Family Coverage Workers' Earnings Overall Inflation

Source: Fidelity International, Kaiser/HRET Survey of Employer-Sponsored Health Benefits, 1999-2015, Bureau of Labor Statistics, as of 31 December 2015.

Healthcare costs have risen much faster than inflation Increased emphasis on innovation and cost effectiveness

1999 2003 2007 2011 2015 17% 20% 75% 88% 31% 42% 138% 158% 42% 56% 203% 221%

Buying companies with innovation Innovation can be revolutionary or evolutionary

▪ Gene therapy ▪ Robotic surgery ▪ Targeted cancer therapies ▪ Genetic sequencing

Revolutionary Evolutionary

▪ Surgery: From open surgery → minimally invasive surgery ▪ Diabetes: From recurrent finger prick tests → continuous glucose monitoring systems ▪ Hearing Aids: From analogue → wireless connectivity Made for iPhone hearing aids ▪ Rheumatoid diseases: From regular monthly anti inflammatory infusions → daily oral pill therapy for the most common rheumatoid diseases $0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

US$ billions

Healthcare Computing and Electronics Software and Internet Auto Industrials Chemicals and Energy Aerospace and Defense

Est. ➔

Healthcare is one of the highest R&D spenders in the market

Source: Fidelity International, 2019, Capital IQ data. Thomson Reuters Eikon data, Strategy & Analysis.

0.0 0.5 1.0 1.5 $1 $10 $100 $1000 $10000 $100000 $1000000 $10000000 $100000000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Cost/Genome Genomes Sequenced

Today: ~1.5m ➔

Costs have come down materially… The Start of the NGS Story ▪ Precision medicine; targeted cancer treatments ▪ Early cancer routine screening ▪ Pre-Natal testing ▪ Newborn screening ▪ Population sequencing ▪ Life sciences research

Source: Fidelity International; Illumina, Inc. cited at https://www.forbes.com/sites/kenberman/2019/02/21/genome-sequencing-stocks-on- the-rise/#4f93f6071f51

Gene sequencing Rapid cost reduction and huge potential use

… which will lead to multiple, game changing applications

<0.01%

Species Sequenced

<0.01%

Human Genomes Sequenced

<1%

Variants in Human Genome Fully Characterized

# of Genomes (m)

A retrospective analysis of the OptumInsight commercial claims database (2013-2015) by Baker Tilly, LLP, at the request of Stryker, demonstrated that lower all-cause readmission rates associated with Mako Partial Knee procedures in the database population translated to 40% lower readmission cost @ 30 days and 66% lower readmission costs @ 90 days, compared to manual partial knee surgery – a savings per episode of $14,958 @ 90 days.

Mako - robotic assisted joint surgery Lower readmission rates = cost savings

Robotic surgery Improving outcomes and reducing readmittance rates

Source: Fidelity International, 2019 Episode Length 30 Days 90 Days Metric Readmission rate (%) Allowed per readmission (%) Readmission rate (%) Allowed per readmission (%) Non-robotic 1.10% 15,881 4.20% 25,286 Robotic assistance 0.70% 15,009 3.50% 10,328 % Difference 36.36% 872 16.67% 14,958 Overall readmission cost reduction 40% 66%

TAVR - moving aortic valve replacement from open-heart surgery to minimally invasive surgery Urology - moving treatment of an enlarged prostate from an inpatient operation to a day care procedure

Minimally invasive surgery Improving outcomes and lowering hospital / payor costs

Source: Fidelity International, 2019 From open heart valve repair requiring extensive in-patient stay…. …. To TAVR performed through a minimally invasive leg puncture where the patient can be discharged the next day …. To a water based treatment to decrease the prostate done in an

• utpatient clinic

…. From an invasive surgical procedure requiring an inpatient hospital stay and extensive morbidity/ discomfort

Gold Family Tree

Source: Fidelity International, 2019

Dad Other close family members Parkinson’s disease Deep Brain Stimulation Rheumatoid arthritis Pacemaker Haemochromatosis

Hearing Aids Hip replacement Dental implants Jaw plates Eczema Food allergies Psoriasis (mild) Short sighted Blood thinners Atrial fibrillation

Mum Alex Guy Hugo Edward Annabelle Charlotte

Past performance is not a reliable indicator of future results. Source: Fidelity International, Refinitiv Datastream as at 30 September 2019. All indices represent total returns (net) in Euro terms.

Historically a defensive sector vs the market Cumulative performance, EUR (%)

50 100 150 200 250 300 350 50 60 70 80 90 100 110 120 130 140 150 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Dec-17 Dec-18 Rebased to 100

MSCI ACWI Health Care Relative Performance MSCI All Country World Index (RHS)

+29% +12% +14% 30.09.14 - 30.09.15 30.09.15 - 30.09.16 30.09.16 - 30.09.17 30.09.17 - 30.09.18 30.09.18 - 30.09.19 5 years (p.a.) 10 years (p.a.) MSCI ACWI Health Care (%) 15.9 4.6 6.6 16.0 3.9 9.3 14.8 MSCI ACWI (%) 5.6 11.2 12.8 11.7 8.0 9.8 11.6 Excess Return (%) 10.3

• 6.6
• 6.2

4.3

• 4.1
• 0.6

3.3

Source: Fidelity International; Chart (Top LHS): Aperioncare, United Nations, 2017; Chart (Bottom LHS): Capital IQ, Thomson Reuters Eikon data, Strategy & Analysis; Chart (Top RHS): 1. World Industry Outlook, Healthcare and Pharmaceuticals, The Economic Intelligence Unit, June 2017; 2. OECD Health Statistics, November 2017; Chart (Bottom RHS): Refinitiv Datastream as at 30 September 2019. All indices represent total returns (net) in Euro terms.

Structural, long-term drivers Attractive industry

• utlook

Innovation drives new product cycles Healthcare is a defensive sector

#1: Healthcare is an attractive sector

Key messages Healthcare opportunities presented by the longevity economy

Source: Fidelity International, 2019

▪ Healthcare - structural growth driven by an ageing population: The sector has clear, long-term structural growth driven by demographics, changing lifestyles and Emerging market growth - all of which drive increased healthcare spend. ▪ A focus on Innovation to deliver better outcomes and help reduce costs: Rising healthcare costs place a strain on the system. It’s important to identify companies with innovation - both evolutionary and revolutionary - which can help reduce these costs. ▪ Focused on Quality and Growth: Selective stock picking gives investors access to the highest quality companies - not just large index positions in large cap Pharma & Biotech - with good returns, cash flow and growth prospects. ▪ A differentiated approach delivering superior risk-adjusted returns: Aligned to the focus on Quality is a focus on risk management which helps drive differentiated stock picking and sector allocations.

Important information

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