Atonra at the JP Morgan Healthcare Conference and CES Digital Health
20 January 2023
We recently attended these major conferences to know what industry leaders expect for healthcare in 2023 and beyond.
The 2023 outlook for the healthcare industry was mixed. The most discussed topics were value-based and hybrid care models, as they are long-term trends that shape a new infrastructure for care delivery.
In a nutshell, for the MedTech industry, growth is expected to accelerate through the year as macro dynamics stabilize and new products hit the market.
For the Biotech industry, a higher number of clinical readouts will drive the sector. Strong clinical readouts will be key to convince investors why it is worth taking the risk.
Two major conferences took place at the beginning of January in Las Vegas and San Francisco. First, the Consumer Electronic Show (CES) 2023, with a section dedicated to Digital Health with new product announcements, discussion panels, and keynote speeches. Second, the JP Morgan Healthcare conference hosted many industry leaders and emerging players who highlighted their 2022 accomplishments and unveiled their goals and expectations for 2023 and beyond.
Impact on our Investment Case
CES Digital Health
Digital Health was at the forefront of the Consumer Electronic Show (CES) 2023. The most significant trends and issues that were the subject of discussions and are seen as industry-shaping were:
- Centralization of data: Healthcare data represents one-third of all the data collected around the globe, yet healthcare providers aren't using 95% of that data to improve care. The challenge is to find a way to collect, analyze and use data on one common platform.
- Cybersecurity: Data protection is a significant issue, and Healthcare has been lagging behind other industries. The Health Insurance Portability and Accountability Act (HIPAA), introduced in 1996 as a series of regulatory standards to protect health information, has been increasingly unable to prevent health data from being shared beyond its confines. The Federal Trade Commission (FTC) aims to fill this gap and has been exploring rules to protect healthcare data (Healthcare Data Bridge Rule, Health Bridge Notification Rule, etc.), especially for devices not covered by HIPAA, such as apps and fitness tracking wearables.
- Hybrid care model: Insurances are focusing on creating a hybrid model that combines digital with in-person care. More holistic and accessible care leads to better outcomes.
- Value-based care: One of the most important trends in healthcare is the implementation of value-based models, in which healthcare providers are paid based on outcomes, not the volume of services rendered.
- AgeTech: 50+ years old population contributed $45tn to the global GDP in 2020, which is expected to grow to $118tn by 2050. Technology must be designed to meet the needs of older adults. Healthy aging is the next growth industry.
- Future of in vitro diagnostics: Leaders are working on more at-home tests and new diagnostics that can be used for different diseases simultaneously. Adoption of at-home tests has been accelerated by Covid-19, which required millions of people to be trained to do a multi-step at-home diagnostic.
- Going after B2C before B2B: Emerging companies will test business-to-consumer first to gain data and improve accuracy before pivoting to business-to-business models and going after regulatory approvals (following Fitbit's (part of Alphabet) approach).
The key innovations and new devices presented were:
- Self-fitting hearing aids: In the U.S., new FDA regulations passed this year improve access to the devices; hearing aids can be purchased without a prescription. Key companies: EARGO.
- Non-invasive continuous urinalysis mounted on the toilet: The device measures red blood cells, proteins, ketones, Nitrite, and pH, among other parameters that can be sent to the doctor for analysis or to a smartphone app (offering suggestions like workouts, dietary changes for disease prevention). Key companies: Vivoo, Olive Diagnostics.
- Digital twins for healthcare models: Surgeons can create digital twins of patients using data from standard medical scans to plan an operation precisely. Key companies: Abyss Global, Dassault Systemes.
- Consumer wearables: Abbott announced its new line of consumer biowearables, Lingo, a device designed to track biomarkers such as glucose, ketones, and lactate to help people better understand their general health and optimize exercise and diet.
- Unified platform for virtual care: Teladoc introduced an app that gives users one login and one platform to access its complete primary care, mental health, and chronic care offerings in English and Spanish (an important community in the U.S.).
JP Morgan Healthcare Conference
Industry leaders and executives talked about the value of their innovations and what to expect for 2023 and beyond.
- Recession: While the worries of a potential recession could overshadow the markets, the healthcare sector could outperform, supported by resilient demand and clinical as well as commercial catalysts.
- On preannounced 4Q22 financial results and 2023 guidance: Overall, despite the recent improvement in procedural volume trends, executives have taken a prudent approach toward guidance and embedded some conservatism to account for a continued challenging macro backdrop. This derisked starting point could enable future beats and raises, supported by procedural volume improvements and new product launches.
- Staffing shortages: According to executives, global labor shortages have stabilized. Despite the improvements, staffing shortage is likely to remain a long-term issue for the industry. This challenge could represent a tailwind for players that can automate and drive client efficiency. Omnicell and Health Catalyst are working on solutions to support hospitals with labor shortages.
- Capital equipment trends: Key players are observing elongated sales cycles as providers more closely scrutinize spending. In addition, Covid-19 cases in China could create some near-term volatility. However, systems that allow for an increase in procedural volumes in hospitals remain a priority in hospitals’ capital budgets.
- About M&A: activity could pick up this year with a preference for small, mid-sized bolt-on deals. Zimmer, Abbott, Medtronic, and Evolent expressed their interest in small-sized acquisitions. Telemedicine for mental health is likely to see some consolidation.
- Key product launches: Dexcom’s G7, Treace Medical’s Micro-incision system, Inspire’s Inspire 5 system, Penumbra’s Lightning Flash mechanical thrombectomy system, Shockwave Medical’s M5+, L6, and C2+, Nevro’s HFX iQ system.
- Sequencing: Illumina’s competition is mounting. Element Biosciences announced a $200 genome. Liquid biopsy has been pointed out as the underlying growth driver of short-read sequencing. In the long-read sequencing space, Pacific Biosciences is seeing strong orders for the Revio system.
- Care management: M&A is likely to remain a key driver for the sector. Hybrid care models look attractive for healthcare providers, and the combination of telehealth and value-based care services with traditional care models has accelerated. Recent speculations regarding CVS’s possible acquisition of Oak Street Health confirm the appetite for the sector.
- Liquid biopsy: Most relevant announcement coming from Guardant Health, the company is updating its Guardant Health Reveal on the Smart Liquid Biopsy platform (100X broader panel including epigenomics), which could lead to a >5x improvement in sensitivity for the same price. Meanwhile, 4Q22 results show that SHIELD is currently receiving strong demand despite a recent disappointing clinical readout.
- In Vitro Diagnostics: “Tripledemic” testing could offset Covid-19 testing volumes (that have kept going down sequentially throughout the year).
- What could flip the script in 2023? Convincing clinical data is needed more than ever to revive investors’ confidence and draw the attention of big Pharmas. 2023 is set with many upcoming clinical milestones: the first gene therapy approval for Duchenne Muscular Dystrophy, the first CRISPR approval, the first U.S. approval of an allogeneic T-cell therapy, the potential approval of about 20 cell and gene therapies, and more.
- From clinical to commercial success: Key 2022 clinical milestones/approvals could soon become big potential launches; Madrigal’s resmetirom for NASH, Biogen/Eisai’s Lecanemab for Alzheimer’s, Karuna Therapeutics’ KarXT for negative symptoms of schizophrenia, Biomarin’s Roctavia, the first-ever gene therapy for treating severe hemophilia A, Alnylam’s Patisiran for AATR amyloidosis with cardiomyopathy.
- Gene editing: Gene editing is under the spotlight, as 2023 could see the first FDA approval of a CRISPR gene editing for Sickle cell disease and β-thalassemia by Vertex Pharmaceuticals and CRISPR Therapeutics.
- Genetic medicine: 6 cell and gene therapies have been introduced to the U.S. and E.U. markets last year, and more, targeting rare diseases such as Hemophilia A, B, Duchenne Muscular Dystrophy, and Sickle Cell Disease, are on the horizon; Sarepta Therapeutics’ SRP-9001 could become the first gene therapy for Duchenne muscular dystrophy.
- Other key studies to watch: Neurologic disorders, obesity, and viral infections could hit the headlines this year. Examples of most awaited clinical readouts: Acadia’s trofinetide for Rett Syndrome, Novo Nordisk’s Wegovy trial for cardiovascular outcomes, Alnylam’s ALN-APP for Alzheimer’s Disease and Cerebral Amyloid Angiopathy, Moderna’s mRNA-1010 for seasonal influenza vaccine and mRNA-1647 for CMV vaccine.
- About M&A: M&A is still in the cards, on one side, the innovative biotech sector needs more money, given its expensive pipeline, and on the other side, cash-rich Pharmas need innovation as they navigate the uncertainty of the Inflation Reduction Act (IRA) and patent cliffs. During the conference, Amgen, Merck, Gilead, Johnson & Johnson, Biogen, Pfizer, and Moderna reiterated their interest in revamping their pipelines.
The long-term potential of innovation in the medical field is not questionable. Patients are waiting for life-changing, lifesaving treatments, and healthcare companies are creating products that fill this need. Both conferences provided us with more visibility, and overall, we are pleased with the tone given by executives and industry leaders for the year and beyond.
At Atonra, by attending major conferences such as these, we maintain a broad spectrum of contacts in the research, academic and industrial fields that help us better understand market trends as well as the fundamentals of any topic within our circle of competence. And, of course, we deploy this knowledge in the construction of our portfolios. Both our Biotech 360° and Bionics strategies are well exposed to the key trends and innovations presented in this note.
Companies mentioned in this article
Abbott (ABT); Abyss Global (Not listed); Acadia (ACAD); Alnylam (ALNY); Alphabet (GOOGL); Amgen (AMGN); Biogen (BIIB); Biomarin (BMRN); CRISPR Therapeutics (CRSP); CVS (CVS); Dassault Systemes (DSY); Dexcom (DXCM); EARGO (EAR); Eisai (4523:Tokyo); Element Biosciences (Not listed); Evolent (EVH); Gilead (Not listed); Guardant Health (GH); Health Catalyst (HCAT); Illumina (ILMN); Inspire (INSP); Johnson & Johnson (JNJ); Karuna (KRTX); Madrigal (MDGL); Medtronic (MDT); Merck (MRK); Moderna (MRNA); Nevro (NVRO); Novo Nordisk (Not listed); Oak Street Health (OSH); Olive Diagnostics (Not listed); Omnicell (OMCL); Pacific Biosciences (PACB); Penumbra (PEN); Pfizer (PFE); Sarepta Therapeutics (SRPT); Shockwave Medical (SWAV); Teladoc (Not listed); Treace Medical (TMCI); Vertex Pharmaceuticals (VRTX); Vivoo (Not listed); Zimmer (ZBH)
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