Health care industry players that focus on developing essential vaccines and therapies are rightfully gaining widespread visibility amid the global pandemic. However, we’re closely watching a set of more niche, under-the-radar health care innovations that hold potential for addressing highly specific and urgent needs in the battle against COVID-19. In this blog post, we’ll tell the stories of four themes that can improve the health of our society and economy while offering potential opportunities for investors.
- Rapid testing devices for clinical point-of-care centers
- Innovations for getting patients in and out of hospitals quickly
- The rise of telemedicine in and beyond the pandemic
- Portable testing capabilities for the home and workplace
Rapid testing devices for clinical point-of-care centers
Before a vaccine and/or better therapeutic options become available, testing and tracing will be one of the most critical functions we can perform as a society in order to find and isolate the COVID-19 virus. Weekly testing in the U.S. more than doubled to over 2.8 million tests per week between April 24, 2020, and May 24, 2020, according to the COVID Tracking Project.
As this important statistic ticks upward, new testing technologies are starting to emerge, as are promising innovations from the health care sector.
We continue to see a clear need for rapid diagnostic testing and accurate results, coupled with real-time data feeds alerting citizens to certain hot zones of the country. In our view, companies like Quidel Corporation and its 36,000-plus Sofia rapid point-of-care systems are a critical part of the story. The Sofia devices can test patients and turn around results in under 15 minutes. We see three potential benefits to this technology:
- Speed: The Sofia test’s rapid results will be important for identifying and isolating exposure right away, versus waiting 24 to 48 hours for the results.
- Insights: Through data sharing and alerts, the technology can help medical professionals explore ways to understand and potentially curb the virus’ spread.
- Versatility: The test will also feature a panel that can test for three other viruses—flu, cold, and strep throat—as COVID-19 starts to compete with them in the fall.
Medical device maker Hologic has also contributed significantly to recent testing volume increases with its 1,800 Panther machines that are currently in use globally. According to the company’s website, Panther systems provide results in roughly three hours and process more than 1,000 coronavirus tests in 24 hours.
Innovations for getting patients in and out of hospitals quickly
Another important theme we’re monitoring is the continued need for medical treatments that can limit patients’ exposure to COVID-19, and enable hospitals to turn around their operating rooms to combat other diseases that have not slowed down during quarantine.
As hospitals strive to manage capacity for patients with and without COVID-19, minimally invasive procedures can make a difference. For example, Intuitive Surgical’s robotic procedures can offer faster recovery and less time spent recovering in the hospital, versus traditional surgical methods across a number of the approved procedures (including prostatectomy, hysterectomy, and hernia surgery). We see two key strengths to this approach:
- Social distancing is already built into the robotic procedure, as the doctor sits away from the patient while operating.
- The company’s business model offers flexible payment terms for leasing and buying. This can enable cash-strained hospitals to continue advocating innovative methods to reduce hospital exposure for patients and doctors alike.
Intuitive Surgical had already been taking share from traditional procedures and we believe COVID-19 could potentially accelerate adoption of its technologies and other companies’ minimally invasive procedures, as the economy starts to open back up.
The rise of telemedicine in and beyond the pandemic
One of the most well-known examples of health care innovation in quarantine life is the use of telemedicine capabilities, whose adoption accelerated recently due to the U.S. government’s measures to limit HIPAA penalties and allow other forms of video communication to be used in treating patients, such as FaceTime and Skype. As we watch this space, three statistics have drawn our attention:
- Telemedicine is expected to become a $186 billion market by 2026, driven by the surge in product adoption due to the coronavirus outbreak, according to Fortune Business Insights’ May 2020 Telemedicine Market Size, Share and Industry Analysis
- More than two-thirds (67%) of executives have said they expect their telemedicine use will increase by five times pre-COVID-19 levels, as reported in the Healthcare Financial Management Association’s COVID-19 Hospital & Health System Survey (May 2020).
- Teladoc Health—the main player in this field—has seen its daily medical visits increase 100% to approximately 20,000 visits per day since the start of shelter-in-place orders.
We believe telemedicine is here to stay, and we’re encouraged by the recent pipeline of innovation in the category.
Case in point: Leading electronic medical record provider Epic Health—which manages the health records of over 250 million people—has started its own telemedicine business powered by Twilio’s programmable video service. The software solution allows providers to conduct virtual visits with patients while reviewing their history and updated clinical information. We believe that hidden telehealth players like Twilio—which provide the technology that health care firms can use to adopt telehealth capabilities—are becoming interesting ways to play the rising telehealth tide.
We believe health care will continue to be a regional business model supported by local doctors treating local patients. The emergence of new telemedicine technologies may prove helpful to patients who continue looking for ways to improve appointment convenience, prescription ordering, and access to doctors. Moreover, the health ecosystem that treats patients through devices and therapies will need a successful telemedicine presence to keep up with the evolving trends that shelter-in-place measures accelerate.
Portable testing devices for the home and workplace
As we assess existing sector players’ impact on the pandemic, we’re also watching for the next wave of innovation. On our radar: Companies that could develop testing capabilities for use at home or in the workplace based on fast, inexpensive, and portable equipment.
For an idea of how such devices could work, think of the glucose detectors that diabetes patients use to monitor blood sugar levels. Applied to COVID-19, a machine of that type could allow for on-premises testing without the delays of sending samples to a laboratory. As businesses reopen, these innovations could become indispensable, for example, allowing for rapid employee testing at the beginning of each workday.
Could we see a product like this enter the marketplace?
We view Abbott’s ID NOW technology as a realistic prototype, given its ability to provide COVID-19 viral tests within minutes. At this point, however, Abbott’s scale of production for ID NOW is limited to about 5,000. Meanwhile, the device’s accuracy is somewhat low at about 85% according to a recent Cleveland Clinic study.
Granted, this does not mean that another health care firm can’t improve on Abbott’s scale and quality, if Abbott doesn’t accomplish this itself.
Takeaways for investors
As businesses and economies start back up, patients will face a challenging set of choices, including how to stay safe while also receiving treatments for non-COVID-19-related health issues. Along these lines, we’ve been seeing a continued focus on improving patient outcomes through faster, safer, and more convenient options—and we believe this trend should continue to accelerate as U.S. states begin the path back to our new normal. These changes were happening prior to the pandemic, but they’re becoming more pronounced and likely will continue.
- From an equity viewpoint, we believe in growth-oriented companies that are on the “right side of change,” meaning they are built to enable and position their businesses to capture accelerating changes brought on by the pandemic. In the context of COVID-19, these attributes have never been more important. By applying strong fundamental research to these changes, we think there’s potential to capture significant alpha.
- From a high-yield viewpoint, we believe that, as governments attempt to bring the economy back to normal, investors might try to capture this transition’s upside though securities’ appreciation, while balancing against the risk of a possible second COVID-19 wave later in 2020. We do not believe a full resolution of the pandemic—in healthcare and economic contexts—is possible until the virus is fully defeated through a vaccine or a cure. Both of these solutions may be multiple months away, with a realistic delivery unlikely before we’re well into 2021. From this standpoint, it is clear that investors need to exercise extreme caution when investing.
About the authors:
Fundamental Growth Equity Team, Wells Fargo Asset Management (WFAM)
- Tom Askey, CFA, Senior Equity Research Analyst
- Michael T. Smith, CFA, Senior Portfolio Manager
- Christopher Warner, CFA, Senior Portfolio Manager
U.S. High Yield Fixed Income Team, WFAM
- Alex Basman, Senior Analyst
We recently hosted an exclusive conversation with Dr. Jennifer Nuzzo and Dr. Caitlin Rivers, two leading scientists from Johns Hopkins’ renowned Center for Health Security active in coronavirus response efforts. Listen to the call or read the transcript.
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