Tuesday 23 Apr 2024
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This article first appeared in Personal Wealth, The Edge Malaysia Weekly on October 7, 2019 - October 13, 2019

Roman poet Virgil said 2,000 years ago that the greatest wealth is health. He may have meant this quite literally with the wellness and self-care economy emerging as a powerful investment opportunity today.

The fact that we are living and working longer, are having less sleep and are generally more stressed and unhappy as a result of socio-political upheavals and economic difficulties has contributed to our worsening state of well-being. However, these factors have created a huge demand for physical, mental and spiritual solutions — the key drivers of the wellness economy, which was worth US$4.2 trillion in 2017, according to last year’s edition of the Global Wellness Economy Monitor published by the Global Wellness Institute (GWI) in the US.

Investors are certainly becoming aware of a secular shift in consumers’ behaviour, says Jay Jacobs, head of research and strategy at US-based Global X Funds, an exchange-traded fund (ETF) provider, in an email interview. Research findings indicate that consumers are placing a greater emphasis on actively improving their health by eating better and getting more exercise, he adds.

Some of the factors driving this shift are changes in consumption trends as the younger demographics — led by millennials — have demonstrated a high affinity for healthy lifestyles and conscious consumerism. Another facet, albeit one that is less heartening, is healthcare inflation.

Citing in-house research data, Jacobs points out that a quarter of Americans in the 25 to 34 age group say they are vegans or vegetarians. The effect of this preference has been so profound that The Economist has aptly proclaimed 2019 as the year of the vegan.

“Furthermore, more than half of parents who consume organic food are millennials — a number that is expected to surge over the next few years. This is impacting where they shop, what food they buy and which restaurants they go to,” says Jacobs.

Machine intelligence platform CB Insights says wellness has become a kind of religion for some consumers, leading to an increase in non-traditional solutions for healthier, happier and more balanced lifestyles.

As conscious consumerism grows, businesses are buying into this trend, says Jacobs. “According to Impossible Foods Inc, plant-based meat replacements that replicate the taste and feel of beef have a carbon footprint that is 89% smaller than a burger made from real beef, use 87% less water and 96% less land, as well as cut water contamination by 92%.

“Then, there is the growing cost of healthcare. Ageing populations around the world and rising drug development costs continue to push the cost of healthcare higher, motivating people to proactively find ways to prevent diseases.”

These factors tally with the findings of GWI. The global wellness industry grew 12.8% to US$4.2 trillion in 2017 from US$3.7 trillion in 2015.

In the economic context, the wellness industry grew 6.4% annually, nearly twice as fast as the global economy’s growth of 3.6% in 2017. The wellness industry now represents 5.3% of global economic output.

After analysing 10 wellness markets, the GWI report concluded that these were their growth rates: spa industry (9.8%); wellness tourism (6.5%); wellness real estate (6.4%); thermal/mineral springs (4.9%); workplace wellness (4.8%); fitness and mind-body (4.8%); personal care, beauty and anti-ageing (4.1%); healthy eating, nutrition and weight loss (4.1%); preventive and personalised medicine and public health (3.7%); and traditional and complementary medicine (formal growth rate not be provided).

In the report, GWI senior research fellow Katherine Johnston said wellness — the quality or state of being healthy — has evolved “from rarely to daily, from episodic to essential, from a luxury to a dominant lifestyle value”. “That profound shift is driving powerful growth,” she added.

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

Malaysia’s wellness industry, particular the spa business, is expected to contribute about RM400 million to the gross national income by 2020 while creating 3,500 new jobs.


Growth potential of ‘happiness economics’

The real beneficiaries of this boom are the technologies that are not just enabling the fitness frenzy but also upping the ante on improving wellness offerings under the banner of digital health.

“Healthcare, broadly speaking, is just about the last market to be disrupted by technology,” says Jun Deng, an investment partner at US-based Joyance Capital Partners. The venture capital firm invests in early-stage start-ups in the healthcare sector and companies that deliver “delightful moments”.

The firm has invested in a range of technologies — in fields such as genetics, neuroscience, virtual and augmented reality, food sciences and interactive technologies — that help individuals have a happier life, which in turn leads to better health. “These areas of science constitute powerful technology vectors of happiness,” says its website.

Deng points out that technological advancements in healthcare has been slow historically and that is the reason market opportunities have become more apparent in the last decade. “It is only now that technologists and engineers realise that there are tons of avenues disrupting this segment,” she says.

Digital health — a concept where technology is harnessed to help improve individuals’ health and wellness — is a broad sector, says Deng. It encompasses everything from robots, wearable gadgets and sensors to mobile health applications and artificial intelligence (AI).

According to Deng, the global digital health market’s revenue is envisaged to grow to US$536.6 billion by end-2025 from US$196.3 billion in 2017 — a compound annual growth rate of 13.4%. The segment is gaining a strong impetus because there are now diverse exit paths for investors, as opposed to a stock-market listing or an acquisition, she says.

“It is kind of early to talk about exits because this is a young market. Traditionally, when medical device companies raise funds, it is through an initial public offering. But for digital health companies, there are the options of merging with other healthcare start-ups, forming strategic partnerships with private equity firms and even considering an acquisition by a big technology company,” she adds.

“Also, investors are seeing more validation as these companies cross more milestones, like receiving reimbursements [returns on investment] and heeding regulatory standards. In terms of business models, these companies have validated business-to-business models and business-to-consumer models. This validation is driving more investments.”

Technology has opened up secular growth opportunities in health and wellness, says Jacobs. “For example, Internet of Things-enabled medical devices can now gather, store and analyse all kinds of medical information that are critical to a patient.

“Some wearables track heart rates, calories burnt, steps walked and even glucose and insulin levels. For example, for a diabetes patient, a continuous glucose monitoring device that tracks glucose levels throughout the day allows him to make better treatment decisions and better understand the impact of the food he eats and the workout needed.

“The information can then be shared with family members and doctors. Using a connected device to collect real-time information introduces a revolutionary approach to glucose monitoring, as opposed to the previous method of pricking one’s finger a few times a day. Access to real-time data can alert patients and doctors to take necessary actions much sooner than through intermittent processes.”

Companies that stand to benefit from this theme are those that provide products and services aimed at promoting wellness such as fitness equipment and technology, athletic apparel, nutritional supplements, and organic or natural food offerings, he adds.

Global X’s Health & Wellness Thematic ETF (BFIT) is expected to grow at an annualised rate of about 8%, says Jacobs. He adds that the estimate appears to be low compared with some of the high-growth earnings results from leading athleisure firms and the sales growth of wearables.

The ETF, which is listed on the Nasdaq, tracks 63 stocks on the Indxx Global Health & Wellness Thematic Index. It gives investors exposure to companies listed in developed markets that provide products and services aimed at promoting physical wellness through active and healthy lifestyles. As at June 30, the fund had net assets of US$17.75 million.

BFIT was trading at US$20.13 (RM84.45) per unit on Sept 30 and had given a return of 9.47% over three years and 3.25% over one year. It mainly invests in companies that manufacture athletic wear and fitness equipment such as UK-based JD Sports Fashion plc, Germany-based Puma SE, China-based ANTA Sports Products Ltd and US-based Lululemon Athletica Inc.

Meanwhile, Joyance has invested in an extensive portfolio of US-based healthcare technology companies, including FIGUR8 Inc, Lark Technologies Inc and Thryve Inc.

FIGUR8 is a diagnostics platform that has created the first real-time analysis of body movement control. Its technology captures three-dimensional skeletal movements in conjunction with muscle output to help trainers, therapists and physicians objectively measure musculoskeletal performance and recovery.

Lark uses AI to provide scalable healthcare for people struggling with, or at high risk of, chronic disease. The platform has built-in AI nurses to provide personalised wellness coaching all year round for diseases such as diabetes and hypertension. Meanwhile, Thryve is a company that focuses on gut health and incorporates personalised probiotics and microbiome testing.

Deng says Thryve and Lark are led by remarkable entrepreneurs and these companies are in the areas her firm focuses on. “Thryve is a great business as it stands but it is also a step toward entirely personalised microbiome treatments. Lark delivers care that people desperately need right now, in a way that fits right into to current practices but also shows a way toward entirely new models of digital care. That combination of current value and even bigger potential attracted us to these two companies.”


Not a fad

Unlike industries that are driven by demand, the trend of incorporating personalised health data into our daily lives is not going away anytime soon, says Deng. “It is not just hype. Otherwise, we would not be investing in this theme.

“This year, we have seen that nearly 60% of the investments in digital health were committed by repeat investors, which shows that the investment community has confidence in this market.”

However, as it is with all types of investments, knowing the risks associated with the sector is crucial to investing successfully. From a venture capital point of view, the most common risks associated with investing in start-ups are that the top ones are running out of money, others are beleaguered by weak leadership and there is a lack of product market fit, says Deng.

She adds that domain expertise plays a big role in the digital health segment. “The healthcare industry is very complex and is definitely in need of domain experts who know how the system works. You need to have a co-founder who really understands health technology and the healthcare industry and have a realistic timeline of how long it will take to achieve the milestones.”

Intellectual property protection is also paramount as technologies in the digital health segment are not as fortified as opposed to knowledge protection in the biotechnology or nanotechnology fields. “A lot of the time, it is how much you understand the market, the customers and the business model, as well as having first mover’s advantage. It is also knowing who can really assist the market fast and provide a flawless platform to the customers,” says Deng.

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