RBC: Buy these 25 healthcare-tech stocks to reap the benefits of the US digital health industry, which is estimated to reach $92 billion by 2025 and has been accelerated by 5 years because of COVID-19

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Moderna announced on Monday that its vaccine was 94.5% effective in a preliminary analysis, just a week after Pfizer and BioNTech said their vaccine was over 90% effective. Both vaccines use a new technology called messenger RNA

The vaccine development is not only a sign of the untapped opportunities in the $7 trillion global healthcare industry but also of the vast potential from the convergence of tech and healthcare. 

According to RBC estimates, digital health companies — defined as those integrating digital technologies within and across the traditional healthcare ecosystem — comprise a $27 billion industry today that is expected to reach $92 billion in 2025. 

Historically, the healthcare industry has resisted tech disruptions due to hurdles such as complexity, multiple payers with a focus on cutting costs, regulations, a fragmented consumer base, and the tendency of healthcare organizations to maintain the status quo. 

However, technological advancements such as artificial intelligence, machine learning, and cloud computing, as well as consumer behavioral changes over the years, have slowly aided the rise of the digital health industry. But it is none other than the COVID-19 pandemic that has been able to “digitally accelerate” the trend by as much as five years, RBC said in a research note on Thursday. 

“Growing capital, record private investment and a healthcare environment that has been digitally “accelerated” by COVID -19 have collectively brought focus back to digital opportunities,” said a team of RBC global equity analysts in the note.

They added: “The cash balances at the big technology companies are now at record levels and record levels of private investment flowing into new start-ups has increased the capital targeting the digital adaptation. That should serve to accelerate the shift in healthcare while at the same time introducing a new class of healthcare tech companies to the market.”

Indeed, while there is no clear-cut winner in the digital health space right now, a variety of players stand to benefit from the accelerating trend.

From the big-five tech companies to the incumbent healthcare firms and digital healthcare startups, they could either create innovative technologies, leverage relationships in the sector, or deploy capital strategically to position themselves for the opportunities ahead, according to the note. 

To be sure, as the healthcare-tech convergence evolves, there could still be developments that either accelerate the trend further or disrupt the trend itself. 

RBC analysts noted three of the most likely “surprises” that could potentially rattle the convergence, including: (1) the potential of a large healthcare acquisition by big tech similar to Amazon’s purchase of Whole Foods to break into the grocery space, (2) a new “workplace” healthcare system developed by big tech for its employees with an attempt to scale it externally, and (3) the combined use of a digital app and an existing drug to extend its patent life, such as connecting an inhaler with an app that records patient data. 

So what does this all mean for healthcare and tech investors? RBC analysts believe that investors should evaluate this new group of digital health companies differently. They shared two trends to watch. 

“Despite a traditionally higher tech valuation over healthcare, big tech companies have seen P/E expansion of >60% over the last two years and now an ~87% premium to healthcare which has remained flat — we believe the increasingly ‘tech-like’ attributes of these emerging healthcare companies could catalyze similar significant multiple expansion ahead,” the analysts said in the note.

They continued: “Our Digital Health Index has returned a hard to ignore ~194% over the last ~year versus 63% for big tech and 18% for the S&P500.”

The analysts also mapped out the 25 publicly traded companies in the digital health space. Their tickers, market capitalization, and descriptions are listed below. 

1. Schrodinger $SDGR



Ticker: SDGR

Market cap: $4.02 billion

Description: “The company provides chemical simulation software solutions to pharmaceutical industry. It operates through the Software and Drug Discovery business segments. The Software segment sells software to transform drug discovery across the life sciences industry, as well as to customers in materials science industries.”

2. iRhythm Technologies $IRTC



Ticker: IRTC

Market cap: $7.53 billion 

Description: “iRhythm Technologies, Inc. engages in the development of monitoring and diagnostic solutions for detection of cardiac arrhythmias. It offers Zio XT, is a wearable patch-based biosensor, continuously records and stores ECG data from every patient heartbeat for up to 14 consecutive days; and Zio AT, also provides ECG data but also provides physicians with actionable notifications during the wear period.”

3. DexCom $DXCM



Ticker: DXCM

Market cap: $32.29 billion 

Description: “The company is a medical device manufacturing company. The firm engages in the design, development and commercialization of glucose monitoring systems for ambulatory use by people with diabetes. Its products include Dexcom G4 PLATINUM System, DexCom G5 Mobil, DexCom Share and Mobile apps.”

4. Abbott $ABT



Ticker: ABT

Market cap: $199.37 billion

Description: “Abbott’s FreeStyle Libre14 day Flash Glucose Monitoring systems are continuous glucose monitoring (CGM) devices indicated for replacing blood glucose testing and detecting trends and tracking patterns aiding in the detection of episodes of hyperglycemia and hypoglycemia, facilitating both acute and long-term therapy adjustments in persons (age 18 and older) with diabetes. The systems are intended for single patient use and require a prescription.”

5. Best Buy’s Great Call $BBY



Ticker: BBY

Market cap: $29.55 billion 

Description: “Best Buy has begun to carry a number of in-home devices that enable better health monitoring, and now with its 2018 acquisition of GreatCall is providing elderly individuals with connected devices that enable them to remain independent and living in their own homes for longer. The specialized cellphones and wearables and the supporting connectivity enables more streamlined communications between the elderly and their caregivers.”

6. Lyft $LYFT



Ticker: LYFT

Market cap: $11.91 billion 

Description: “The rideshare company recently created a business to business platform that enables a ride to be summoned on behalf of a patient without that person having to use the Lyft app. This means the sponsoring organization (the health provider, health system or health plan) can arrange and pay for rides for their members to facilitate easier transportation for them to-and-from their healthcare appointments. This not only can reduce the number of appointment “no shows”, but because individuals are then getting more regular care, reduces the risk of them having a more acute adverse event (so lowers LT medical costs), and increases member satisfaction (since they are not having to take public transportation or wait for some other type of group transport).”

7. Uber $UBER



Ticker: UBER

Market cap: $83.93 billion 

Description: “Uber has also developed programs that enable flexible ride-scheduling options to get patients to and from medical appointments. Notably, Uber has also built a direct integration into Cerner’s electronic health record (EHR), making it easier for providers to facilitate and pay for the bookings.”

8. Teladoc Health $TDOC



Ticker: TDOC 

Market cap: $26.51 billion 

Description: “Teladoc is the world’s largest provider of virtual healthcare services. Its core general medical telehealth offering replaces low-acuity, in-person physician office (or urgent care, and/or ED) visits with a live “virtual” (video or phone) consultation. This ‘virtualization’ not only saves money (the average TDOC visit runs ~$50 vs. $150- 200 for a typical in-office visit), but is also far more convenient for the patient, who never has to leave their home or workplace.”

9. Amwell $AMWL



Ticker: AMWL 

Market cap: $5.53 billion 

Description: “Amwell supplies hospitals and health systems the infrastructure necessary to establish their own in-house virtual offerings. AMWL’s white-label platform is highly customizable allowing it to be deployed across a wide range of use-cases. It also offers devices/hardware that enable providers to address higher-acuity conditions (i.e. strokes). Under its umbrella also sits a large physician network (5,000+ docs) that enables it to supplement the provider capacity of its clients when demand necessitates.”

10. Amazon Care $AMZN



Ticker: AMZN 

Market cap: $1.568 trillion

Description: “In September 2019, Amazon launched a pilot program for its employees (and their families) in the Seattle area that offered a combination of virtual health and in-person care. The services are available via its app and range from in-app text messaging and video calls with a Care Medical (a Seattle-based medical group) provider to mobile nurses that can be dispatched to the individuals home or workplace in the event lab samples need to collected, other tests need to be performed, and/or vaccines or other treatments need to be administered. As of July 2020, the company has now scaled this further, making it available to all of its employees across the entire state of Washington.”

11. Microsoft $MSFT



Ticker: MSFT

Market cap: $1.635 trillion 

Description: “MSFT also has its own AI-powered healthcare bot that recently gained more traction due to its COVID-screening capabilities. Both insurers and providers use the bot to do things such as check claims statuses, answer benefit questions, triage issues via a symptom checker, and help patients find appropriate care settings.”

12. SOC Telemed $TLMD



Ticker: TLMD 

Market cap: $211 million 

Description: “The company is one of the largest providers of acute telemedicine services in the United States. Formerly known as Specialists on Call, SOC initially began as a network of acute-care specialists that offered telemedicine consultations to understaffed hospitals and health systems. It has since built out its own software platform (Telemed IQ), which is sells directly to providers. Telemed IQ enables health systems to establish their own in-house programs, and when needed, can lean on SOC’s employed doc network to supplement its own internal capacity.”

13. Target’s Shipt $TGT



Ticker: TGT

Market cap: $81.46 billion 

Description: “Shipt has a technology platform designed to connect members with local shoppers (drivers) that will go purchase requested items and deliver them to members. Shipt, a subsidiary of Target, is not specific to prescriptions, but does have a partnership with CVS to offer prescription delivery within a day or two for free or same-day for a fee. In addition, there are smaller companies, such as ScriptDrop that deliver exclusively on behalf of local pharmacies.”

14. GoodRx $GDRX



Ticker: GDRX 

Market cap: $18.41 billion 

Description: “A consumer-focused price transparency tool that aggregates retail drug pricing data and presents it to consumers in a way that helps them find the lowest-price pharmacy at which they can get their prescriptions filled. The company also has several other offerings including programs that help individuals find discount or assistance programs for any higher-priced/branded drugs they are taking, an in- house telehealth service and telehealth marketplace, and a premium subscription service for individuals taking multiple chronic condition meds.”

15. eHealth $EHTH



Ticker: EHTH 

Market cap: $1.85 billion 

Description: “A leading online health insurance marketplace that aggregates complex information for more than 10k health plans across 180+ companies and presents them in a digestible way for individuals, families, and businesses to make more informed purchasing decisions. Over time, EHTH has also developed algorithms that give users data-driven recommendations. Beyond plan selection, EHTH’s platform also supports online applications, payments, and direct data interchange with insurance carriers.”

16. HealthEquity $HQY



Ticker: HQY

Market cap: $5.2 billion

Description: “The company equips consumers with financial tools to optimize their healthcare savings and spending. It does this primarily through its administration of Health Savings Account (HSA) and a multitude of other consumer directed benefits (CDBs), including flexible spending accounts (FSAs), health reimbursement accounts (HRAs), commuter accounts, and COBRA – which provides healthcare coverage for those recently unemployed.”

17. Ontrak $OTRK



Ticker: OTRK 

Market cap: $967.07 million

Description: “OTRK’s programs help payers both reduce costs and improve the health of some of their most expensive and difficult-to-engage members—those with both chronic medical conditions and behavioral health issues. Its solutions involve a combination of predictive analytics and human interaction to identify health plan members who are not receiving proper behavioral healthcare and pair them with a care coach who establishes a tailored treatment plan, the idea being that helping to address the member’s behavioral health issues also helps to lower that member’s overall healthcare costs.”

18. Cerner $CERN



Ticker: CERN

Market cap: $23.11 billion

Description: “Since electronic health records (EHRs) are the software systems providers use to both document a patient’s clinical data and help guide them through each of the various interactions, they make a great place to embed tools to help care team members make more accurate diagnoses and develop more effective treatment plans. CERN has built and layered multiple of these into provider workflows to help improve both clinical and financial outcomes.”

19. Tabula Rasa $TRHC



Ticker: TRHC 

Market cap: $822 million 

Description: “Using a combination of data science and a proprietary base of scientific knowledge around how various drugs are metabolized, Tabula Rasa has built a set of tools that help assess the risk of an adverse drug event based on an individual’s medication regimen. The heart of its platform is its proprietary Medication Risk Matrix (MRM) that uses a novel approach to scientifically analyzing (i.e. risk scoring) an individual’s drug regimen based on projected multi-drug and drug-gene interactions.”

20. Health Catalyst $HCAT



Ticker: HCAT 

Market cap: $1,46 billion 

Description: “The company provides data & analytics solutions and complementary services to predominantly U.S.-based health systems that help drive improvements across their clinical, financial and administrative functions. The core of its offering is its DOS data platform, on top of which sits a broad range of analytics applications.”

21. Vocera $VCRA



Ticker: VCRA

Market cap: $1.07 billion 

Description: “Provides communication solutions primarily to hospitals. Its products facilitate a more efficient, real-time connection among care-team members (physicians and nurses) while also enriching the quality of those communications by incorporating relevant data from medical devices, patient monitors, EHRs and dozens of other clinical and operational systems.”

22. R1 RCM $RCM



Ticker: RCM

Market cap: $2.28 billion

Description: “The billing and collecting functions that health systems and physician groups outsource to R1 still tend to be very labor intensive. But they also involve a lot of repetitive processes, meaning there are significant opportunities to use technology to drive efficiencies.”

23. Phreesia $PHR



Ticker: PHR

Market cap: $1.57 billion 

Description: “Phreesia’s SaaS-based platform helps providers better manage all aspects of the patient intake process, from activation/appointment scheduling/ pre-registration, all the way through to its integrated patient payments solution, which improves a practice’s efficiency and performance collecting money directly from individuals.”

24. One Medical $ONEM



Ticker: ONEM

Market cap: $4.38 billion

Description: “Operates as a membership model that provides individuals with a more ‘virtual- heavy’ option for primary care. ONEM members not only have access to unlimited virtual care (video/voice/chat/messaging), but also to ~100 brick-and-mortar offices located in many major metro areas for any required ‘in-person’ care.”

25. Oak Street Health $OSH



Ticker: OSH

Market cap: $11.93 billion

Description: “Operates a hybrid care model for adults on Medicare, utilizing both virtual visits and a physical network of primary care centers. Notably, OSH bears the full financial risk of its patients and is therefore incentivized to make value-based decisions. In order to do this effectively, OSH built a platform in-house to ingest data from payers, providers, and pharmacists that is then augmented with other factors (i.e. social determinants of health).”

A Global Asset Management Seoul Korea Magazine

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