Disease treatment is changing rapidly, leading to new therapies and better long-term results for patients. Portfolio Manager Andy Acker and Research Analyst Dan Lyons discuss how these exciting advances are leading to new investment opportunities in healthcare.

What do you think are some of the most revolutionary changes happening in drug development?

The old way of drug development involved modifying chemical compounds, testing them and empirically looking for whether the drug had a desired effect. Now we can carry out more targeted development. For example, if we know the gene that is defective and the protein that it makes, we can go after that directly. In doing so, medicine becomes more personalised and far more effective.

One of the most revolutionary aspects is the massive scale at which we can do DNA sequencing (the process of determining the order of the chemical building blocks, or bases, that make up the DNA). In the past, we could only sequence a single DNA fragment at a time. Today, technology has made it possible to sequence millions of fragments simultaneously and to analyse the data with vastly improved, lower cost computing power. This process is called next generation sequencing and has led to the discovery of new genetic targets, which is the key to understanding and treating disease.

This new way of DNA sequencing has done for biomedicine what the semiconductor did for the computing industry. Medicine has set off down this path of Moore’s Law, and we believe it is just getting started. Moore’s Law is the principle named for Intel co-founder Gordon Moore, who observed that computing power essentially doubles every two years.

How are researchers harnessing this knowledge to treat disease?

It is a one-two punch. Computing power has made it much faster and cheaper to interpret genetic information. At the same time, there are more modalities for treating patients. In the old days, we treated disease with pills, which are small molecule chemical compounds. Over time, that advanced to biologics and antibodies, which do a much better job of addressing the underlying cause of illness. Now we can actually manipulate genetic material.

approximate the DNA molecule on a blue background

For example, with gene therapy we can create a functional copy of a gene and deliver it into a patient’s cells. That gene is now producing a protein that previously may have been missing. With a single infusion, we are essentially turning the body into a factory that produces the correct protein and potentially cures the disease. So not only do we have a better understanding of what is causing the disease, but we now have new ways to deal with the problem.

Does technology play a pivotal role?

We have made a lot of advances in medicine by understanding and manipulating genetic material, but we also benefit from advances in the tools that researchers use. X-ray crystallography is a good example. With this imaging technique, scientists can see, at an atomic level, how well a drug binds to its protein target. As a result, even small molecule drugs are becoming more targeted and effective, with fewer safety issues. That makes it easier for companies to get regulatory approval, which can improve the risk/reward opportunity for investors.

We are also seeing advances in medical devices and robotics. Last year, the US Food and Drug Administration (FDA) approved the first integrated continuous glucose monitor, or iCGM, for diabetes management. This device is a patch that contains a sensor. When applied to the skin, the iCGM transmits real time glucose readings to a compatible device, like a smartphone. It can also be integrated with an insulin pump that will automatically release insulin, if needed. All of this is possible only because of advances made in sensors, algorithms, wireless transmission and mobility. It is transforming the way diabetics manage their disease and we expect to see more examples like this across healthcare.

What is the potential market size for some of these new therapies?

To take one example, scientists so far have identified approximately 7,000 rare diseases but less than 5% have treatments today1. Knowing exactly which genes are defective and correcting them with a one-time gene therapy treatment would add tremendous value to the healthcare system and dramatically improve the lives of these patients. We still have a long way to go.

For example, heart disease is one of the biggest killers, with one in every four deaths caused by it

Group of medical doctors and nurses in hospital. Medical Healthcare Concept - Doctor in hospital with digital medical icons graphic banner showing symbol of medicine, medical care people, emergency service network, doctor data of patient health.

each year in the US. New therapies are helping reduce the risk of someone suffering a serious event, such as heart attack, stroke or death. But even if you reduce the odds of those events by 30% – a significant amount – there is still a lot of room to improve, given the numbers.

Pharmaceutical research and manufacturers of America, 2015

What about the regulatory hurdles that must be cleared in order to bring new products to market?

The FDA is mindful of the many advances taking place in medicine and takes a pragmatic approach to lower the cost of drug development by collaborating with companies. The FDA has also created new pathways for firms to achieve regulatory approval and bring products to market faster. So, companies have an incentive to focus on truly innovative new therapies, which in theory leads to more competition and better treatments for patients while potentially rewarding the companies that succeed.

This mindset is not limited to the US regulators. Europe has similar goals while China is making a big push to add more therapies to the country’s National Reimbursement Drug List. China has also introduced reforms to encourage innovation and reduce the backlog of drugs waiting for approval. China is the second largest pharmaceutical market in the world, so these changes are significant.

The same is true for medical devices. The FDA really wants to lower the time and cost of bringing new devices to market. In 2018, for example, the agency created a way for devices related to iCGMs to come to market without clinical trials or other time intensive steps. These types of initiatives should shorten product cycles and create more competition, helping drive down costs for the healthcare system. And while competition can be bad for incumbents, it can be good for start-up companies that want to bring something differentiated to market.

Does competition also pose a risk for investors?

It means that investors have to be mindful of what is becoming an increasingly competitive marketplace. It is one reason why we also invest in private companies. We want to be aware of not just the companies that are leaders today but also the firms that could disrupt tomorrow. Research by BIO Industry Analysis in 2016 showed that 90% of drugs that enter human clinical trials never make it to market. So, we think it is important to cast a wide net and rigorously apply fundamental research.


Small molecule drug: a medicine with a low molecular weight, enabling it to easily enter cells and effect change. Most small molecule drugs are taken as pills and new tools such as x-ray crystallography have helped to make the drugs more targeted and effective.

Gene therapy: a method by which healthy genes are inserted into cells via a viral delivery vehicle to correct a genetic defect.


Therapies mentioned above are for illustrative purposes only, should not be misconstrued as advice and should not constitute or form part of any offer or solicitation to issue, sell, subscribe or purchase any security.