Quick view: healthcare – Amazon’s next target?

01/02/2018

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Alison Porter, Graeme Clark, and Richard Clode, Portfolio Managers within the Janus Henderson Global Technology Team, provide their views on the news that Amazon, JP Morgan and Berkshire Hathaway are forming an alliance with the aim of lowering healthcare costs for the companies’ employees.

Testimony to the high regard that the market has for the heads of Amazon, financial giant JP Morgan, and US multinational holding group Berkshire Hathaway, the recent announcement of a partnership with no management team or headquarters, with a non-profit focus, has had a significant impact on not only the share prices of the three companies but also many others in the healthcare sector. So far there is little detail on what the entity will do other than try and provide technology solutions for "simplified, high quality and transparent healthcare at a reasonable cost."

It is the history and reputation of the three companies, and Amazon in particular, that has filled many with trepidation, be it investors in retail pharmacies, managed care, drug distribution, pharmacy benefit managers, and even pharmaceuticals. 

Amazon’s reputation as a market disruptor*

In e-commerce Amazon has disrupted retail. Its Prime membership offers faster delivery, a wider array of products, new services for sellers and better product information for consumers. Meanwhile, Amazon Web Services (AWS) began as an internal project to help Amazon manage its own internal IT requirements better. In little than over 10 years AWS has become the world’s largest public clouding (storing and accessing data and programmes over the internet instead of a computer hard drive) platform. According to Amazon’s 4Q 2017 earnings announcement, AWS generated revenue of US$17.5bn in 2017, providing cheap, fast storage and compute power to internet start-ups, government bodies, such as the Central Intelligence Agency (CIA) and Federal Bureau of Investigation (FBI) in the US; the National Health Service (NHS) in the UK, as well as enterprises across many sectors (Newscorp, GE, and Capital One to name but a few). 

Amazon has capabilities in logistics, procurement, and in cloud services as well as a growing skill set in artificial intelligence (AI) that can be applied to the exponential growth we are seeing in data – particularly with regards to health and well-being (eg, Apple Watch, Fitbit, DNA mapping, health checks, MapMyRun app). 

A solution to rising healthcare costs needed

The US healthcare sector is broad ranging, and includes insurers, managed care providers, pharmacy benefit managers, distributors, and drug retailers, as well as providers of services and goods such as drug and medical technology companies, hospitals and physicians. In May 2017, Berkshire Hathaway CEO, Warren Buffet at the company’s annual shareholders meeting, remarked that healthcare costs have become a bigger issue for American businesses than tax (healthcare costs have exploded from around 6% of GDP in the 1970s to over 17% in 2015, compared with taxes rising from 2% to 4% of GDP respectively). That leaves the healthcare sector a prime target for disruption. Consumers and employers are desperate for more affordable options, more consumer choice, better outcomes, as well as higher price transparency through improved procurement and distribution.  

Strong potential

The tie-up announcement made it clear that the newly-formed entity had yet to propose solutions. It will take years to form and to build upon systems and learnings from the more than 1.1m lives that the scheme will cover. This is another example of technology continuing to take share in our daily lives and how AI will be deployed across a wide range of sectors. The fact that none of the three companies are in healthcare gives them a fresh perspective and makes this entity so potentially disruptive. 

While the learning curve will be steep with many challenges along the way,  and any analysis of the market size opportunity for the trio is currently premature, undoubtedly Amazon, JP Morgan and Berkshire  have identified a clear problem needing a solution − the US healthcare system certainly qualifies for providing ample opportunity.

*Market disruptor: a company that creates a profound change in the business environment that compels organisations to undertake major transformations.


The above stock examples are for illustrative purposes only and are not indicative of the historical or future performance of the strategy or the chances of success of any particular strategy. Janus Henderson Investors, one of its affilitaed advisors, or its employees, may have a position in the securities mentioned in the report. References made to sectors and stocks do not constitute or form part of any offer or solicitation to issue, sell, subscribe, or purchase them. 


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Janus Henderson Horizon Global Technology Fund

The Janus Henderson Horizon Fund (the “Fund”) is a Luxembourg SICAV incorporated on 30 May 1985, managed by Henderson Management S.A. Any investment application will be made solely on the basis of the information contained in the Fund’s prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the Fund’s prospectus and key investor information document before investing. A copy of the Fund’s prospectus and key investor information document can be obtained from Henderson Global Investors Limited in its capacity as Investment Manager and Distributor.

Issued by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier).

We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Past performance is not a guide to future performance. The performance data does not take into account the commissions and costs incurred on the issue and redemption of units. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change. If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

The Fund is a recognised collective investment scheme for the purpose of promotion into the United Kingdom. Potential investors in the United Kingdom are advised that all, or most, of the protections afforded by the United Kingdom regulatory system will not apply to an investment in the Fund and that compensation will not be available under the United Kingdom Financial Services Compensation Scheme.

Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. Key Investor document is also available in Spanish. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Janus Henderson Investors (Singapore) Limited, 138 Market Street #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent. RBC Investor Services Trust Hong Kong Limited, a subsidiary of the joint venture UK holding company RBC Investor Services Limited, 51/F Central Plaza, 18 Harbour Road, Wanchai, Hong Kong, Tel: +852 2978 5656 is the Fund’s Representative in Hong Kong.

Information on this document is on Janus Henderson Investors' best endeavours.

Specific risks

  • Shares can lose value rapidly, and typically involve higher risks than bonds or money market instruments. The value of your investment may fall as a result.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund's value may fall where it has concentrated exposure to a particular industry that is heavily affected by an adverse event.
  • Any security could become hard to value or to sell at a desired time and price, increasing the risk of investment losses.

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