Healthcare investors wake up to inequalities

“The enjoyment of the highest attainable standard of health is one of the fundamental rights of every human being without distinction of race, religion, political belief, economic or social condition.” So reads the 1946 Constitution of the World Health Organisation. Two years later, the 1948 Universal Declaration of Human Rights stated that “everyone has the right to a standard of living adequate for [their] health and wellbeing,” including medical care.

Yet in practice, some 75 years later, there are vast disparities in the ability of different groups to access health services.

In the US, for example, the maternal mortality ratio is 2.5 times higher for Black women compared with white women, according to a 2020 report from the Commonwealth Fund. Meanwhile, WHO data shows that a woman’s lifetime risk of maternal death (the probability that a 15-year-old woman will eventually die from pregnancy or childbirth-related complications) was one in 49 in a low-income country in 2020, compared with a one in 5,300 chance in high-income countries.

The covid-19 pandemic exposed a raft of inequities in access to healthcare, leading government and civil society groups to pay more attention to broadening access. Investors are also beginning to follow suit, with several funds emerging to meet the needs of underserved populations.

Underrepresented groups

While there are many reasons for inequality in healthcare, part of the problem is that medical research has historically neglected certain groups.

“The traditional approach to medicine has been very much about one-size-fits-all,” says Anita Bhatia, an investment director at London-based Guy’s & St Thomas’ Foundation. She points out that clinical trials, for example, have often been dominated by white men. Health issues that affect women specifically, including menstruation, childbirth and the menopause, have received far less attention.

“The traditional approach to medicine has been very much about one-size-fits-all”

Anita Bhatia
Guy’s & St Thomas’ Foundation

“We’re only beginning to scratch the surface of understanding and feeling comfortable in talking about what these health issues are and what they mean for women,” says Bhatia. On the positive side, however, she notes there are now signs that medical innovations are becoming more tailored to groups that have historically been underserved.

“There are greater efficiencies, and there are greater success results when we can identify the cohort in the population, and then try and build medicines and therapies and treatments that are tailored to the specific characteristics and profile of that group of patients,” says Bhatia.

Access and affordability

Alongside the need for therapies targeted at women and minorities, tackling inequalities in healthcare requires solutions that bring existing treatments to everyone that needs them.

“The healthcare concerns faced by underserved populations tend to have existing medical solutions, which require rolling out, rather than research and development,” says Michael Preston, a partner at law firm Cleary Gottlieb Steen & Hamilton. “Dollars invested therefore have a more immediate impact on the delivery of effective healthcare.”

Echoing this point, Peter Spring, a partner at Bain Capital Double Impact, notes that “access to care challenges are particularly acute in rural communities, and, as a result, many patients seek treatment in costly and inconvenient hospital settings”. He says healthcare investors can achieve a positive impact through backing companies that offer “new care delivery models that are more convenient for underserved populations.”

As an example, Spring says Bain has invested in ConvenientMD, which operates clinics in rural New England alongside telehealth services. The company aims to deliver care at a much lower cost than hospital emergency care, thereby improving access to healthcare for rural communities.

Meanwhile, the cost of treatment is a major barrier for lower income groups, particularly in certain healthcare systems. In a survey published by healthcare information and research firm KFF in July 2022, one-third of adults in the US said a household member had not taken a medical test or treatment that was recommended by a doctor within the previous year because of the cost.

Affordability is therefore a key concern for investors seeking to achieve impact in healthcare. Bhatia says Guy’s & St Thomas’ Foundation, which invests in several healthcare impact funds, engages with GPs to try to make sure portfolio companies offer “reasonable and affordable” price points.

Nevertheless, Bhatia concedes that new treatments are likely to be expensive initially, before eventually becoming more widely accessible. “Products and services at the highest price points can’t stay there forever. In order to continue on their journey of commercial viability, they will need to scale to a much broader population.”

Emerging markets

The question of affordability becomes even more pressing when considering how healthcare products and services can be extended beyond high-income countries.

Curt LaBelle – a managing partner at the Global Health Investment Fund, a vehicle backed by public, private and philanthropic capital – was appointed to lead AXA Investment Managers Alts’ $500 million Global Health Strategy in April 2022. The strategy launched with a $200 million commitment from AXA Group.

“Our mandate is to measure both the financial returns and the impact,” says LaBelle. The focus of the vehicle is on medical devices, biopharmaceuticals, vaccines and diagnostic facilities. LaBelle underlines that a different mindset is needed when developing products that are well-suited to low- and middle-income countries. “We need to keep the [cost of goods sold] very low, so that we can be profitable in a limited resource setting; we need to make this product as durable as possible, because the storage and transportation conditions are not always ideal.

“When you start out designing products to have those characteristics of durability and efficacy and being easy to use, you actually end up with a product that’s more attractive in all markets, including the high-income countries.”

The approach taken by AXA IM Alts in designing a strategy that has crossover between developed and emerging markets is somewhat unusual in healthcare investing. “You tend to find that there’s very much a one-market approach,” says Bhatia at Guy’s & St Thomas’ Foundation, which has made a commitment to the AXA IM Alts fund. “You’re either focusing on developed markets or emerging markets. It’s great for me to see that there are GPs that are testing and challenging that one-market approach.”

Investing in healthcare products that are well-suited to emerging markets also contains an obvious commercial logic, given that there is huge unmet demand in these markets. LaBelle says the healthcare market is growing around twice as fast in low- and middle-income countries than in high-income countries.

“We actually think that it’s an interesting and compelling business proposition to think about these countries as well, and design products that can be beneficial and profitable in those settings,” says LaBelle. “But historically, that just hasn’t been the mindset of companies that are developing new drugs or new medical devices.”

Beyond impact

Funds with an impact mandate have traditionally taken the lead in seeking to address healthcare inequalities.

“The knowledge and experience of impact funds, as well as their investment mandates and ability to write smaller cheques for growth equity opportunities, often means they are the natural source of capital for investment opportunities in this space,” says Cleary Gottlieb’s Preston. “However, once scale is established and the ecosystem is built out, opportunities will be created for mainstream funds to deploy capital in larger amounts in a proven environment.”

Indeed, meeting the needs of underserved groups is also a way to expand the market for companies developing healthcare products and services. As such, it is easy to find healthcare investors who dismiss the suggestion that there might be a trade-off between impact and returns.

“You don’t have to compromise on returns,” says Sébastien Veil, a partner at PAI Partners. “You are contributing to solving healthcare issues and, at the same time, you are growing your market. It’s a win-win situation.”

LaBelle offers a similar view, and emphasizes that impact funds achieving financial success is a key step for catalysing greater levels of investment into addressing inequities in healthcare around the world. “We can prove out the case that you can be financially successful and bring in more profits by thinking of these global markets. I think naturally that will bring more money into the space from folks who weren’t perhaps originally focused on impact.”

Closing the gender health gap

Women’s health issues have been disregarded for too long.

Recognizing that health conditions specific to women have historically been neglected, the UK government published its first Women’s Health Strategy for England in July 2022. The strategy set out a series of aims centered around tackling stigma, improving access to services and strengthening research into women’s health conditions.

Private equity firms in the healthcare sector are also starting to recognize that increasing access to treatment and services for historically underserved groups provides a significant business opportunity. For example, Carlyle and PAI Partners acquired Theramex, a pharmaceutical company that develops treatments specifically for women’s health conditions, from CVC Capital Partners last year.

Theramex has developed therapies for conditions associated with the menopause. Sébastien Veil, a partner at PAI Partners, says a lack of treatment for menopause symptoms has “massive social and economic consequences.” Research published in 2022 by the Fawcett Society, a UK charity that campaigns for women’s rights and gender equality, found that one in 10 women who worked during the menopause left their job due to those symptoms, while only four in 10 said they were offered hormone replacement therapy in a timely fashion.

“By addressing those issues and trying to increase awareness about the fact that there are treatments for menopause, I believe a private equity firm can play a role in reducing inequalities and, at the same time, fulfil its role in growing the portfolio companies it has acquired,” says Veil.