Thought Capital
The Future of Aging: Medtech Solutions for a Healthier Tomorrow
Polen Capital’s International Growth team considers medtech opportunities arising from a rapidly aging global population.
Key Highlights
- The global population is aging rapidly, leading to extended lives, increased prevalence of chronic conditions requiring monitoring and treatment, and greater attention to health care generally.
- Due to this aging dynamic, we see expanding needs for medtech (a combination of the medical and technology fields).
- Medtech applies organized technological knowledge to improve health care services' quality, safety, effectiveness, and efficiency, impacting individuals from prevention to diagnosis to cure.
- We view this innovative merging of medicine and technology as a compelling long-term investment opportunity.
The world is getting older. According to the World Health Organization, by 2030, people over the age of 60 will comprise nearly 20% of the global population; by 2050, that age group will double, and the over-80 age group is expected to triple by 2050.1 Figure 1 provides a more dramatic view of this shift, looking back to 1950. Importantly, we believe this trend towards longer lifespans will have powerful implications for the utilization of health care products and services as individuals seek to maintain a high quality of life into their later years.
Figure 1. United Nations Populations By Age Group, Historical, and Projected
Source: UN, World Population Prospects (2022) – processed by Our World in Data. "Total" [dataset]. UN, World Population Prospects (2022) [original data].
These added years allow individuals to pursue postponed passions and potential contributions to their communities and society. Such later-life pursuits require prolonged good health, and with medical and technological advancements, aging populations will enjoy longer, more productive, and fulfilling golden years.
However, extended life spans come with an increased incidence of certain medical conditions–typically chronic in nature—such as heart disease, cancer, diabetes, and respiratory conditions (Figure 2). Such situations typically require continuous monitoring and management. This demographic shift towards older populations across the globe has increased awareness of the importance of preventative care and health in general, driving greater penetration of health care and medical devices in younger age cohorts.
Figure 2. Prevalence of Selected Chronic Conditions as a Function of Age
Source: Harris, Randall E., Epidemiology of chronic disease; global perspectives. Jones & Bartlett Learning, 2019.
Medtech Explained
As the name suggests, medical technology (medtech) combines the medical and technology fields. This broad discipline applies organized technological knowledge to improve health care services' quality, safety, effectiveness, and sustainability. Medtech companies potentially impact individuals from prevention to diagnosis and cure. We see its presence in everyday objects like syringes, surgical masks, gloves, glasses, and wheelchairs to more complex devices, including body scanners, gene mutation tests, implantable devices including heart valves and pacemakers, and replacement joints for knees and hips.
The area encompasses broad categories of products and services. Medical devices include products, services, or solutions that prevent, diagnose, monitor, treat, and care for individuals by physical means. In vitro diagnostics are noninvasive tests used on biological samples (e.g., blood, urine, and tissue) to determine a person's health status. Digital health refers to tools and services that use information and communication technologies to improve health and lifestyle prevention, diagnosis, treatment, monitoring, and management.
The Investment Case for Medtech
Beyond escalating global demand for medtech products and services, the structure of these businesses presents unique investment challenges and opportunities. Most medtech categories are competitively stable, with two to four players controlling the bulk of the market share, given the high barriers to entry and scale. The main factors at play start with high research & development (R&D) costs, which can reach billions of dollars annually. Further, the regulatory framework is complex in ensuring the safety of medtech products and services, with inconsistent requirements across countries and regions. Medtech companies must comply with regulations governing product design, development, manufacturing, testing, and marketing. These challenges can present difficult to nearly impossible obstacles for new entrants to overcome, and even when regulatory requirements are met, effectively scaling distribution is an additional hurdle.
Societies are aging rapidly across the globe, creating robust demand for medical equipment and treatments to address the health needs of older people. The medtech industry is highly regulated and technologically complex, which helps drive consolidation and the dominance of a select group of highly profitable, scaled businesses.
We believe some of the most compelling medtech businesses are domiciled outside the U.S. Our investment team rigorously assesses the related political, legal, and regulatory environment nuances, particularly when investing internationally. Along with our primary perspective as a bottom-up business owner, we carefully consider the potential for such macro factors to keep companies from generating the durable growth upon which our philosophy is based.
At the Forefront of Innovation
Medtech is a dynamic sector, with new products and technologies constantly emerging. Despite potential barriers, our long-standing Polen investment philosophy is designed to uncover truly quality businesses. We seek innovative businesses, as indicated by their product pipeline, R&D commitment, effective cash management, product or service efficacy, and management team strength. We outline three of our current medtech holdings below. In our view, the strength and value of these businesses reinforce our view that compelling investment opportunities exist beyond U.S. borders.
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Medtronic (MDT), the world's largest medical technology company, based in Ireland, develops, manufactures, distributes, and sells device-based medical therapies and services. Its business focuses on cardiac and vascular issues, minimally invasive technologies, restorative treatments, and diabetes. Demand for Medtronic's services expands as aging individuals could more likely need spine implants, pacemakers, valve replacement surgery, or ablation procedures.
We view Medtronic's pipeline as rich, with opportunities from pulse field ablation to micro pacemakers and the Hugo™ robotic-assisted surgery system (RAS). They invest aggressively in their R&D pipeline. We also observe a long-term mindset and commitment to product innovation with significant new product launches, which we believe will accelerate growth and improve profitability. Our investment in Medtronic dates back to 2017.
Siemens Healthineers (SHL), based in Germany, is a leader in medical imaging and radiotherapy linear accelerators. Its products, services, and solutions are central to clinical decision-making and treatment pathways. With patient-centered innovation, they aspire to enhance outcomes and experiences regardless of a patient's geography or medical needs. They aim to equip providers with innovative technologies and services in diagnostic and therapeutic imaging, laboratory diagnostics, molecular medicine, and enterprise services.
We see benefits from structural growth drivers of aging populations, escalating cancer and heart disease prevalence, and trends toward proactive and preventative health care. We anticipate accelerated revenue growth due to expanded product offerings, cross-selling opportunities, and deeper customer relationships. We also envision room for improving margins. We first purchased Siemens Healthineers in 2018.
ICON Plc (ICLR) is an Ireland-based health care intelligence and clinical research organization. They assist pharmaceutical and medtech companies design, organize, and execute clinical trials. ICON provides outsourced services for trial planning, enrollment, and execution for biotech, pharmaceutical, and medical device companies. From "molecule to medicine," they advance clinical research for businesses, governments, and public health organizations. ICON develops innovations, drives emerging therapies forward, and strives to improve patient lives.
A growing elderly population fuels the need for new medical devices, pharmaceuticals, and services. ICON reinvests profits into new product research, further driving demand. Speed to market is critical for ICON's customers. Through its scale, network, and expertise, we believe ICON can execute trial research more effectively and efficiently than its customers could on their own. A key growth driver is greater penetration of outsourcing. In our view, few scale players like ICON can provide comprehensive coverage, identify trial subjects, and enroll them quickly. We have held ICON Plc since 2017.Investor Takeaways
At Polen Capital, we navigate markets through the lens of a business owner, favoring what we believe to be high-quality companies with sustainable cash flows and enduring competitive advantages. While we remain abreast of macroeconomic conditions, rather than speculate on interest rates, central bank policy, and geopolitical risks, we are committed to building concentrated portfolios of compelling companies that we cover extensively over the long term. Our research and experience show that medtech is a captivating and expanding investment opportunity where we see encouraging opportunities on the horizon. Given the exciting innovation and progress at the intersection of medicine and technology, we remain intrigued by medtech.
Important Disclosures
1World Health Organization. Ageing and health (who.int)
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Medtronic is a holding in Polen's International Growth portfolio as of March 31, 2024. Siemens Healthineers is a holding in Polen's International Growth and Global Growth portfolios as of March 31, 2024. Icon PLC is a holding in Polen's International Growth and Global Growth portfolios as of March 31, 2024.
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