Janus Henderson PM: Healthcare push opportunity for tech investors


Alison Porter, portfolio manager on the Janus Henderson Global Technology Fund, comments on JP Morgan, Berkshire Hathaway and Amazon’s new healthcare initiative and what this means for the US healthcare sector.

It is testimony to the markets high regard for the CEO s of JP Morgan, Berkshire Hathaway and Amazon that an announcement of a partnership with no management team or HQ has had such a significant impact on the stock market value, not only those three companies, but on so many 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 of these companies that has filled investors in retail pharmacies, managed care, drug distribution, pharmacy benefit managers and even Pharma with trepidation. The announcement yesterday was clear that the new formed entity did not yet have solutions.   It will take years to form and to build upon systems and learnings from the 1.2 m lives that it will cover. This is just another example of how technology is continuing to take share for our daily lives and how Artificial Intelligence can be deployed across a wide range of sectors. The fact that none of these companies are healthcare companies gives them a fresh perspective and makes this entity potentially so disruptive. The learning curve will be steep and investors will have to navigate the cycle on the potential disruption. However, it is clear J P Morgan, Berkshire and Amazon have identified a problem. Jeff Bezos once said, “your margin is my opportunity” and the US healthcare system certainly qualifies for providing ample opportunity.

In e-commerce, Amazon disrupted retail forcing faster delivery, a wider array of products, new services for sellers and better product information for consumers and wrapped this within its Prime membership.  Amazon Web services began as an internal project to help Amazon manage its own internal IT requirements better.  In little over 10 years it has become the world’s largest public clouding platform. Revenue for 2017 estimated at over $17bn, providing cheap fast storage and compute power to internet start-ups(Netflix, Airbnb etc.) , government bodies (CIA, FBI, and notably now the NHS in the UK), as well as other large enterprises across the economy (Newscorp, GE, Capital One to name but a few).  The parallels have not been lost on the market.  Amazon has capabilities in logistics, procurement and in cloud services, as well as its growing skill set in Artificial intelligence that can be applied to the exponential growth we are seeing in data – particularly relating our health and well-being.

The US healthcare sector has many layers from insurers, managed care, pharmacy benefit managers, distributors and drug retailers who all in sit between the providers of services and goods and consumers.  Warren Buffet said his annual shareholders meeting in May that the healthcare costs have become a bigger issue for American businesses than tax (costs exploding from 5% of GDP to 17% since the 1960s vs taxes going from 4% to 2%).  That leaves healthcare ripe for disruption with consumers and employers with a high appetite for more affordable options, better consumer choice, better outcomes and  higher price transparency through better procurement and distribution.