„Wearable devices are the next milestone“
Mrs Tennyson, you are involved in the increasingly important area of mental health. How did you come up with that?
We are active in various fields, and mental health is certainly becoming increasingly important. We have noticed this trend, and are looking at which companies have positive profit prospects as a result, and at the same time contribute to solving a social problem.
Socially and politically, topics such as depression or addiction are no longer as frowned upon as they were just a few years ago. From an investor's point of view, however, the theme is still rather underexposed. Do you think this could change?
Investing in mental health is not only crucial for the individual, but also for the healthcare system, society and wider economic productivity. Mental health problems cost the UK economy at least 117.9 billion pounds a year, or 5% of UK GDP in 2019, so it's surprising that this is one of the most underserved areas of healthcare to this point. While the medical community recognises the close link between good mental and physical health, healthcare providers and policy makers have only recently started to catch up. In 2024, we are now at an exciting point where policymakers, providers and payers, private and public markets, and patients are all pulling in the same direction to move the mental health sector forward. We believe the sector is well positioned for long-term growth.
What has changed politically?
2023 was a key year for the political recognition and funding of mental health in industrialised countries, and this should also result in greater financial commitments to this area. To name just a few examples: In June 2023, the European Commission published its plan for a comprehensive approach to mental health in the EU. The plan includes 20 flagship initiatives and 1.23 billion euros in EU funding to support Member States in putting people and their mental health at the centre. Also in the US, the Department of Health and Human Services announced 206 million dollars in grants for youth mental health. This is arguably the first time that policymakers have committed to a coordinated and holistic approach to tackling the societal burden of mental health issues. And the companies offering solutions in this area are poised for longer-term structural growth in the sector.
What about health insurers?
Health insurers are the gatekeepers for access to mental health care, and have fortunately been some of the first to invest in this area. US health insurers such as United Health (UNH) and Humana have continued to expand their offerings. In January 2023, UNH announced the launch of a new virtual behavioural coaching programme – a support service for policyholders suffering from depression, stress and anxiety. Mental health services are becoming a key differentiator for health insurers – especially as employers look to offer wider mental health coverage to their employees. This is a key driver for innovation and capital allocation in this area.
How are start-ups doing in the mental health sector?
Despite being a structurally growing market, the mental health space was not immune to the tougher funding conditions in 2023. At its peak, mental health start-ups in Europe raised around 1.2 billion dollars in investment in 2021, but by 2023 this had fallen to just 80 million dollars. We believe this is a temporary correction and not a structural change in interest in mental health innovation. The first signs of a recovery can already be seen in 2024.
And the big companies?
Large listed companies from the managed care and healthcare services sectors have entered into partnerships with these innovative start-ups to expand their mental health offering. For example, CVS Health Ventures invested in Connecticut-based suicide prevention and telehealth platform Vita Health in a Series A financing round in January 2024. To date, most investment has been focused on healthcare provider platforms (therapy networks, behavioural apps, etc.). This is a highly fragmented area where there will inevitably be further consolidation by larger health insurers who can leverage their already extensive customer base and infrastructure to their advantage.
Weight loss products have recently been a real trendsetter for the big pharma giants such as Novo Nordisk and Eli Lilly. What could be an attractive market opener for mental health from a capital market perspective?
Wearable devices for mental health are the next milestone, in which we believe more investment will flow through the public markets. Medical technology companies with experience in wearables are a natural habitat for these start-ups. We believe the larger publicly traded medtech companies are watching the early winners in mental health wearables closely before making acquisitions.
Do you have an example of the demand for such wearables?
You only have to look at the explosion in demand for continuous glucose monitors. This indicates that patients are willing to wear something on their bodies and be more autonomous in monitoring and managing their own health. From a therapeutic perspective, studies are currently underway to further explore the potential use of potassium channel regulation in the treatment of major depressive disorder ,and GLP1 receptor agonism in the control of reward mechanisms. The aim is to find out whether this can be used to treat addiction and substance abuse disorders.
How big is the mental health sector and what do you think the growth prospects are?
It is difficult to quantify the true size of the mental health sector in dollar terms. The best way to quantify the potential is to look at disease prevalence and burden. The World Health Organisation estimated in 2021 that there are more than 150 million people living with a mental illness in Europe, of which only a third receive medical care – so the market is significant in size. Data from a cohort study published in JAMA (Journal of the American Medical Association, editor's note) shows that utilisation and spending on mental health services among commercially insured adults increased by 38.8% and 53.7% respectively between 2019 and 2022. Accordingly, the sector is in a much better position compared to the pre-pandemic period. Given the continued growth in innovation in the areas of services, medical devices and therapeutics, we expect the sector to show structural growth in the medium term.
Which companies are you focussing on in the mental health sector and what makes them attractive to you?
Health insurers and managed care providers such as UNH, Humana and Cigna are the gatekeepers of mental healthcare. They have large patient pools and close relationships with employers. These companies already have experience with virtual healthcare, and therefore have the infrastructure required for mental health platforms.
Who else could benefit?
Pharmacies are playing an increasingly important role in providing better and more localised access to healthcare. In the US, CVS has invested in Vita Health, a start-up focussed on suicide prevention. Pharmacies play an essential role in ensuring patient adherence to medication, including anxiety and depression medication. The introduction of e-prescriptions in Germany could be a broader catalyst for the establishment of further online platforms in European pharmacy chains.
What about wearables?
Consumer medtechs, particularly leaders in consumer wearables, could easily capitalise on their opportunities in the mental health space. There would clearly be demand for a multi-purpose device that allows patients to track everything from blood sugar and sleep patterns to managing anxiety and depression.
What about biotech companies?
Biotech and pharmaceutical companies are researching targeted therapeutics to treat mental health areas of high unmet need, such as major depressive disorder.
About the person: Catherine Tennyson is a healthcare portfolio manager at Axa Investment Managers. She is responsible for equity strategies in the thematic areas of healthcare, biotech and longevity, benefiting from her background as a medical doctor.
