Regenerative Medicine Is the “Play of the Century”
At the Agora Financial conference in Vancouver, I participated in a panel that attempted to name “the trade of the decade.” Many of the recommendations involved commodity or resource plays.
I suspect that these defensive recommendations are worthwhile. They may, in fact, protect investors from the worst of this downturn. I don’t believe, however, that they are in any way trades “of the decade.”
First, we happen to be living through a radical acceleration of the medical sciences. This acceleration has not only left laypeople in the dust. Scientists are unable to keep up with research outside their own areas. As a result, the companies that own these breakthrough technologies are not widely understood or properly valued.
It is also true that health care stocks are traditionally countercyclical. This isn’t surprising since consumers tend to cut back on everything else before sacrificing medical care. It’s no accident that biotechs in our portfolio have done well.
There is, however, another aspect of companies that control these new medical technologies that makes them immune to downturns. Their initial customers include extremely wealthy early adopters.
One of the most notable economic developments of the last decades is the remarkable growth of “high net worth individuals” (HNWI). As defined by the U.S. Securities and Exchange Commission, HNWIs are people with at least $750,000 managed by the reporting investment adviser or whose net worth the investment adviser reasonably believes exceeds $1,500,000. Others define HNWIs as people controlling at least $1 million in assets excluding primary residence.
Regardless, the number of these people has been growing dramatically for decades, far outpacing inflation. If you pay attention to politics, you know how upset this makes people who worry about the big increases in income or wealth “disparity.” While the biggest concentrations of HNWIs are still in North America and Europe, the fastest growth, by far, is in China and India.
This category of people controls so much wealth that, even after the financial meltdown, they remain relatively unscathed. If you loose a third of a portfolio worth $2 million, which is below the average for many HNWIs, you still have lots of options.
The total wealth at the disposal of HNWIs is immense. Though it is difficult to know exactly, it is probably around US$40 trillion, along with the associated annual income it generates. Today, according to Merrill Lynch and Capgemini, there are more than 8.5 million of these people in the world. They and their immediate families comprise a population that may exceed 25 million people. Spending on luxury items by HNWIs and family members remains strong.
According to Bertrand Lavayssière, managing director of global financial services Capgemini, “Even as financial market turmoil impacted the United States during the second half of the year, luxury goods makers, high-end services providers and auction houses all found ready clients in the emerging markets of the world — most notably, China, India, Russia and the Middle East — thereby sustaining their own growth.”
Nothing better describes the market for emerging breakthrough health care. The market segment that continues to buy Ferraris, yachts and private jets will also buy regenerative therapies for themselves and their loved ones. I don’t doubt that certain metals will do OK in the years to come. Even they, however, are subject to the vagaries of the overall economy. HNWIs, however, are largely immune to the big economic fluctuations. When stem cell therapies bestow the power to rejuvenate hearts, livers, skin and cartilage, even at sky-high prices, there will be millions and millions of happy buyers.
I mention stem cell therapies specifically, by the way, because most of the important patents are concentrated in a few companies. We own, I am convinced, the key companies now. I will, however, be adding more in the future as new enterprises spin off and develop alternative approaches.
Incidentally, two major news magazines have had prominent stem cell-related stories in the last week or so. Both of these stories, in Newsweek and U.S. News & World Report, were marked by bias and error. That, however, is not the point. Nor is it new.
They do reflect the growing public awareness of stem cell technologies. One of the most interesting aspects of these articles is their limited, even insular, perspective. Both focus on the U.S. market.
HNWIs, however, are an international group, and they are used to traveling to get the best health care. As I’ve been saying since I started with Breakthrough Technology Alert, the U.S. market is overregulated and overtaxed. We are, unfortunately going to see these technologies come online elsewhere first.
Regardless, I believe regenerative medicine is the play of the decade. No, I take it back. It’s the play of the century. Go ahead and invest in resources. I believe in a diversified portfolio. However, I remain convinced that the surest way to join the ranks of HNWIs yourself is to bet on the willingness of the very rich to buy the ultimate resource: longer, healthier lives, i.e. “time.”
For transformational profits,
August 6, 2009
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