Innovations in Health Care with Matthew Margolis
The following is a transcript of the Innovations in Health Care podcast.
KEVIN COLLINS:  Hello.  This is Kevin Collins, Client Portfolio Manager at Alger. Welcome to our health care update with Alger Vice President and Analyst Matthew Margolis. Matt has 14 years of investment experience and focuses on the Health Care sector.  At Alger, we believe large scale changes such as medical breakthroughs and internet technology are allowing leading companies to rapidly grow their earnings by creating new products and services that disrupt more traditional business models. In this podcast, Matt discusses how innovative health care companies and technology providers are working together to aggressively change how doctors treat patients while helping to manage health care costs.  He also discusses his approach to analyzing stocks.  Matt, thanks so much for joining us.  To start off, the health care sector has had a very strong year.  What factors have driven health care’s success this year?

MATT MARGOLIS: The health care market has done well this year, in part because they are having nice innovation both in drug development and the medical device side of things.  And the way we interact with the health care system, we think, is on the cusp of dramatic evolution.  There are new technologies and services, increasing efforts to limit cost inflation and a focus on wellness and preventative care that are likely to change the way people access health care, especially as more financial responsibility falls to each individual.  Couple that with a more favorable regulatory environment for a lot of companies – the regulators are realizing that they’re stifling innovation and they’re making progress in that regard – and that has people’s expectations high for continued innovation in the sector.​​

KEVIN: Can you give us a deeper dive on some of the technology innovations you’re seeing?

MATT: You have a thermometer, you have band aids, you have Neosporin.  Why not have a disposable stethoscope? There are companies that are developing connected devices, whether the connected device is a heart rate monitor or a stethoscope and you could then use these very simple devices and the data can be transmitted to a physician essentially in real time, who can help diagnose certain things.  Consider a person who has a history of atrial fibrillation.  Atrial fibrillation presents a risk for stroke, and so typically, once or twice a year, you wear a device called a Holter monitor and you measure your heart rate and your heart rhythm for two weeks at a time.  Then you can look back at the changes from six months ago.  But what might be more interesting is being able to catch some of these changes more immediately and to potentially prevent catastrophic events like stroke or heart attack.  These are not expensive technologies.  The cost of chips and smart devices has dramatically come down over the last few years. And so, you could have some of these devices that are not theoretically disposable that you could buy at CVS.

KEVIN:Historically, service to the senior population drives changes in this sector.   Is the senior population benefitting from these innovations?

MATT: The majority of health care spending is done by the senior population over the age of 65, and really, over 75.  Monitoring your health is important regardless of your age, but it’s even more important when you’re 75 and maybe diabetic or 75 and may have early stage heart conditions.  

KEVIN: Is there any kind of digital disconnect with this population from some of these innovations?  And how do you figure that into your process?

MATT: One of the challenges, broadly speaking, in health care is patient engagement.  And so, the companies who can engage a patient and have that consumer interaction with them, those are the companies that we think are really going to benefit from this trend and those companies really are the non-physician health care providers.  It’s one of the reasons why we favor the managed care industry, because the managed care industry, they have your personal information and they use it in a way that’s highly regulated, but at the same time, they have constant communication with you. 

And so, these types of companies that have the relationship with the individual, those are the kinds of companies that we favor. 

KEVIN: Matt, you’ve spoken of innovation in terms of wearable devices.  Are you seeing other ways that technology and health care are crossing over?

MATT: Technology is pervasive in health care.  However, it’s still at its relatively early stage of adoption.   Prior to 2010, very few health care providers actually had electronic health records.  You still can walk into a doctor’s office today and see those manila patient files standing behind the reception desk.   So, the data that’s required to make health decisions on an individual basis has really just become available to health care providers.   And now companies are starting to standardize that data to develop new technologies, develop drugs, develop devices, and develop services to have that information at your so-called fingertips, whether that’s on your smart phone or a secure health care server database that your physician can access remotely.  

KEVIN: Are the technology innovations in health care coming from the actual health care companies?  Or are they coming from tech companies outside this sector?

MATT: There are definitely nontraditional health care companies that will participate in this market, but it will be important for those companies and for health care companies to work together.  Health care companies cannot be underestimated for their know-how and history with patients and interactions with doctors.  While technology is important, technology as a wearable device, I wouldn’t say, is highly innovative anymore.  It’s really the health care companies that have the history with physicians and have built up that trust that we’re going to need to partner with to develop this technology. 

KEVIN: Can we switch gears for a minute, and can you just tell me a bit about your personal process when looking at companies?

MATT: The process is twofold.  It’s identifying unmet clinical needs and finding technologies that are in development that are treating those unmet medical needs.  And that process is through talking with industry experts, it’s attending medical meetings, it’s talking to management teams and trying to understand what technologies they have in their pipeline and understanding where the patient need is.  In addition to that, it’s also talking to managed care companies to understand where their high cost areas are, because it’s more likely than not that those are areas ripe for disruption from innovative technology.  I think that what differentiates Alger is our ability to identify those industries and those companies that are worth doing work on.  We can cover more stocks than other firms because of our ability to actually identify those industries and those companies that we should be doing that deep fundamental work on.​

KEVIN: Matt, thanks so much for your time.  Based on your observations, it appears that high levels of innovation and other large-scale changes make this an exciting time for bottom-up active investors to pursue opportunities in health care stocks.  For more information, please visit www.alger.com.​

The views expressed are the views of Fred Alger Management, Inc. These views are subject to change at any time and should not be interpreted as a guarantee of the future performance of the markets, any security or any funds managed by Fred Alger Management, Inc. These views should not be considered a recommendation to purchase or sell securities. Individual securities or industries/sectors mentioned, if any, should be considered in the context of an overall portfolio and therefore reference to them should not be construed as a recommendation or offer to purchase or sell securities

Investing in the stock market involves gains and losses and may not be suitable for all investors.  Growth stocks tend to be more volatile than other stocks as the prices of growth stocks tend to be higher in relation to their companies’ earnings and may be more sensitive to market, political, and economic developments.  Investing in companies in the health sciences sector may be more volatile than similar strategies that do not have concentrated investments. Furthermore, because many of industries in the health sciences sector are subject to substantial government regulations, changes in applicable regulations could adversely affect companies in those industries. In addition, the comparative rapidity of product development and technological advancements in many areas of the sector may be reflected in greater volatility of the stock of companies operating in those areas.

Founded in 1964, Fred Alger Management provides investment advisory services to institutional and individual investors through traditional and alternative strategies in a variety of products, including separate accounts, mutual funds and privately offered investment vehicles. For more information, please visit www.alger.com.