The healthcare sector has delivered some of the highest returns to investors and was only beaten by the tech sector in total returns over the last 3 decades. Kim Parlee talks to Tarik Aeta, Healthcare Analyst, TD Asset Management, about why healthcare could continue to deliver outsized returns.
TARIK AETA [00:00:36] Yeah, Kim, you're absolutely correct. When we take a look at the chart, health care has been the second best performing sector in the S&P 500 over the last couple of decades, with only tech stocks really having done better. And we take a step back and look at the big picture, there really have been two very, very simple things that have driven the strong growth, and I expect those really to remain in place for some time to come. So first, and everyone knows this one, is a growing and aging global population. Here in Canada, for instance, while total population grows at roughly 1% per year, for adults over 65, the population is actually growing three times as fast at 3% per year. And as we all get older, we all consume more health care services. And the second driver of growth, which is arguably even more important, has been innovation. And the reason innovation has been so powerful in health care, just like it has been in technology, is because it opens up new markets where there are unmet consumer needs. And with the health care sector, continue to invest more on research and development each and every year, the pipeline of innovation remains robust and will continue to deliver strong returns for the sector.
KIM PARLEE [00:01:52] Let's stick with that key theme of innovation, because I know that's one that you are focused on. And when you look at one of the ETFs that I know that you're involved with called TDOC, it looks at some of these innovation verticals and I think we've got a chart here we can show people. There are six verticals that are of particular interest, I know from your perspective. We don't have time for all six, but I know there's one you want to highlight.
TARIK AETA [00:02:20] Yeah. So definitely taking a step back. As I'm sure everyone remembers from high school biology class, genomics is was a quickly growing area and the genome is simply a fancy term that refers to all our DNA. And genomic medicine, by extension, is simply using that science of genomics in the clinical care of patients. And allowing this innovation to really accelerate in recent years has been a collapse in the cost of DNA sequencing, which is basically the process of reading all the letters of your DNA. It took 13 years and three billion dollars to sequence the first human genome back in 2003 as part of the Human Genome Project. And today we can do that in literally a few hours and for less than $700. And one of the most promising application for the technology is using it to develop an early cancer screening test. And this is important because cancer is the second leading cause of death globally. As you can see in this chart, despite decades of research, there's still a long ways to go when it comes to developing better treatments for cancer and also to just simply identify cancer. You know, in contrast, when it comes to cardiovascular disease, the advances in recent decades have been arguably much bigger. And close to home here in Canada, one statistic that shocks many is that nearly one in two Canadians will be diagnosed with cancer at some point in their lifetime and one in four Canadians will succumb to cancer. So by using genomic based diagnostics in the future, as part of one's annual physical, we may be able to conduct a blood test which would allow us to scan for micro fragments of cancer DNA floating around in your blood. This will allow us to catch more cancers early when they could be more easily treated and materially improve cancer survival rates. So in the same way, mammograms dramatically reduce breast cancer deaths since the 1980s, with these genomic based tests, the hope is that we can pick up cancer earlier for cancers such as ovarian, pancreatic, stomach and lung cancer. So a lot of these cancers where we currently don't have early testing in place. The first such test actually launched this summer in the US from a company called GRAIL. The test is currently being targeted to adults over 50 who are at elevated risk of cancer and it's able to detect over 50 types of cancer. That said, the test is far from perfect. This first generation technology is only able to pick up early stage cancers 44% of the time. But as the technology continues to improve, I expect the industry will create more sensitive tests and as sensitivity continues to improve, that will drive greater adoption across the world.
KIM PARLEE [00:05:14] The possibilities are exciting. The idea of a liquid biopsy where you can just draw blood and be able to see what's going on. Tarik, I've only got about 30 seconds, but I know one company, I believe as part of TDOC that you pay attention to is Illumina. What do they do?
TARIK AETA [00:05:30] Yeah. So in terms of the broader genomics ecosystem, the fund holds several companies, but the main one to highlight, as you mentioned, is Illumina, a California based company. And basically Illumina is the world leader in gene sequencing with their machine basically sequencing 90% of all the genetic material that is being processed on a daily basis globally. And what is unique about Illumina is that they benefit from the secular growth of genomics, no matter which diagnostic firm develops the next big test, and no matter which university has the next big breakthrough. Basically, at the end of the day, most of the industry basically runs on Illumina machines. So as long as sequencing volumes keep growing year after year, Illumina is well positioned to continue to grow their revenues on their end.
KIM PARLEE [00:06:19] Interesting conversation, Tarik. Thanks so much, always a pleasure.
TARIK AETA [00:06:23] Thanks, Kim.