It always strikes me as ironic that during the festive season when we want to look and feel our best, the dreaded norovirus as well as assorted cases of colds and stomach bugs strike. Over half of my team have been struck down in the last few weeks.
The history of viruses is as old as life on earth, but in today’s world, increasing population densities, changes in global supply chains and farming methods and high speed travel have hastened the spread of new viruses around the world like SARS or swine flu pandemics.
If for one moment, we concentrate our attention on food-related diseases, we would notice some disturbing trends. According to the Centers for Disease Control and Prevention, food sickens 48 million Americans a year, with 128,000 hospitalized and 3,000 killed, and the rate of infections linked to food borne salmonella, which causes the most illnesses and deaths, rose by 10% between 2006 and 2010.
In this context the growing importance of life sciences, the fields of science that involve the study of living organisms, comes as no surprise. They allow us to find new ways of preventing diseases through early detection and intervention. Life sciences touch every aspect of our lives and we all benefit from scientific development and the discovery of new medicines and treatments for diseases.
Life sciences are not only about human health but also play a role as gatekeepers of environmental health. Life sciences industry provides a broad range of test and measurement tools used for food and beverage safety and environmental monitoring, thus helping to identify and analyse contaminants in food, water or soil, air pollutants, and any substances for agricultural and industrial purposes.
Public opinion has become more sensitive on quality, health & safety and environmental issues, and this has led to the multiplication and strengthening of regulations. New legislation, such as the Food Safety Modernization Act in the US, and the Restriction of Hazardous Substances in Europe, introduces new parameters and requires additional analysis and examination works. The same trend can be noticed in emerging markets: in 2012 alone, China published 88 new food safety standards and plans to expand even more.
We have found a number of life sciences companies that provide attractive investment opportunities, benefitting from these structural growth trends and also offer attractive business models with high returns. Because of the reiterative nature of experimental research, there is a lot of precedent for the “razor and razor blade” strategy in the life science industry which provides consumables such as enzymes, antibodies and assays along with the instruments. This strategy provides recurring revenue streams and predictable cash flows that enable these businesses to invest further in R&D.
However, some challenges are still to be overcome. Post-crisis austerity has curtailed research funding in the most advanced economies. In the US, the pending fiscal cliff, which would lead to an 8% cut to the National Institute of Health’s funding, is a major concern.
Emerging markets like China, however, are a source of strength. Life science companies are benefiting from increasing investment in research, food/environmental testing, and R&D spending. For example, a company like Thermo Fisher grew its sales in China by 20% in the last quarter.
Therefore, as investors concerned with both profitability and positive global impact, we have invested in life science companies like Thermo Fisher along with Mettler-Toledo and Agilent. They are well diversified and benefit from higher exposure to emerging market. And they have the tools to make the world a healthier, safer and cleaner place.
Wishing you all very healthy and happy holidays!