Updated 22 Oct 2021
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This is a non-independent marketing communication commissioned by Baillie Gifford. The report has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on the dealing ahead of the dissemination of investment research.

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In half of coronary artery disease cases, the presenting symptom is death. That’s why early detection matters. NHS doctors in England now have a new diagnostic weapon to fight the disease.

Used in the US since 2014, HeartFlow Analysis uses artificial intelligence (AI) to turn a CT scan of the patient’s heart into an interactive, 3D model. With its help, cardiologists can assess potential problems with the arterial blood supply and decide on treatment.

Not only does the Californian company’s program work but, according to the UK’s National Institute for Health & Care Excellence (NICE), it represents a £391 per patient cost saving to the NHS. Thus, it satisfies the rule of thumb used by Tom Slater, joint manager of the Scottish Mortgage Investment Trust, for medtech, biotech and other healthcare companies considered for the trust’s £19bn portfolio: “Does this company improve patient outcomes? Does it reduce the costs of the system?”

At present, about 17 per cent of Scottish Mortgage is invested in medically-related firms, compared to 12 per cent five years ago and 3 per cent 10 years ago. The trust’s enthusiasm for the sector stems from a convergence of technological breakthroughs that have accelerated innovation, including in tackling cancer, heart disease, and Alzheimer’s.

“Biology is very, very difficult,” Slater says. “It’s really the progress made in the field of information technology that’s allowed us to get to this point where you can see progress. It’s the cumulative impact of advances in fields as diverse as mRNA therapeutics and machine learning, DNA sequencing and cloud storage.”

Slater draws a parallel with retail and media, where technology has opened opportunities for companies with better, cheaper products.

“Until now, you haven’t seen this same trend in healthcare. In fact, you’ve had the opposite: continuous cost inflation. When combined with an ageing population, the growing proportion of the nations’ GDP spent on healthcare was unsustainable. Now these exciting, deflationary technologies are converging to reduce costs and significantly improve outcomes for patients.”

That cost reduction is critical. Getting a new drug from lab to market costs on average around $1.3bn, according to a recent US study. Most of that goes on the nine out of 10 candidate treatments that fail somewhere between early clinical trials and regulatory approval.

“For a long time, it made most sense to develop me-too drugs that merely refine existing therapies,” Slater explains. “Companies were basing decisions on commercial opportunities instead of pursuing basic science for its own sake and seeing where it takes you.”

The declining grip of “big pharma” and its search for the next “blockbuster drug” has coincided with the rise of more fundamental research into disease causes. AI is replacing the slow and expensive parts of the drug discovery process.

Another game-changer, Slater asserts, is the increased willingness of venture capitalists and other investors to provide more capital to support early-stage biotech companies.

He cites the example of Denali, which is seeking a cure for neurodegenerative diseases such as Alzheimer’s: “The traditional model of funding research was to develop a drug and attempt to raise money to get through to the next trial stage. The companies that seem most interesting to us today are raising a lot more money that isn’t tied to a specific objective. Denali, for example, now has a billion dollar-plus balance sheet. With that level of investment, it can follow the science. And if the lead drug candidate has problems, say with its safety profile, it promotes the second candidate.

“The whole time it’s building its understanding of the problem, which in the case of neurodegeneration is mainly about getting drugs across the blood-brain barrier. This long-term focus leads to much more interesting outcomes than the traditional stage-by-stage biotech funding model.”

In the field of “personalised medicine” – therapies tailored to an individual’s genetic makeup – Slater cites Chicago-based Tempus Labs successful exploitation of AI. Tempus draws together 3.7 million cancer patients’ records worldwide, its AI “reading” and sorting them so they can be searched and analysed.

“Because there are so many clinical trials going on in oncology, it’s very difficult for physicians to keep on top of all of the latest data and then match the findings to the individual circumstances of that patient,” Slater explains. Tempus’s algorithms can match physiological data with genomic data and recommend personalised, real-time treatments for patients in acute need.

As societies age, the pressure to satisfy what Slater calls “unmet clinical need” – the cruel ailments that still blight so many lives – is only going to grow. Incremental change, he makes clear, is the wrong prescription. Better, he believes, to seek out and back transformational change.

Words by Nic Fleming

Investments with exposure to overseas securities can be affected by changing stock market conditions and currency rates. The trust has a significant exposure to private companies. The trust’s risk could be increased as these assets may be more difficult to buy or sell, so changes in their prices may be greater.

This article does not constitute, and is not subject to the protections afforded to, independent research. Baillie Gifford and its staff may have dealt in the investments concerned. The views expressed are not statements of fact and should not be considered as advice or a recommendation to buy, sell or hold a particular investment.

Baillie Gifford & Co and Baillie Gifford & Co Limited is authorised and regulated by the Financial Conduct Authority (FCA). The investments trusts managed by Baillie Gifford & Co Limited are listed UK companies and are not authorised and regulated by the Financial Conduct Authority.

A Key Information Document is available at bailliegifford.com

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