Medical Breakthroughs: Risky, or Revolutionary?

September 7, 2016

Healthcare technology is an appealing sector to physicians for possible investment opportunities. But, while healthcare corporations can produce dramatic ups, they can similarly suffer extreme downs as well.

Medical breakthroughs can change the world. The discoveries of vaccines, antibiotics, and X-rays certainly did so for the better. Cultivating healthcare innovation is among the most virtuous objectives that a professional or an establishment can pursue. Curing illness and even helping people function at a better than 'normal' level is an appealing prospect that researchers spend years grasping for.

And consumers crave advances in health technology. Who wouldn’t want to take a vitamin that boosts immunity, or consume a drink that accentuates athletic performance? Investors chase opportunities to own a piece of a healthcare business that translates brand new scientific discoveries into tangible products, ready for everyday consumption. To top it all off, the story-behind-the-story of a new healthcare advancement is frequently an inspirational fairytale that is met with all around enthusiasm and excitement.

This makes healthcare technology an appealing sector to physicians for possible investment opportunities. But, while healthcare corporations can produce dramatic ups, they can similarly suffer extreme downs as well. A few well-known private companies that produce health products illustrate the real world fluctuations of medical technology.

When the exuberance is punished

Some medical industry sensations experience moments of less-than-stellar regard, particularly in light of swelling anticipation. The recent downfall of Theranos, the company that announced a revolutionary new technique for blood testing, is one of the latest examples of premature overblown optimism. Under investigation by the Securities and Exchange Commission, the privately held company is taking a few steps back as regulators have stepped in and put the brakes on unproven and possibly unreliable techniques.

Sensa, which became a household name as a result of extensive advertising, was marketed as a product to be sprinkled on food as a means to weight loss. However, the company was fined $26.5 million by the United States Federal Trade Commission, which deemed the claims as not scientifically supported. The money was then issued as refunds to customers.

Another recent medical innovation, the Luminosity app, marketed as a way to improve performance through cognitive training, was ordered to pay $2 million to settle an FTC complaint regarding advertising language.

Are expectations fair?

Some companies continue to stand by their products even after regulatory setbacks. In fact, perhaps some of the products will be proven effective if more convincing and reproducible scientific evidence emerges once they are subjected to rigorous testing standards.

And, in many instances, new innovations that could cure disease or improve health can take excessively long to get to market. So, what qualifies as too soon? Could some companies that produce health products simply be the victims of overly stringent regulations or systems that unfairly demand early, overwhelmingly first-rate results? Or, are companies and investors rushing to get products out to consumers before the technology is properly fine-tuned for widespread general consumption?

Only time will tell if the setbacks we hear about on the news are bumps on the road to a flourishing company or the beginning of the end.

Should physicians invest in the healthcare sector?

Many doctors are hands-on investors, and the healthcare industry seems like a natural fit for physicians who already understand the science behind the dazzling marketing. In addition to the usual issues that are important when making investment decisions, there are further considerations that doctors need to take into account when approaching health sector investments, especially when it comes to investing in start-ups.

The Science

Doctors have enough medical knowledge to be able to understand the science behind new developments, even if those developments are in a different medical specialty. When the science behind a new development is still shaky, theoretical or not yet replicated, that doesn’t automatically discredit the new innovation, but it is reason to carefully pause and reconsider.

The Market

Some new ideas can sound very exciting, but do not necessarily suit many customers. Such products may be valuable to a limited number of people, but could be better brought to the public through grants or other non-profit sources of funding, rather than through a for profit investment model.

Practicality

There are cures for disease that can be impractical in mode of delivery and therefore, not useful. If the method of administration is so inconvenient, or if the product requires extreme care and meticulously precise conditions, it may not be ready for real life consumer use. While this does not always exclude a new product from becoming profitable, it can limit the potential due to excessive costs.

Price

If the price of the product is reasonable, then that makes it more likely to reach widespread use. However, sometimes, when it comes to pharmaceuticals and medical products, exorbitant prices are not a limiting factor to high volume. Nevertheless, it may be wiser in the long run, as well as more ethical, to avoid financial entanglements with companies that you believe to be taking advantage of payers and consumers.

The world of biotechnology can be an opportunity for physician investors. All investments have a degree of unpredictability, and doctors can approach health care investments with an extra source of knowledge and insight.