How to Invest In the Future of Digital Medicine

As health care — like many other aspects of our lives — becomes ever more

As health care — like many other aspects of our lives — becomes ever more digital, investors will find new ways to profit from the companies involved in what may be the future of medicine: telehealth.

Increased investing interest in virtual health care comes as “COVID-19 has caused a massive acceleration in the use of telehealth,” according to McKinsey & Co.

U.S. telehealth provider Amwell has filed to go public and said Alphabet’s (ticker: GOOG, GOOGL) Google has agreed to buy $100 million worth of shares in a separate private placement. The CEO of Amwell competitor MDLIVE, Charles Jones, told health care news outlet STAT that MDLive is planning to go public early next year. Virtual care provider Teladoc Health ( TDOC) and Livongo Health ( LVGO), whose technology helps monitor and manage chronic conditions, also announced an $18.5 billion merger this month.

According to McKinsey, 46% of U.S. consumers as of an April 27 survey were using telehealth to replace canceled health care visits. That’s up from 11% in 2019. The consultancy said the acceleration of telehealth adoption and its extension beyond virtual urgent care could mean up to $250 billion of current U.S. health care spending will be virtualized.

For investors who are interested in profiting as health care and digital tech integrate, here are some important points to keep in mind:

— The investment case for telehealth.

— Telehealth versus telemedicine.

— How to invest in telehealth stocks.

[See: Recession-Proof Health Care ETFs to Buy]

The Investment Case for Telehealth Stocks

Even before the pandemic, there were a number of trends that have boosted interest in digital health companies, says Andrew Little, thematic research analyst with Global X. Those include demographic disparities, population growth, an increasing number of older people, inefficient health care systems and improving connectivity.

The investment case for remote health care before the pandemic was centered around companies that were making health care simpler and more automated to add convenience for the consumer, as many medical interactions don’t require in-person visits with doctors, says Dan Raju, founder and CEO of Tradier.

With the pandemic accelerating the use of telemedicine services, patients and doctors have now tried it and like it — meaning they may be more likely to adopt it more broadly even after the pandemic is over, says Nina Deka, senior research analyst at ROBO Global.

“We’re in the earliest days of adoption,” Deka says.

Telehealth vs. Telemedicine

According to Raju, telemedicine refers to the delivery of health services such as doctor visits via communication networks. Typical interactions might include an initial consultation with a physician who could then provide an initial prescription or schedule an in-person visit, he says.

The investment opportunities don’t stop with telemedicine.

Telehealth is a broader term that refers to the ways of connecting patients with doctors, doctors to doctors or even connecting medical devices to doctors and patients, Deka says. Telehealth includes a data aspect — such as health care analytics — as well as collecting and storing data, Little says.

In addition to clinical services, explains that telehealth includes nonclinical services such as provider training, administrative meetings and continuing medical education.

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How to Invest in Telehealth Stocks

One of the leading public companies in the space is Teladoc, which completed more than 4.1 million telehealth visits in 2019 globally. Teladoc provides virtual health care services to consumers and employers, health plans, hospitals, health systems and insurance companies.

The company’s shares have gained more than 150% this year through late August, so some investors may question whether they should buy the stock now. Deka sees plenty of room for growth in the company over the next five to 10 years, especially in mental health services and expansion in chronic illnesses like diabetes. “They pioneered this space,” she says.

Another public company is Ping An Good Doctor (1833.HK), formerly known as Ping An Healthcare and Technology Co. This Shanghai-based online medical services provider, as of the end of June, boasted 346 million registered users, a year-over-year increase of nearly 57 million. In the first half of the year, revenue from its core online medical business more than doubled compared to the prior year, the company said earlier this month. Shares have nearly doubled in price this year.

There are also options for investors that prefer the diversification funds can offer instead of buying shares of individual companies.

The Global X Telemedicine & Digital Health ETF ( EDOC) invests in companies positioned to benefit from advances in telemedicine and digital health including health care analytics, connected health care devices and administrative digitization. It’s a new fund, but EDOC is up nearly 3% since its inception earlier this summer.

Among the fund’s top holdings is iRhythm Technologies ( IRTC), a leading provider of digital health care solutions that has surged by more than 200% since the beginning of the year.

There’s also the ROBO Global Healthcare Technology and Innovation ETF ( HTEC). While the fund offers telehealth exposure, it also includes health care technology companies involved in diagnostics, robotics, genomics and other disciplines. Through late August, shares have climbed nearly 30% this year.

Of course, as telehealth catches on more and generates savings over traditional doctor visits, traditional insurers such as Humana ( HUM) and Anthem ( ANTM) also stand to benefit, as do companies like Zoom Video Communications ( ZM) that help make video conferencing possible.

And for pure-play telehealth stocks, it seems like the prognosis looks good. Just as the pandemic has helped accelerate trends like online shopping and home delivery of groceries, so too it seems the need to socially distance has accelerated the shift toward telehealth, potentially giving investors’ portfolios a shot in the arm.

Matt Whittaker began writing for U.S. News & World Report in 2015, covering investing topics. Based in Colorado, he also specializes in natural resources and outdoor industry journalism. Mr. Whittaker has reported on renewable energy, coal, oil, natural gas, metals and seafood companies from the Americas, Europe and Asia, and his work has appeared in The Wall Street Journal, Barron’s, Pacific Standard, VICE Sports, Backpacker online and High Country News. He has been a fellow with the Knight Center for Specialized Journalism and is particularly proud of an Overseas Press Club Foundation scholarship he won for a series of articles on landmines in Bosnia and Herzegovina. Born in Knoxville, Tenn., Mr. Whittaker graduated with a degree in journalism from the University of Tennessee. You can follow him on Twitter and connect with him on LinkedIn.

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