“Wearable devices are the next milestone”
Interview with Catherine Tennyson
Mental health is becoming increasingly important – expert believes in long-term growth for the industry
While health issues and companies have long been moving the capital markets, mental health has so far been more of a niche topic. That is likely to change soon. Fund manager Catherine Tennyson of Axa Investment Managers is convinced of this in an interview with the Börsen-Zeitung.
Ms. Tennyson, you are working in the increasingly important area of mental health. How did you get into this?
We work in different fields and mental health is currently becoming more important. We have noticed this trend and are looking at which companies have positive profit prospects as a result and at the same time contribute to solving a social problem.
Socially and politically, topics such as depression or addiction are no longer as taboo as they were a few years ago. From an investor’s perspective, however, the subject area is still rather under-exposed. Do you think that could change?
Investing in mental health is vital not only for individuals, but also for the healthcare system, society and wider economic productivity. Mental health problems cost the UK economy at least £117.9 billion annually, or 5% of UK GDP in 2019, so it is surprising that this remains one of the most under-resourced areas of healthcare. While the medical community recognises the close link between good mental and physical health, payers and policymakers have only recently caught up. In 2024, we are now at an exciting point where policy, payers, private and public markets and patients are all pulling together to advance the mental health sector. We believe the sector is well positioned for long-term growth.
What has changed politically?
2023 was a key year for political recognition and funding of mental health in developed countries, and this is likely to lead to greater financial commitment to this area. To name just a few examples: In June 2023, the European Commission published its plan for a comprehensive approach to mental health in the EU. The plan includes 20 flagship initiatives and over €1.23 billion in EU funding to support Member States in putting people and their mental health at the centre. In the US, too, the Department of Health and Human Services announced $206 million in grants for youth mental health. This is arguably the first time that policymakers have committed to a coordinated and holistic approach to tackling the societal burden of mental health issues. And the companies offering solutions in this area are poised for longer-term structural growth in the sector.
What about health insurance?
Health insurers are the gatekeepers for access to mental health care and have been fortunate to be some of the first to invest in this area. U.S. health insurers such as United Health (UNH) and Humana have continued to expand their offerings. In January 2023, UNH announced the launch of a new, virtual behavioral coaching program – a support service for insureds suffering from depression, stress and anxiety. Mental health services are becoming a key differentiator for health insurers – especially as employers look to offer their employees increasing coverage for mental health conditions. This is a key driver for innovation and capital allocation in this area.
How are start-ups doing in the mental health sector?
Despite being a structurally growing market, the mental health space was not immune to the tougher financing conditions in 2023. At their peak, mental health startups in Europe raised around $1.2 billion in investments in 2021, but this fell to just $80 million in 2023. We believe this is a temporary correction and not a structural change in interest in mental health innovation. In 2024, we are already seeing the first signs of recovery.
And the big companies?
Large publicly traded managed care and healthcare services companies have partnered with these innovative startups to expand their mental health offerings. For example, CVS Health Ventures invested in Connecticut-based suicide prevention and telehealth platform Vita Health in a Series A funding round in January 2024. To date, most investments have focused on healthcare provider platforms (therapy networks, behavioral apps, etc.). This is a highly fragmented space that will inevitably see further consolidation by larger health insurers who can leverage their already extensive customer base and infrastructure to their advantage.
Weight loss products have recently been a real trendsetter for major pharmaceutical giants such as Novo Nordisk and Eli Lilly. What could be an attractive market opener when it comes to mental health from a capital market perspective?
Mental health wearables are the next frontier that we believe will see increased investment from the public markets. Medical device companies with experience in wearables are a natural habitat for these startups. We believe the larger publicly traded medical device companies are closely monitoring the early winners in the mental health wearables space before making acquisitions.
Do you have an example of the demand for such wearables?
Just look at the explosion in demand for continuous glucose monitors to see that patients are ready to wear something on their body and be more autonomous in monitoring and managing their own health. Medical device companies with experience in wearables are a natural habitat for these start-ups. From a therapeutic perspective, studies are underway to further explore the potential use of potassium channel regulation in the treatment of major depressive disorder and GLP1 receptor agonism in controlling reward mechanisms to see if this can be used to treat addiction and substance abuse disorders.
How big is the mental health sector and what do you think are the growth prospects for the sector?
It is difficult to quantify the true size of the mental health sector in dollars. The best way to quantify the potential is in terms of disease prevalence and burden. The World Health Organization estimated in 2021 that more than 150 million people in Europe live with a mental illness, of whom only a third receive medical care – so the market is significant. Data from a study published in JAMA (Journal of the American Medical Association, Editor’s note) show that mental health service utilization and spending among commercially insured adults increased by 38.8% and 53.7%, respectively, between 2019 and 2022. This puts the sector in a much better position compared to the pre-pandemic period. Given continued innovation growth in services, medical devices, and therapeutics, we expect the sector to experience structural growth over the medium term.
Which companies do you rely on in the mental health sector and what makes them attractive to you?
Health insurers and managed care providers such as UNH, Humana and Cigna are the gatekeepers of mental healthcare. They have large patient pools and close relationships with employers. These companies already have experience with virtual healthcare and therefore have the infrastructure needed for mental health platforms.
Who else could benefit?
Pharmacies are playing an increasingly important role in providing better and more local access to healthcare. In the US, CVS has invested in Vita Health, a startup focused on suicide prevention. Pharmacies play an essential role in ensuring patient adherence to medication, including anti-anxiety and anti-depression drugs. The introduction of e-prescriptions in Germany could be a broader catalyst for the establishment of more online platforms at European pharmacy chains.
What about wearables?
Consumer MedTechs, particularly leaders in consumer wearables, could easily capitalize on their opportunities in the mental health space. For a multipurpose device that allows the patient to track everything from blood sugar and sleep patterns to managing anxiety and depression, the demand would clearly be there.
What about biotech companies?
As our understanding of neuronal signaling pathways increases, biotech and pharmaceutical companies are researching targeted therapeutics to treat mental health areas with high unmet need, such as major depressive disorders.
To person: Catherine Tennyson is a Healthcare Portfolio Manager at AXA Investment Managers. She is responsible for equity strategies in the thematic areas of healthcare, biotech and longevity, drawing on her background as a medical graduate.
The interview was conducted by Tobias Möllers.
The interview was conducted by Tobias Möllers.
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