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DIGITAL HEALTH - INVEST IN NEW SOLUTIONS
Julius Baer Structured Products
March 2016
2
• Healthcare costs continue to rise around the globe due to
– ageing population
– growing prevalence of chronic diseases
• The healthcare industry is turning to digital solutions that
– aim to connect the entire value chain to improve quality and patient management
– are more preventive, predictive and personalised
– reduce waste and costs
• From high cost and low access to high access at lower costs
– Example: Keeping patients out of the hospital and in alternate care sites (e.g. home) is
already a focus of providers. Digital Health will further enable this trend.
• For the full research report please see the appendix
DIGITAL HEALTH – RESHAPING HEALTHCARE Tracker Certificate on the Digital Health Basket
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INDICATIVE TERMS*
Issuer Bank Julius Baer & Co. Ltd., Guernsey Branch (Rating: Moody’s A2)
Currency USD (composite)
Maturity 1 year
Underlying Digital Health Basket (14 shares, equally weighted)
Dividends Discounted
Participation 100%
Settlement type Cash settlement
Initial value USD 100
Issue price USD 100.50
Valor / ISIN / Symbol 30.689.191 / CH0306891919 / JFRTL
Subscription period Until 14 April 2016, 17:00 CET
Tracker Certificate on the Digital Health Basket
*Terms are indicative and subject to change
4
BASKET COMPONENTS Tracker Certificate on the Digital Health Basket
UnderlyingBloomberg
TickerISIN Exchange Initial Level Weight*
CERNER CORP CERN UW Equity US1567821046 NASDAQ GS USD 53.14 7.14%
MEDIDATA SOLUTIO MDSO UW Equity US58471A1051 NASDAQ GS USD 36.18 7.14%
TELADOC INC TDOC UN Equity US87918A1051 New York USD 11.23 7.14%
COGNIZANT TECH-A CTSH UW Equity US1924461023 NASDAQ GS USD 59.52 7.14%
MEDTRONIC PLC MDT UN Equity IE00BTN1Y115 New York USD 75.21 7.14%
PREMIER INC-CL A PINC UW Equity US74051N1028 NASDAQ GS USD 32.97 7.14%
RESMED INC RMD UN Equity US7611521078 New York USD 56.19 7.14%
CVS HEALTH CORP CVS UN Equity US1266501006 New York USD 101.74 7.14%
GENERAL ELECTRIC GE UN Equity US3696041033 New York USD 31.09 7.14%
MCKESSON CORP MCK UN Equity US58155Q1031 New York USD 156.86 7.14%
ILLUMINA INC ILMN UW Equity US4523271090 NASDAQ GS USD 155.13 7.14%
LABORATORY CP LH UN Equity US50540R4092 New York USD 114.12 7.14%
NOVARTIS AG-REG NOVN VX Equity CH0012005267 SIX Swiss Ex CHF 71.45 7.14%
ROCHE HLDG-GENUS ROG VX Equity CH0012032048 SIX Swiss Ex CHF 233.9 7.14%
*on initial fixing date
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For distribution in Switzerland only. This presentation constitutes marketing
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NEITHER THIS PRESENTATION NOR ANY COPY THEREOF MAY BE SENT, TAKEN
INTO OR DISTRIBUTED IN THE UNITED STATES OR TO ANY US PERSON AS
DEFINED IN REGULATION S OF THE US SECURITIES ACT OF 1933.
© Julius Baer Group, 2016
IMPORTANT LEGAL DISCLAIMER
6
APPENDIX: FULL RESEARCH REPORT
7
8
• The growing prevalence of chronic diseases and ageing populations places a heavy burden on
health systems around the globe as healthcare costs continue to rise.
• Increasingly, the healthcare industry is turning to digital solutions. Digital health aims to
connect the entire healthcare value chain to improve quality of medical care while reducing
costs.
• Growing abundance of new actionable health data coming from cheap medical devices and
cheaper gene sequencing bring the promise to make medicine more preventive, predictive and
personalised.
• We think the first wave of digital health technologies that prove successful will be those that
drive specific action to improve patient care and correspondingly reduce cost.
• We see tangible growth potential in the fields of healthcare IT enabling to improve the care
delivery chain. Besides health IT, we also identified remote patient monitoring, telehealth and
genomics applications as attractive digital health growth areas.
DIGITAL HEALTH – RESHAPING HEALTHCARE Rising healthcare cost ask for new solutions. Health IT, remote patient monitoring,
telehealth and genomics could benefit from the transition to digital health.
9
HEALTHCARE COSTS KEEP RISING Growing prevalence of chronic diseases and ageing populations places a heavy
burden on health systems around the globe as healthcare costs continue to rise.
Source: World Bank, Julius Baer Source: OECD, Julius Baer
0
1'000
2'000
3'000
4'000
5'000
6'000
7'000
8'000
9'000
10'000
1995 1998 2001 2004 2007 2010 2013
US Switzerland
Germany Japan
UK Brazil
China
Per capita spending for healthcare, USD PPP
Spending for healthcare keeps rising on a per capita …
GDP per capita vs health spending per country
16
.4
11
.1
11
.0
10
.2
8.9
8.8
8.8
8.5
6.9
6.5
5.6
4.0
2.9
0
2
4
6
8
10
12
14
16
18
US
Sw
itze
rla
nd
Ge
rma
ny
Ja
pa
n
OE
CD
Ita
ly
Sp
ain
UK
Ko
rea
Ru
ssia
Ch
ina
Ind
ia
Ind
on
esi
a
% GDP
Public Private
10
INCREASED DEMAND FOR HEALTHCARE Growing prevalence of chronic diseases and ageing populations are triggering
increased demand for healthcare
Source: OECD, Julius Baer Source: National Medical Expenditures Panel Survey of 2012, Julius Baer
The 65+ demographics, spend on average double on healthcare than the rest
Over 70% of healthcare budgets in the Eurozone and US are spent on chronic diseases
41'304
41'333
47'229
59'249
73'823
75'906
83'598
87'538
92'137
100'996
0 100'000 200'000
Pancreatic & liver disease
Back problems
Hypertension
Diabetes
Osteoarthritis & jointissues
COPD*, asthma
Mental disorders
Cancer
Trauma-related disorders
Heart conditions
USD annual costs
Top 10 diagnoses ranked by average aggregate annual expenditure
13
16
21
21
23
24
24
27
28
33
33
36
37
39
5
5
13
13
7
8
16
15
17
20
21
17
11
23
0 10 20 30 40
India
Indonesia
United States
Russia
Brazil
China
United Kingdom
OECD
Switzerland
Italy
Germany
Spain
Korea
Japan
% share of population aged 65 and older
2010 2050
11
CATALYSTS ENABLING DIGITAL HEALTH 1) Shift to value; 2) Patients becoming more engaged; 3) Rapid digitalisation of
clinical data (EMR); 4) Tech companies moving in; 5) Investment into digital health
Source: American Hospital Association, Commonwealth Fund, Julius Baer Source: Rock Health, Julius Baer
Wide adoption of electronic medical records (EMR) as a backbone for digital health
Venture funding increased in digital health businesses
100% 100% 100% 100% 100%97%
83%
0%
20%
40%
60%
80%
100%
Au
stra
lia
Ne
the
rla
nd
s
No
rwa
y
Sw
ed
en
UK
Ge
rma
ny
US
% share
0.9
1.4
1.8
4.34.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2011 2012 2013 2014 2015
USD bn
• The first wave of digital health technologies
that prove successful will be those that
drive specific action to improve patient
care and correspondingly reduce waste and
cost.
• Better patient management, streamlining
the care chain, reducing costly admissions
all have the potential to improve the future
economics for healthcare services.
• Keeping patients out of the hospital and in
alternate care sites (e.g. home) is already a
focus of providers. We see digital health as
a further enabler.
12
INCREASING ACCESS AND LOWERING COSTS Digital health promises affordable, more efficient and better access to patient
solutions
Source: Goldman Sachs, Julius Baer
From high cost and low access to
high access at lower costs
Past Present Future
low tech
low access
low cost
high tech
low access
high cost
high tech
high access
low cost
Digital Health
• Remote patient monitoring (RPM): Enables
healthcare providers through devices and
applications to frequently keep track of
high-risk patients.
• Telehealth: Allows patients to seek expert
medical advice without having to visit a
doctor’s office via telecom. technologies.
• Healthcare IT: Connecting the health care
value chain with platforms and providing
analytics.
• Genomics: More efficient genomic
sequencing has massively lowered the price
of DNA sequencing. Genomics assessment
of cancers is a major application field
opening up.
13
THE EMERGING DIGITAL HEALTH SEGMENTS Digital health is still in an early stage of development, but a select few segments
are approaching critical mass.
Source: Goldman Sachs, Piper Jeffrey, UBS, Morgan Stanley, Julius Baer
Savings opportunity exceeds addressable market
0
100
200
300
400
500
600
Addressable market Savings opportunity
USD bn
Health IT RPM Telehealth Genomics
Additional savings opportunity combining health IT and genomics
14
THE DIGITAL HEALTH EQUITY UNIVERSE (1/2) Health IT, remote patient monitoring, telehealth and genomics could benefit from
the transition to digital health.
Source: Bloomberg Finance L.P., Julius Baer; This list contains covered and not covered (n.c.) companies by Julius Baer, Julius Baer offers no recommendation; *The exposure rating follows the Next Generation investment selection process which analyses a company's exposure to structural market growth. CCY = Currency; ESG = Environmental, social and governance; P/E 12m fwd = Price / Earnings Ratio 12 month forward estimate; Div yld = Dividend yield
Company Exposure* Julius Price CCY Price Market cap. ISIN P/E Div yld
Baer target (USD bn) 1M 3M 12M 12m fwd (%)
Health IT / Remote patient monitoring / Telehealth
ATHENAHEALTH INC High n.c. 130.0 USD n.c. 5.1 2.8 -16.5 4.1 US04685W1036 58.5 n.a.
CERNER CORP High n.c. 52.3 USD n.c. 17.8 0.3 -11.4 -27.0 US1567821046 19.3 n.a.
DEXCOM INC High n.c. 59.4 USD n.c. 4.9 -3.7 -27.7 -5.0 US2521311074 171.2 n.a.
EVERYDAY HEALTH INC High n.c. 5.5 USD n.c. 0.2 24.3 -8.6 -56.0 US3004151060 6.4 n.a.
INOVALON HOLDINGS INC - A High n.c. 18.5 USD n.c. 2.8 -5.2 5.1 -36.5 US45781D1019 25.8 n.a.
MEDIDATA SOLUTIONS INC High n.c. 35.7 USD n.c. 2.0 0.8 -22.6 -27.0 US58471A1051 28.8 n.a.
TELADOC INC High n.c. 10.7 USD n.c. 0.4 -26.7 -41.2 n.a. US87918A1051 n.a. n.a.
VEEVA SYSTEMS INC-CLASS A High n.c. 25.3 USD n.c. 3.4 14.4 -9.2 -7.9 US9224751084 35.1 n.a.
ALLSCRIPTS HEALTHCARE SOLUTI Medium n.c. 12.4 USD n.c. 2.3 -0.2 -16.0 5.8 US01988P1084 18.1 n.a.
ALPHABET INC-CL A Medium Buy 758.5 USD 850 513.7 5.7 0.2 34.0 US02079K3059 26.3 -
CASTLIGHT HEALTH INC-B Medium n.c. 3.4 USD n.c. 0.3 23.8 -20.3 -62.3 US14862Q1004 n.a. n.a.
COGNIZANT TECH SOLUTIONS-A Medium Buy 58.7 USD 71 35.8 4.9 -0.2 -7.9 US1924461023 19.6 -
EVOLENT HEALTH INC - A Medium n.c. 10.4 USD n.c. 0.6 12.8 -19.1 n.a. US30050B1017 n.a. n.a.
INTL BUSINESS MACHINES CORP Medium Hold 147.0 USD 135 141.3 11.0 9.0 -8.0 US4592001014 9.2 4.1
KONINKLIJKE PHILIPS NV Medium Hold 24.5 EUR 26 25.8 10.2 4.1 -10.6 NL0000009538 17.3 3.6
M3 INC Medium n.c. 2'763.0 JPY n.c. 8.0 2.4 2.8 2.1 JP3435750009 56.0 0.3
MEDTRONIC PLC Medium Buy 75.5 USD 86 105.8 0.7 -1.1 -2.7 IE00BTN1Y115 18.3 2.0
OMNICELL INC Medium n.c. 27.6 USD n.c. 1.0 0.1 -2.3 -14.5 US68213N1090 14.9 n.a.
PREMIER INC-CLASS A Medium n.c. 32.0 USD n.c. 4.5 -1.0 -5.5 -13.1 US74051N1028 17.8 n.a.
RESMED INC Medium n.c. 56.0 USD n.c. 7.8 -5.4 3.7 -22.7 US7611521078 18.7 2.1
SIEMENS AG-REG Medium Hold 91.3 EUR 100 87.9 7.6 2.6 -13.3 DE0007236101 13.7 4.0
VERISK ANALYTICS INC Medium n.c. 77.2 USD n.c. 13.0 12.8 2.8 7.6 US92345Y1064 21.4 n.a.
WEBMD HEALTH CORP Medium n.c. 58.6 USD n.c. 2.2 11.2 26.7 35.1 US94770V1026 26.8 n.a.
APPLE INC Low Hold 105.8 USD 110 586.6 9.9 -0.2 -17.6 US0378331005 10.3 2.2
CVS HEALTH CORP Low Buy 101.1 USD 115 111.1 4.4 6.6 -2.3 US1266501006 18.9 1.8
DANAHER CORP Low Buy 93.6 USD 105 64.3 7.9 2.5 7.2 US2358511028 21.6 0.7
GENERAL ELECTRIC CO Low Buy 31.0 USD 33 287.5 6.5 2.2 20.7 US3696041033 23.8 3.4
MCKESSON CORP Low n.c. 151.7 USD n.c. 34.7 -2.7 -21.6 -33.7 US58155Q1031 11.3 0.7
MICROSOFT CORP Low Buy 54.7 USD 62 432.3 4.7 1.0 28.6 US5949181045 17.0 2.7
WALGREENS BOOTS ALLIANCE INC Low Hold 83.3 USD 85 89.9 8.8 1.0 -4.5 US9314271084 18.3 1.8
Performance (%)
15
THE DIGITAL HEALTH EQUITY UNIVERSE (2/2) Health IT, remote patient monitoring, telehealth and genomics could benefit from
the transition to digital health.
Source: Bloomberg Finance L.P., Julius Baer; This list contains covered and not covered (n.c.) companies by Julius Baer, Julius Baer offers no recommendation; *The exposure rating follows the Next Generation investment selection process which analyses a company's exposure to structural market growth. CCY = Currency; ESG = Environmental, social and governance; P/E 12m fwd = Price / Earnings Ratio 12 month forward estimate; Div yld = Dividend yield
Company Exposure* Julius Price CCY Price Market cap. ISIN P/E Div yld
Baer target (USD bn) 1M 3M 12M 12m fwd (%)
Genomics
ILLUMINA INC High Buy 147.2 USD 172 21.6 -2.0 -19.1 -24.5 US4523271090 47.8 -
FOUNDATION MEDICINE INC Medium n.c. 16.2 USD n.c. 0.6 14.3 -22.5 -65.9 US3504651007 n.a. n.a.
GENOMIC HEALTH INC Medium n.c. 22.6 USD n.c. 0.7 -15.4 -30.7 -30.0 US37244C1018 186.8 n.a.
LABORATORY CRP OF AMER HLDGS Medium n.c. 112.3 USD n.c. 11.4 3.4 -7.7 -11.4 US50540R4092 11.7 n.a.
NOVARTIS AG-REG Medium Buy 70.9 CHF 92 196.2 -3.7 -16.4 -27.9 CH0012005267 17.3 3.8
ROCHE HOLDING AG-GENUSSCHEIN Medium Buy 238.8 CHF 315 213.5 -6.8 -11.2 -10.9 CH0012032048 20.5 3.4
THERMO FISHER SCIENTIFIC INC Medium Hold 138.3 USD 130 54.8 6.6 2.8 3.3 US8835561023 19.2 0.5
Performance (%)
16
NEXT GENERATION A holistic approach to thematic investing and sustainable growth
Source: Julius Baer
Structural Growth
First, seek growth beyond the
business cycle
> Identification of fundamental
imbalances within the economy and society at large
> Analysis of megatrends and their potential for structural change
> Collaboration with think tank WIRE.
Competitive Companies
Second, identify competitively
positioned companies
> Positive cash flows enabling long
term investments > Solid financial health allowing for
sustainable growth > Superior services and products > Strong organisation which fosters
a forward looking culture.
Risk Management
Third, manage thematic
investing's above average risks
> Diversification within themes
and industries > Portfolio tilt to quality > Active risk management
17
Source: Julius Baer
NEXT GENERATION INVESTMENT THEMES Mapping the future to seven key themes
Themes Description Themes Description
Arising
Asia
Growing economies in
emerging markets and
changing consumer
demands.
Frontier
markets
Economies that start from a
low base and have not yet
been discovered by the
investment community.
Digital
Disruption
The phenomenon of
digitisation, and how it is
affecting every corner
of our lives.
Growing
urban
The megatrend of
urbanisation, where by
2050, most of the world’s
population will live in cities.
Energy
Transition
The shift from fossil fuels to
new sources of energy.
Shifting
lifestyles
Considering the impacts
that the world’s increasing
ageing population will have.
Feeding
the world
Sustainable production for
the additional 2.4 billion
people the world will have
by 2050.