Access to healthcare – more important than ever allianzgi.com October 2022 We are now in the 3rd year of the COVID-19 pandemic and are approaching a time of the year when health services will again face significant pressure. This coincides with a cost of living crisis and looming recession, where hard choices are being forced upon consumers, some of which could add to these pressures. Solutions are needed to address the rising complexity and costs of healthcare, deriving from an ageing population and higher incidence of Nicole Papassavvas multimorbidity. This topic is evolving quickly and the implications for modern Senior Sustainability society and the economy may be far reaching – we explore ways investors Analyst could direct capital to products, services and solutions in the healthcare sector. Key takeaways – We believe there is urgency to address a steadily growing health crisis. Climate and planetary changes could accelerate its impacts – The COVID-19 pandemic has reminded us not only of the scale of healthcare challenges but also the breadth of the healthcare divide. While finding solutions to emerging healthcare threats, we need to ensure broader and more equitable access to medicine, intensive care and vaccines – Climate Change risks further stretching resources as we contend with heatwaves, respiratory illnesses due to higher pollution and broader transmission of diseases like 1 Dengue and West Nile fever – In addition to the human costs, the financial burden is expected to continue rising. Over 10% of GDP is spent on healthcare in many countries and investments in key enablers could present exciting opportunities in new medicines, solutions and services to help meet existing and future needs – The topic extends into biodiversity and natural capital, where healthy biological diversity creates a natural defence against the spread of certain diseases2 Value. Shared.

Access to healthcare - more important than ever AllianzGI framework for Inclusive Capitalism There is a significant divide in COVID-19 vaccination rates between the West and developing economies – while in early 2022 just under 60% of the global population has received at least one vaccine dose, it was only 9.5% 7 in low-income countries. There is a strong link between a country’s wealth and its vaccination rates. Delayed vaccinations are set to impact the global economy by trillions in GDP, but will be particularly impactful in developing economies.8 COVID-19 is not an exception While very evident in COVID-19, it would be a mistake to view this an exceptional case of healthcare inequality. Access to quality healthcare is often a function of wealth at the sovereign or individual levels. Long term impacts of this virus could still arise over time. Inclusive Capitalism For example, Long Covid is becoming better understood Healthcare is part of our Sustainability Research Theme and could become relevant for the longer-term labor 3 market and productivity trends. of Inclusive Capitalism at AllianzGI. Inclusive Capitalism aims to reduce inequality. We define access to healthcare In addition to the direct impact of COVID-19, lockdowns as a life essential, as it is core to existence, alongside food, impact mass vaccination campaigns for measles, polio, water, clean air, energy, safety and housing. 9 meningitis and other deadly but preventable diseases. More recently, rising cases of monkeypox in an increasing number of countries can be linked to routine smallpox Did you know? vaccinations having stopped. – In 1994, the Centers for Disease Control and Healthcare is a rising problem in developed regions Prevention declared that diabetes had reached Separate but possibly aligned to wealth, is education, epidemic proportions and should be considered a 10 major public health problem. It is estimated that ca. especially in the developed world. Chronic diseases such half a billion people have diabetes worldwide. This as heart disease, cancer and diabetes remain among 11 number is expected to increase by around 50% to 783 the leading causes of disability and death in US. – while million by 2045.4 these occur more frequently in an aging population, they 12 are correlated with the level of education. – The geographical range of the Dengue virus A combination of both education and wealth lead is expected to further expand due to ongoing into lifestyle choices, and these can play a major role, global phenomena including climate change and especially from an early age. Lifestyle factors can include urbanization. It is estimated that more than 6 billion nutrition, exposure to alcohol and tobacco and physical people will be at risk for dengue by 2080, an increase activity, which can have meaningful implications for both of 2.25 billion compared to 2015.5 13 physical and mental welfare. – The US is the only developed country whose average life expectancy stopped increasing after 2014.6 Leading causes of death in the US in 2020 and 2019: Turning COVID-19 response into structural positioning Heart disease The COVID-19 crisis underscored underinvestment in Cancer protecting against pandemics, but also highlighted how COVID-19 a targeted and collaborative global approach could be Unintentional injuries effective. In a relatively short period of time, vaccinations Stroke were developed, rolled out and strategies put in place to minimise the global impact. Chronic lower resirator diseases There is a risk of rising incidence of pandemics with rising lheier disease populations, loss of biodiversity and resource constraints Diaetes in healthcare systems. Influena and neuonia Underscoring the evident healthcare divide ­idne disease Despite the ability to mobilise at the company and 0 50 100 150 200 government level, this does not translate into broader 2019 2020 availability or reach of healthcare. Death per 100,000 US standard population Source: Products - Data Briefs - Number 427 - December 2021 (cdc.gov) 2

Access to healthcare - more important than ever The link to Climate and Planetary Boundaries The role of pharmaceuticals and the funding of There is a real risk that climate change and reduced healthcare biodiversity could worsen the problem. Emissions According to the OECD, pharmaceuticals are the third and pollution could raise the incidence of respiratory largest healthcare expenditure item after in-patient diseases, heavy rains and higher temperatures could and out-patient care, accounting for 16% of average raise occurrence of fevers (e.g. Dengue, West Nile), while health spend, even before including in-hospital 17 challenges to food availability and affordability could pharmaceuticals costs . These are costs predominantly impact healthy nutrition. covered by government financing or compulsory insurance schemes. However, the WHO estimates that Healthcare costs are escalating quickly as over 800 million people are spending over 10% of multimorbidity worsens household budgets on health for themselves, a sick child Historically there has been a focus on the link between or family member – these can result in “catastrophic 18 health and mortality, but there is now a heightened expenses” that can lead to severe poverty. awareness of multimorbidity which is defined as the The situation is particularly acute for innovative remedies presence of two or more long-term health conditions. and solutions. A survey by our Grassroots Research® team Multimorbidity is a major contribution of the sustained showed around 40% of US diabetes educators surveyed increase in healthcare costs as a share of GDP in OECD highlighted that new oral (not injected) diabetes drug countries. Among OECD Member countries, the United were very attractive but could be prohibitively expensive States has the highest percentage of GDP spent on without insurance. healthcare – 16.8% in 2020. For context, US Military expenditure was 3.7% of GDP in the same year. While The UK is an example of where private health insurance lower than US, the figures for UK, France and Germany are is not standard due to its broad and free access to 14 still above 12%. healthcare. However, the UK Healthcare system is While life expectancy has risen in recent decades, this has underfunded, preventing every new therapy being not been aligned to higher life quality or health, but an supported and a divide has developed where those with ability to address or delay terminal disease. Age is a driver better financial means can go externally for better or of health spending which is partly due to the prevalence quicker treatment. 15 of multimorbidity also rising with age. Investing in Health A combination of an ageing population and an increase Investors could play a critical role by contributing in long-term conditions means multimorbidity is set to rise. to Inclusive Capitalism via investing in health. In the Costs increase significantly with each additional condition US alone health spending is projected to grow at an and a near exponential relationship between the number average annual rate of 5.4 percent for 2019-28 and to 16 19 of conditions and costs will play out. reach USD 6.2 trillion by 2028. Healthcare and military expenditure as a percentage 1. For investors there are potential opportunities to invest in health via the following themes: 18.0% – Biotechnology and Pharmaceutical companies could 16.0% provide innovative drugs to treat diseases like diabetes, 14.0% HIV and heart diseases for example to improve life 12.0% quality and life expectancy 10.0% – Medical technology with companies providing 8.0% pacemakers, stents or dental implants 6.0% – Health tech and data driven solutions with examples 4.0% being telemedicine to contact doctors via a video 2.0% conference or apps to address diseases like obesity and depression; digital tools are able to serve a greater 0.0% number of patients more effectively and at lower cost FranceSweden anada Korea ssia – High-quality and affordable nutrition with low fat and Germany enmar sugar United States Netherlands – Solutions to provide education on health and well- United Kingdom being to a broad population ealthcare ilitary of GDP in select countries worldwide in 2020 2. Materiality of non-financial information For investors seeking unconstrained universes, it will be Source: Healthcare vs military expenditure comparison select countries important to identify evolving material ESG risks relating to 2020 | Statista 3

Access to healthcare - more important than ever the healthcare companies, including: – Health regulation – health issues are rising concerns – Drug price transparency – the issue of democratisation for patients, politicians and regulators alike. As of healthcare and affordability of medicine; healthcare costs rise, companies could be at risk companies’ disclosures of year-on-year changes in from new regulations, labelling requirements and drug prices for their product portfolio are crucial to rejections form insurers for reimbursement assessing whether they do not take advantage of high 3. Impact-focused investing drug price inflation Healthcare companies play an important role in – Information to patients – information and education helping to achieve targets included in the UN SDG Goal about usage, compliance and side effects of 3 - Good Health and Well-being – and there is a high medicine and devices – while effective by increasing interdependence of Good Health with Quality Education life quality drugs can come with harmful side effects (SDG 4), Zero Hunger implying Nutritious Food (SDG 2) and Climate Action (SDG 13): UN Sustainable Development Goals (SDGs): – Poor nutrition increasingly leads to diabetes and Over 190 countries adopted the UN Sustainable addiction, abuse of alcohol and tobacco can lead to Development Goals (SDGs) in 2015 which aim to several weaknesses of the organs and to early death achieve a better and more sustainable future for all. – A lack of physical activity, which was strengthened The goals relate to poverty, income, employment by lockdowns due to COVID-19, can also lead to and good health; education; environment (including abuse of substances, obesity and depression climate, water, oceans and biodiversity); reducing – People who are better educated are less likely to inequalities, including gender; and peace, security have chronic diseases 20 and cooperation. In aligning with the SDGs not only – Heat waves pose challenges to health and increase nations but also companies can contribute to solving mortality part of these issues with their products and services. – Extreme weather incidents force large groups of people to shelter or evacuate, increasing the risk of COVID-19 transmission21 Endnotes 1. Extreme temperatures and health — European Environment Agency (europa.eu) 2. More species means less disease | Nature 3. Unlocking the “S” in capitalism (allianzgi.com) 4. IDF_Atlas_10th_Edition_2021.pdf (diabetesatlas.org) 5. Microsoft PowerPoint - 02 Dengue Adams Oct 2022 (updated)_to post (cdc.gov) 6. The Role of Alcohol, Drugs, and Deaths of Despair in the U.S.’s Falling Life Expectancy - PMC (nih.gov) 7. Coronavirus (COVID-19) Vaccinations - Our World in Data. Pandemic exposes a world of healthcare inequalities | Financial Times (ft.com) 8. Delayed vaccination timelines will cost the global economy US$2.3trn - Economist Intelligence Unit (eiu.com) 9. How COVID hurt the fight against other dangerous diseases (nature.com) 10. Chronic diseases are defined broadly as conditions that last one year or more and require ongoing medical attention or limit activities of daily living or both (About Chronic Diseases | CDC) 11. About Chronic Diseases | CDC 12. Health Disparities | DASH | CDC 13. Global Risks Report 2022 | World Economic Forum (weforum.org) 14. Health expenditure as share of GDP by country | Statista 15. Ageing and health expenditure - UK Health Security Agency (blog.gov.uk) 16. The health and social care costs of a selection of health conditions and multi-morbidities (publishing.service.gov.uk) 17. Home | OECD iLibrary (oecd-ilibrary.org) 18. World Bank and WHO: Half the world lacks access to essential health services, 100 million still pushed into extreme poverty because of health expenses 19. NHE Fact Sheet | CMS 20. Take Action for the Sustainable Development Goals - United Nations Sustainable Development 21. The climate crisis and COVID-19—A major threat to the pandemic response – C-CHANGE | Harvard T.H. Chan School of Public Health 4

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