investment recipes...telemedicine: a responsive call to healthcare needs • the global telemedicine...

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9 OCTOBER 2019

On the Menu

AtonRâ Partners SA www.atonra.ch

[email protected] +41 22 906 16 16

7, rue de la Croix d’Or 1204 Geneva | Switzerland

CHARTS FOR THOUGHTS

R-Word: Just A Buzz?page • 22

WHITE BLOUSEBionics, Biotech, Healthcare M&A

When Healthcare Costs Go Up, Telemedicine Cuts Them Downpage • 3

The Battle Over Drug Pricing: Finally A Consensus ?page • 7

Chronic Disease Management: The Era of Patient Empowermentpage • 11

GREEN LEAFSustainable future

Back To The Future: Why Trains Are Coming Backpage • 16

9 OCTOBER 2019

CASUAL FRIDAYpage • 23

39 OCTOBER 2019

HEALTHCARE M&A

TELEMEDICINE: A RESPONSIVE CALL TO HEALTHCARE NEEDS

When Healthcare Costs Go Up, Telemedicine Cuts Them Down

• In the U.S., the average yearly cost of employer-provided healthcare insurance for a family plan (four members) is now >$20k mark.

• Rising coverage prices paid by insurers and employers are significant drivers for healthcare inflation.• According to the American Medical Association (AMA), telemedicine can help an employer save approximately $300 per year for a single employee or more than $1'000 per year for a family of four.

• Telemedicine is the use of Information and Communications Technologies (ICT) to improve patient services in terms of care and medical information access.

• When distance is a critical factor, the delivery of health care services can exploit ICT for diagnosing, treating, and preventing diseases and injuries.

• Telemedicine main features are: • providing clinical support,• overcoming geographical barriers,• involving various types of ICT,• improving health outcomes,• reducing healthcare expenditure.

sources: https://www.launchways.com/home-telehealth-can-reduce-your-businesss-healthcare-costs-heres-how/ https://www.wsj.com/articles/cost-of-employer-provided-health-coverage-passes-20-000-a-year-11569429000?shareToken=st0476df3a037b434081a9d6a300fa51e7

The average cost of employer health coverage for a family rose above $20k this year.

2000

0

5.000

10.000

15.000

20.000

$25.000

2005 2010 2015

coNTrIBuTIoNs To PreMIuMs For FAMILY HeALTH coVerAGe

49 OCTOBER 2019

HEALTHCARE M&A


• The global telemedicine market was valued at $21.45bn in 2018 and estimated to be worth $60.45bn by 2024, a CAGR of 18.50%.

• The U.S. is ready to expand customer adoption.• 96% of U.S.-based large employers provided telehealth services in 2018.• Telehealth Original Medicare (Medicare Part A & Part B) coverage has been until recently restricted to services offered in rural areas.

• Specific conditions apply about the venue where services are provided.• Private homes are not included in Medicare reimbursement.

• Such restrictions will be lifted starting in 2020, when Medicare Advantage Plans may offer more telehealth benefits than Original Medicare.

• No matter where the customer is located, under Medicare Advantage, telehealth services will be covered, even if used at home instead of going to a health care facility.

• The state of California is likely to convert to law a measure that would require insurers to pay providers equally for telehealth and in- person visits.

• Europe is slower in the adoption of telemedicine services. • A weak regulatory framework, insufficient funding, and inadequate IT infrastructure are barriers to its widespread implementation.

Is Everyone Ready For Not Visiting The Doctor?

sources:https://www.mordorintelligence.com/industry-reports/global-telemedicine-market-industry; https://www.ahip.org/wp-content/uploads/IB_Telehealth-031219.pdfhttps://www.medicare.gov/coverage/telehealth; https://ec.europa.eu/health/sites/health/files/ehealth/docs/2018_provision_marketstudy_telemedicine_en.pdf p.41 & p.89

TelemonitoringSolution used in thecontext of disease

monitoring

TreatmentSolution used in thecontext of disease

treatment

PreventionSolution used in thecontext of disease

prevention

Well-beingAdditional value to

prevention, treatment ortelemonitoring but not the

main focus

Health context

01

02 03

04

59 OCTOBER 2019

HEALTHCARE M&A

• The United States market is currently the most active for telemedicine.• Teladoc Health Inc. (TDOC US), American Well (not listed), Doctor on Demand (not listed), and MD Live Inc. (not listed) are among the most prominent players in the field.• Some of these companies are expanding their worldwide presence by acquiring smaller competitors abroad - as it was the case for the French MédecineDirect, acquired by Teladoc Health.

• On average, a telehealth visit costs about $79, compared with about $146 for an office visit.

• Teladoc Health Inc. alone completed approximately 2.6mn telehealth visits in 2018, through a network of more than 3'100 health professionals.

• The company hires physicians as contract employees, leaving them flexibility in their practice.• Physicians are paid $23.50 per phone visit and $28 per video visit - on average, they complete 3 to 5 video visits per hour.

• These companies distribute their offerings by being included in the health plans that insurers sell to employers.

• The advantages brought forward are a faster patient-doctor interaction for employees, lower visit expenses for employers/insurers, and broader patient coverage for physicians present on the platform. • General health, global care, behavioral health, dermatology, and expert second opinion services are often available through telemedicine providers.

Faster, Cheaper, Broader


sources:https://californiahealthline.org/news/are-virtual-doctor-visits-really-cost-effective-not-so-much-study-says/ https://www.reactiondata.com/wp-content/uploads/2017/09/Telemedicine-Public-Research-Cloud.pdf

WHere TeLeMedIcINe Is MosT used

Primary care visits (8%)

Preventive care (9%)

After hours consults (12%)

Managing specific patient population (23%)

Follow-up care (24%)

Reaching patients in rural areas (24%)

69 OCTOBER 2019

HEALTHCARE M&A

Risks:

• Incumbent players may face unexpected competition from employers, providing themselves the services to their employees.

• Recently, Amazon launched Amazon Care, a virtual medical clinic dedicated to its employees.

• Any delays in developing the necessary infrastructure will impact the adoption rate growth.

• Slow or lacking connection still affects many potential users in accessing the services.

Catalysts:

• Advancements in the 5G ramp-up will allow faster and higher-quality connections, building an optimal channel for transmission.

• Remote locations currently served by a slow and intermittent, if not lacking, connection, will be effectively served by telemedicine services.

• Reimbursement decisions by both public and private payers. • U.S. customers' usage is dependent on transparency and applicability of reimbursement for the category.

• Adoption will foster adoption.• As with many new services, being considered reliable and conquering customers' trust is key to exponential growth.


Bottom line:

• The rising necessity to keep costs under control, while offering improved health services, is boosting telemedicine take-off. • In the United States, authorities are fostering telemedicine support through increased Medicare coverage effective from 2020.• More partnerships between health plan providers and telemedicine players are helping extend population coverage and reach.

• Awareness about the efficiency and convenience of telemedicine is paving the way for users' adoption.

• The majority of the telemedicine players are still privately-held at the moment: American Well, Doctor on Demand, and MD Live Inc., to mention just a few.

• Teladoc Health (TDOC US) is the only opportunity to get a pure-play exposure to the sector, and is part of AtonRâ Bionics certificate.

79 OCTOBER 2019

HEALTHCARE M&A

THE BATTLE OVER DRUG PRICING: FINALLY A CONSENSUS ?

The U.S.: The World Champion Of Healthcare Spending!

• Fitch Solutions expects the U.S. healthcare spending to grow to $3.6tn in 2019 from $3.4tn in 2018, or 18% of GDP.

• Most Americans have private health insurance provided by their employers. • Only 36% of Americans receive public health insurance.• MEDICARE: for the elderly and retired.

• It provides health coverage to the 65+ (or under 65 but with a disability).

• MEDICAID: for low-income individuals and families.

• Although prescription drugs only amount to 10% of total healthcare costs, the high price of many drugs is a significant matter ahead of the 2020 U.S. election.

• U.S. prescription drug spending has been increasing faster than in most other countries. • Americans pay the highest prices for drugs in the world!

• For 62% of U.S. voters, healthcare is the most or the second most important issue.• Both sides (democrats and republicans) are proposing several bills to reduce prices, and may agree on a bipartisan plan.

sources:https://theincidentaleconomist.com/wordpress/something-happened-to-u-s-drug-costs-in-the-1990s/ https://www.kff.org/other/state-indicator/total-population/?currentTimeframe=0&sortModel=%7B%22colId%22:%22Location%22,%22sort%22:%22asc%22%7D National Health Statistics Group. (2017)

Employer (49%)Medicaid (21%)Medicare (14%)Uninsured (9%)Private (policy purchased directly from an insurance company) (6%)Veterans Administration (1%)

WHo HAs HeALTH INsurANce IN us?

INTerNATIoNAL coMPArIsoN oF druG sPeNdING

1980

Annual retail prescription drug spending per person

United States

Switzerland

GermanyCanada

FranceUnited KingdomAustraliaNetherlandsNorwaySweden

0

200

400

600

800

$1.000

1985 19901 995 2000 2005 2010 2015

89 OCTOBER 2019

HEALTHCARE M&A

sources:Wall Street Journalhttps://www.healthline.com/diabetesmine/pharmacy-benefit-managers-and-drug-pricing

• The U.S. is the only market in the world where drug prices are not controlled. • If the government decides to change the rules, volatility in the stock market will be inevitable!

• Drug prices are set "behind the scene" through a complicated supply chain that involves three crucial players: pharmaceutical companies (i.e., drug manufacturers), pharmacy benefit managers (PBMs), and payers (private insurers, Medicare and Medicaid).

• PBMs act as middlemen and work on behalf of payers to negotiate discounts on the list prices of prescription drugs, called rebates.

• The drug manufacturer pays rebates to a PBM. • The PBM shares the rebates with the payers (the insurance companies, but not with final patients).

• The rebates system aims at incentivizing PBMs and health insurers to include the manufacturer’s products on their formularies, i.e., the list of drugs and pharmacological therapies covered by a health plan.

• Different PBMs may negotiate different rebates, and this system remains very opaque.

• New drug pricing bills under discussion could require PBMs and drug manufacturers to disclose the discounts they are negotiating.• Some more radical proposals also suggest that final patients should receive 100% of the discount.

The Pricing Drug Supply Chain: A Real Headache


Drugmaker Wholeseler

Pharmacybenefit manager

Pharmacy

Health insureror employer

Consumers

Individuals pay premiums to their

health insurer or employer

Drugmaker sells to wholesaler at small

discount to list price

Pharmacy dispenses to

consumer and collects copay

PBM negotiates to receive rebates from drugmaker

Wholeseler or drugmaker

negotiates price with pharmacy

The PBM negotiates with the pharmacy over reimbursment

for drugs and dispensing fees

99 OCTOBER 2019

HEALTHCARE M&A

• Both political camps have made several proposals since the beginning of 2019.• Nancy Pelosi (democrat) was applauded by President Trump when she presented her plan, confirming the willingness to resolve the issue of high prices in a bipartisan way.

• The main proposals of Pelosi's Bill are as follows:• Medicare would directly negotiate the prices of at least 25 drugs with an upper limit of 250 drugs per year.

• The government would target the drugs that represent the highest costs under Medicare taking into account both price and volume sold in the U.S.

• An upper limit on prices that would be set at 120% of the average price of the drug in six reference countries.• Once the negotiated price is set, the drug maker may not increase the price faster than inflation in subsequent years.• Under the Part D Medicare program, an annual out of pocket maximum would be established at $2'000.

• A more restrictive view from the version of the Senate Finance Committee bill, where the proposed amount was $3'100.

• Companies that do not meet the requirements would have to pay penalties corresponding to 65% of gross sales of the drug.

• The bill proposal is less ambitious than expected and should not target rare diseases drugs (that are typically very costly).

• Big pharma companies are the most exposed.


PRODUCT COMPANY MEDICARE SPENDING

Revlimid Celgene (CELG US) $3.3bn

Eliquis Bristol-Myers Squibb (BMY US)/Pfizer (PFE

US)

$3.1bn

januvia Merck & Co (MRK US) $2.8bn

Xarelto Johnson & Johnson (JNJ US) /Bayer (BAYN GR)

$2.6bn

Harvoni Gilead Sciences (GILD US)

$2.6bn

Eylea Regeneron (REGN US) $2.5bn

Humira pen AbbVie (ABBV US) $2bn

Rituxan Roche (ROG SW) $1.8bn

Spiriva Boehringer IngeIheim (not listed)

$1.7bn

Novolog Flexpen Novo Nordisk (NOVOB DC)

$1.5bn

ToP 10 druGs For MedIcAre sPeNdING

source: Centers for Medicare & Medicaid Services

Change Is Coming!

109 OCTOBER 2019

HEALTHCARE M&A

Risks:

• A "no agreement" situation between the two political camps would lead to more volatility on the stock market.

• A price cap on orphan drugs and other strategic areas may still be added to the proposed bills.

• Extremely high prices for orphan drugs have recently made headlines and are becoming a public opinion debate subject.

Catalysts:

• A bipartisan agreement before the 2020 U.S. election is not a utopia anymore.• Any deal would likely remove the uncertainty over pricing that has depressed pharma stocks.

• It appears unlikely that draconian measures will be adopted.• With Trump's support, a compromise between the Senate Finance Committee bill and the Pelosi bill is likely to be found.• The final bill could be less aggressive than anticipated by the market.

• Specific therapeutic categories (like cancer) remain protected by state legislation, and orphan drugs are protected by moral suasion.

Bottom line:

• Finding a compromise between the two political camps resulting in a bipartisan bill should be not as detrimental to the healthcare sector as anticipated.

• Drug stocks have been impacted negatively by the news flow about pricing discussions since the beginning of the year.• Once the uncertainty over pricing and potential reforms will disappear, investor sentiment will significantly improve, and the healthcare sector may see a re-rating. • Most innovative biotech companies are less impacted by a future bill on pricing than the largest pharma companies.

• Innovation will continue to drive the industry.


119 OCTOBER 2019

HEALTHCARE M&A

CHRONIC DISEASE MANAGEMENT: THE ERA OF PATIENT EMPOWERMENT

The Human Body Is Becoming The Biggest Data Platform

• Healthcare generates 5% of all the data in the world (roughly 2.2 zettabytes) which need to be stored, retrieved and analyzed

• By 2030, the healthcare industry should generate more than 23 zettabytes of data; roughly the total amount of data created globally in 2017 across all sectors.

• Nevertheless, healthcare is yet one of the least digitalized industries.

• As a consequence, digital companies are now shifting away from wellness management to managing health conditions such as chronic diseases.

Healthcare Providers /Insurance

Medication remindersand infoWomen’s Healthand Pregnancy

DiseaseSpecific

10%

8%

7%3%

2015

16%

9%

11%

4%

2017

48%

Health Condidion Management

sources:Liquid State, HealthTech, UBS

2015

73%

Diet andNutrition

Lifestyleand Stress

Exerciseand Fitness

Wellness Management

13%

12%

19%

30%

19%

40%

2017

60%

18%

Time

Agriculture

Mining & Metals

Food & Beverages

Healthcare

Oil & Gas

Utilities

Retail

Automotive / Discrete

Finance & Insurance

ICTMedia

Chemicals

MarineRail & Road Logistics

Industrial end markets

Other industries

Buildings

Level of digitalisation

129 OCTOBER 2019

HEALTHCARE M&A

• Chronic diseases are now the most significant cause of death and disability worldwide.

• Chronic diseases account for 90% of the U.S. $3.3tn annual Health Care expenditure.

• According to Zion Market Research, the global chronic disease management market is expected to grow from $3.9bn in 2018 to $10.3bn by 2024, or a CAGR of 17.5%.

• The main drivers behind the growing interest in the chronic diseases segment in digital healthcare are as follows:

• Too many patients with chronic diseases. • Unhealthy habits and an increasingly aged population result in the broader spread of chronic diseases.

• Too few physicians. • Without a change in primary care delivery, estimates point to a deficit of between 43k and 120k physicians in the U.S. by 2030.

• High disease-related costs.• 90% of U.S. total healthcare expenditure is related to the treatment of chronic conditions.


A Snapshot Of Chronic Diseases

sources: World Health Organization, The State of Obesity, American Heart Association, Centers for Disease Control and Prevention, International Diabetes Federation, Alzheimer’s Association, Zion Market Research - https://www.globenewswire.com/news-release/2019/02/14/1725328/0/en/Global-Chronic-Disease-Management-Market-Will-Reach-USD-10-3-Billion-By-2024-Zion-Market-Research.html

CHRONIC DISEASESGLOBAL

PREVALENCE ANNUAL COST

(U.S. ONLY)

Obesity 650mn people (2016) $145bn

Cardiovascular Diseases 17.6mn deaths (2016) $190bn

Hypertension 1.13bn people (2019) $131bn

Epilepsy 50mn people (2019) $15.5bn

Diabetes 425mn people (2017) $237bn

Alzheimer 35mn people (2019) $290bn

Cancer 9.8mn deaths (2018) $174bn

Arthritis 350mn people (2019) $140bn

Chronic Obstructive Pulmonary Disease (COPD)

380mn people (2019) $50bn

139 OCTOBER 2019

HEALTHCARE M&A

• B2B strategic partnerships for a B2C market: Digital companies are playing across the entire patient care journey, through strategic alliances with healthcare providers, distributors, and payers.

• They provide patients with support for almost any condition stage.• One tool for different diseases: most chronically ill patients suffer from more than one chronic condition.• Offer digital health companies the possibility to expand their market.

• A combination of digital health technologies could provide a comprehensive and effective solution to manage chronic conditions.

• mHealth: Mobile technologies (Smart wearables, mobile phones, and personal assistants) help continuously track vital signs and health- related data.

• It aims at improving health conditions by motivating behavior change through personalized coaching, real-time alerts, reminders of medicine intake, community support, online consultation, and feedback from healthcare providers.

• An exponential increase in computational power, together with improvements in artificial intelligence, big data, machine learning, as well as blockchain, will make better use of the vast amount of data produced daily by healthcare systems.

• Extracting meaningful information and providing automation and customization of the treatment. • Increasing the security, privacy, and interoperability of health data.


Digital Health Translates Data Into Value

dIGITAL HeALTH: VArIeTY oF coNcePTs

eMarketing, eCommerce and eBusiness in healthcare

mHealth

Digital Health

Wirelesshealth

Healthtelematics

HealthInformatics

Telehealth(Telemedicine,

Telecare)

Mobile technologies acting as a catalistto connect and integrate the chain of care

149 OCTOBER 2019

HEALTHCARE M&A

• Digital health engages people to live healthier.

• Preventing the impact of chronic disease through a better lifestyle (nutrition habits, weight, and activity levels).• Increasing awareness and education through health promotional messages and public health campaigns. • Enabling the physician to have a closer overview of their patients through the information collected by the patients themselves. • Motivating patients into action.

• The adoption of wearables to manage a diagnosis has increased as of late, as the technology is proving to be useful.

• Digital health reduces the overall healthcare spending around the world. • Decreasing more expensive diseases-related medical costs.• Reducing the number of doctors' visits and consultations.• Increasing medication adherence.

• Digital health improves the efficiency of healthcare providers. • Allowing fewer doctors to manage more patients.• Promoting patient safety by reducing medical errors. • Facilitating access of patients living in geographically remote areas including people living in vulnerable and isolated situations.


Digital Health Technology Is Driving The Evolution Of Healthcare

source: Rock Health - https://rockhealth.com/reports/beyond-wellness-for-the-healthy-digital-health-consumer-adoption-2018/

20%

0%

40%

60%

2016

45%

54%

44%

51%

43%

31%

40%

37%

22%24%

31%

20%

30%

2017 2018

159 OCTOBER 2019

HEALTHCARE M&A

Risks:

• Privacy and data security remain a concern. • According to The Economist, almost one-quarter of data breaches in the U.S. are healthcare related. • Regulations must be updated to reflect technological advancements.

• A lack of evidence supporting digital health's clinical outcomes could hinder its adoption.

• Lack of reimbursement standards has proven to be a hurdle for digital health and may discourage investments.

Catalysts:

• The Centers for Medicare and Medicaid (CMS) are promoting digital therapy. • In 2018 CMS introduced the reimbursement of remote patient monitoring devices.

• The U.S. Food and Drug Administration (FDA) is speeding up the release of digital therapeutics.

• A software-as-a-medical-device (SaMD) provider might be able to fast-track premarket review.

• An essential link in the chain of care: Deployment of 5G will enable faster and more reliable connections.

• Improving real-time monitoring and communication.• Connecting a massive number of objects.• Reducing the power consumption of smart wearable devices.

Bottom line:

• Chronic diseases is rapidly growing. • Chronic diseases represent a huge market and a high unmet medical need, legacy solutions are showing efficacy neither for the healthcare sector nor for patients.

• Digital health is a cost-effective revolutionary tool.• Adding value to users’ health and healthcare providers, digital companies are spreading over the entire chain of care by creating a connected ecosystem.

• The chronic disease management market is the perfect opportunity for big tech companies like Google (GOOGL US) and Apple (AAPL US) to enter into healthcare.• As a result, smaller players such as Livongo (LVGO US) could become M&A targets

• Big tech will need to either build or buy the clinical expertise needed to compete in this market segment.


169 OCTOBER 2019

SUSTAINABLE FUTURE

BACK TO THE FUTURE: WHY TRAINS ARE COMING BACK

Railway: The Most Environmentally Friendly Transport System

• The transport sector, accounting for more than half of global oil demand, is responsible for about 25% of world’s CO2 emissions.

• In 2017, rail accounted for 9% of global passenger transport activity, but only 2% of transport related CO2 emissions.

• The rest of transport-related CO2 emissions were 77% from road vehicles, 13% from aviation, and 11% from shipping.

• Rail is today the cleanest mode of transport, thanks to its very high level of electrification.

• 86% of passenger rail transport and 50% of freight rail transport is electricity-powered.

• To move a step further, incumbents are switching power sources to renewable energy.

• In the Netherlands, for example, passenger trains are primarily powered by wind. • In Switzerland and Sweden trains are powered at 100% on hydropower.• In California, the San Francisco’s Bay Area Rapid Transit System (BART) recently agreed to derive at least 50% of its wholesale electric portfolio from renewable sources and at least 90% of it from low- and zero-carbon sources by 2025.

50

60

70

80

90

150

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

140

130

120

110

100

Energy supplyBuildings

IndustryAgriculture

Transport (incl. int. aviation & shipping)Waste

Figure 2 - Trend in EU greenhouse gas emissions, by sector, 1990–2016. Source: European Environment Agency, EEA greenhouse gas – data viewer, 2018; ECA analysis.

sources:IEA, European Federation for Transport and Environment AISBL European Commision - Electrification of the Transport System, European Commision - https://ec.europa.eu/transport/themes/urban/urban_mobility_en

• Road congestion, as well as having a negative impact on the environment, has a major negative impact on competitiveness.

• The European commission estimates that road congestion costs around €130bn annually. • Railways, can be a very appealing congestion-busting solution.

• •

179 OCTOBER 2019

SUSTAINABLE FUTURE

Distance per energy unit consumed

Freight

Rail Inland waterways Road

Rail RoadA ir

Passenger

Rail is 6x more energy-efficient than road due to physical advantages such as lower rolling and air resistance.

Rail combines energy-efficient mobility with fewer emissions


1990 2015

Fossil source Nuclear Renewable

EU Targetfor 2039

14%

20.7%6.1%

4 trains out of 5 are already running on electricity,

which is becoming greener.

The railway sector is already beyond the EU’s

2030 renewable energy target for transport.

European railways already deliverzero-emission transport

sources:EU Transport in Figures, Eurostat Energy Statistics 2018, EEA 2017 (2014 data), IEA-UIC handbook, 2017

Railway: The Most Environmentally Friendly Transport System

189 OCTOBER 2019

SUSTAINABLE FUTURE

• OC&C estimates a 3.4% passenger CAGR from 2017 to 2022 in the top 5 European passenger rail markets

• Growth is driven by government investments and deregulation.

• In its base case scenario, the International energy Agency (IEA) expects global investments in the building, operating and maintenance of networks to represent $475bn of annual expenditures between 2018 and 2050.

• Around $315bn will be spent annually on rail infrastructure. • During 2010-2015, the average annual investment in rail infrastructure was $200bn.

• According to UIC, ECA and OC&C analysis, European rail investment planned until 2033 totals a cumulative >$400bn.

• The U.K. is expected to be at the forefront with $183bn.• The total length of EU high-speed rail is expected to hit 21’000km by 2030, more than trebling from 2011 levels.

• The European Commission is renewing the 'Connecting Europe Facility', with a budget of €42.3bn to support investments in the European infrastructure networks

• This is part of the next long-term EU budget 2021-2027.• Transport is the main beneficiary with €30.6bn.

• Ahead of energy (€8.7bn) and digital (€3bn)

High-Speed Rail Is At The Foundation Of Economic Growth

REGION DESCRIPTION SOURCE

Europe Investments to complete the core of the Trans-European Transport Network and implementation of the European Rail Traffic Management System by 2030, supporting activity growth of 1.4% per year for nonurban passenger rail, 2.5% per year for high-speed rail and 1.2% per year for freight rail from 2010 to 2050.

European Commission (2016); European Commission (2017)

China The 13th Five-Year Plan provides for the extension of high-speed rail lines by 30.000 kilometers by 2020, connecting mote than 80% of all large cities.

NDRC (2016)

Russia Russian Railways: achieve activity growth of 3.0% per year for passenger rail and 4.5% per year for freight rail from 2017 to 2025

Ivanov (2018)

India Low Carbon Strategies for Inclusive Growth of the Indian Government's Planning Commission provide for activity growth of 7.0% per year for both passenger and freight rail from 2017 to 2025.

Planning Commission, (2014); National Institution for Transforming India, (2018)


sources: OC&C, EUROPEAN RAILWAY INFRASTRUCTURE: A REVIEW - Lucia Knapcikova and Rob KoningsUIC, ECA and OC&C European Parliament - http://www.europarl.europa.eu/thinktank/en/document html?reference=EPRS_BRI(2018)628247, AtonRâ Research

199 OCTOBER 2019

SUSTAINABLE FUTURE


• Hydrogen trains could replace current diesel locomotives, used in non-electrified part of the networks (50% of freight network is not electrified).

• The technology requires hydrogen mixing with oxygen produced from the air to produce electricity.

• The hydrogen is burned while excess energy is stored in a backup lithium-ion battery. • No carbon is emitted; hydrogen trains emit water.

• They are cleaner, quieter and cheaper to run than diesel trains. • They don't require expensive electrification infrastructure

• Alstom have already created the Coradia iLint passenger train models, • It is the first passenger train in the world to be powered by a hydrogen fuel cell, which debuted in Germany last year and now runs a daily service.

• Britain expects hydrogen trains to be a reality by the early 2020s. • To date, only 40 percent of the UK's railway is electrified, and the majority of trains run on diesel.• Upgrading existing trains without having to electrify the railroads will save both time and money in meeting the 2040 goal of eliminating diesel engines from the rail network.

PEM FUEL CEL L STACK

BATT ERY ORSUPER CAPACITOR

FUEL CEL L

HYDROGEN STORAGE CYLINDERS

Motor blowers

3-Phase AC motors

Auxiliaryrectifier

Auxiliaryinverter

To other 3-P haseAC motors

3-Phase AC motors

Axle Brush

Compressor Loco cooling fans

DC link

MainInverter

New Rail Transport Technologies: Hydrogen Trains

209 OCTOBER 2019

SUSTAINABLE FUTURE

• GREENRAIL (not listed)

• The company has developed a new kind of sleepers (the track substructure to which the rails are attached) made up of concrete and a mix of recycled plastic and rubber.

• It also integrates a photovoltaic module allowing to transform the railway into photovoltaic power stations.

• Their product is much more solid than a conventional concrete sleeper, allowing for reduced maintenance costs.

• It also brings a substantial reduction of the acoustic impact of the train’s passage.

• TRAINLINE (TRN LN) is the leading UK technology platform for train tickets purchasing.

• The company is a tech business, which is growing fast, highly cash flow generative with a robust transactional classified business model. • The Trainline platform allows customers to search for ticket options across carriers and multi-modal forms of transport.

• It provides users with recommended journeys based on actual delays and disruptions and predicts prices allowing for finding the best possible fare.

• Penetration of online train ticketing is very low (39% vs Low Cost Air Carriers at 86% - source: OC&C, company information) in the €225bn global rail and coach market (source: OC&C).

• ALSTOM (ALO FP) is one of the leading global innovative players in sustainable smart mobility.

• Alstom offers a complete range of solutions (from high-speed trains to metros, tramways and e-buses), passenger solutions, customized services (maintenance, modernization), infrastructure, signalling and digital mobility solutions.

• WABTEC (WAB US) is a leading supplier of critical components, locomotives, services, signaling and logistics systems and services to the global rail industry.

• The U.S. Federal Railroad Administration has introduced recently a new high-speed standard, increasing the maximum speed limit to 220mph fostering railroads to upgrade their assets.

• All the 41 U.S. national rail systems are required to upgrade their assets and integrate the so called Positive Train Control (PTC) technology by 2020. • This technology involves the installation of equipment on locomotives and tracks to monitor train speed and relative position.

Key Players


219 OCTOBER 2019

SUSTAINABLE FUTURE

Risks:

• Digitalization will create new challenges, particularly in maintaining the security and integrity of cyber-systems.

• There are indications in some countries that commuting may be decreasing, reflecting the growth in home-working or reductions in the length of the working week.

• High-speed trains require high infrastructure construction costs - delays and cancellations may be likely given the complexity and the political nature of such projects.

Catalysts:

• Politics: Several recent developments, such as the establishment of the Fourth Railway Package’s technical pillar and of the S2R Joint Undertaking, support the creation of a Single European Rail Area (SERA).

• These schemes are already leading to an increase in the quality and choice of services available, more responsiveness to customer needs, and greater economies of scale.

• Diesel bans: In Europe a number of countries has come out with plans for banning diesel, which should boost demand not only for electrification but also for hydrogen trains.

• Behavioral change: The reduction in travel times may induce new habits, with distances of 200 km and more in everyday commuting becoming acceptable.

Bottom line:

• The rising pace of urbanization will significantly increase the demand for efficient and sustainable transport solutions. • Rail can respond efficiently to the scale of this challenge, being the only mode with the flexibility to serve significantly increased passenger and freight volume while reducing damaging impact on the overall urban system.

• In order to clean (decarbonize) the transport sector and support the so-called “green mobility”, railways will play an important role. • By leveraging their unique advantages in moving people and goods along heavily utilized, high-demand routes.

• Rail passenger journeys in the World are reaching record levels and further investments planned on high-speed trains will accelerate this growth

• We play this particular theme with investments in Trainline (TRN LN) and Wabtec (WAB US).


229 OCTOBER 2019

CHARTS FOR THOUGHTS

• The word « recession » is topping google searches, and discussions about wether a recession is impending are all the rage.

• Yield curve spread has been one of the most reliable indicators of an impending recession.

• Usually a curve inversion (indicator <0, meaning short term rates are above long term ones) is a harbinger for a recession.

• But a closer look at historical data, shows that there is quite a variable delay between the bottoming of the curve and the inset of a recession (up to 2 years!)

• Most importantly, the yield curve still needs to bottom out!

R-Word: Just A Buzz?

sources: Google FRED - https://fred.stlouisfed.org/graph/?g=nnUx

239 OCTOBER 2019

CASUAL FRIDAY

sources: https://xkcd.com/2212/

249 OCTOBER 2019

Invest Beyond The Ordinary

Explore our investment themes:www.atonra.ch/investment-themes/

BIONICSBIOTECHNOLOGYAI AND

ROBOTICSSECURITY

AND SPACESUSTAINABLE

FUTUREHEALTHCARE

M&AMOBILE

PAYMENTSFINTECH

https://atonra.ch/investment-themes/bionics/

http://atonra.ch/investment-themes/biotechnology/

http://atonra.ch/investment-themes/artificial-intelligence-and-robotics/

http://atonra.ch/investment-themes/security-space/

http://atonra.ch/investment-themes/sustainable-future/

http://atonra.ch/investment-themes/healthcare/

http://atonra.ch/investment-themes/mobile-payments/

http://atonra.ch/investment-themes/fintech/

259 OCTOBER 2019

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