The Generational health premium

FORBES | September, 2024

TOWER's recent publication on the premium economies in Generational Health and why it matters to all of us.

"Generational Health is untapped and investors need not wait a generation for outsized returns. It is a newly defined category of assets and a precursor for evolutionary progress..."

THE GENERATIONAL HEALTH PREMIUM,

FORBES SEPTEMBER 2024

Generational Health is untapped and investors need not wait a generation for outsized returns. It is a newly defined category of assets and a precursor for evolutionary progress. It is simplified as health effects passed on across multiple generations. Without investment in generational health, we miss a critical inflection point of value.

Let’s discuss an example. According to one report, the occupational exposure to pesticides parents receive and indoor use of pesticides is associated with an increased risk of childhood cancer. Innovators reducing these environmental toxins can potentially offer a near-term profitable business model and a generational outcome.

Based on the example above and others, a close examination of generational health is needed. Its primary drivers are negative shifts in biology and behavior due to environmental toxins, epigenetic influences, and other genomic disruptors. We now understand the core markets innovating for generational outcomes are at the intersection of climate, health and technology, which are typically high growth and often less susceptible to volatility.

Quantifying generational health economies can be done by looking at the size of healthcare spending. In 2022, experimental data showed healthcare spending reached more than $4 trillion dollars. This establishes a baseline for where investments to impact generational health could go. However, the potential has largely gone unrealized. Today, with the advent of sophisticated data tools, AI and computing power, investors can better envision returns.

Generational health is the dominant precursor to generational outcomes.

Let’s consider the United States.

A 2022 Pentagon study found 77% of Americans ages 17 to 24 are unfit for military service, primarily due to obesity, physical/mental health disability, and substance abuse disorder often due to coexisting conditions, and diseases of despair. There is an incentive—country competitiveness—to prioritize generational health.

When it comes to youth, suicide remains one of the leading causes of death. Many do not know that mental health challenges may cause epigenetic shifts that can affect generations.

What about rural communities? Despite having one of the most advanced health systems in the world, female and infant mortality rates are rapidly increasing, particularly in rural populations, where access to maternity services are distant and in decline. Further, multi-generational damage is compounded by environmental challenges like lack of access to clean water. Violations in water quality standards occur disproportionately in rural communities. In fact, 93% of the 60,000 community water systems in the U.S. serve rural communities of 10,000 people or less. Generational health seeks to address the growing disparities faced by rural communities, preventing the suffering that can persist across generations.

Generational health carries a premium.

To say that generational outcomes matter is an understatement. Generational health should be prioritized. Though investors tend to equate moral and ethical relevance with concessionary return, the investment value presented by generational health carries a premium. Here are a few reasons why:

1. High unmet need and opportunistic valuations. Though innovators are coming to terms with discounted valuations, women’s health companies typically raise capital at valuations at least 20% less than traditional healthcare at the seed stage. This is an opportunity to buy lower, in a down market, with relatively greater upside less entrenched by competition and incumbents.

2. Environment and health is a buying opportunity. According to our meta-analysis, climate-tech companies are flushed with early-stage investment receiving an average valuation of 1.5X relative to total capital raised. Companies passing proof of concept will require a significant influx of capital to prevent future capacity constraints. Those that improve generational health, present a buying opportunity, to sell into a market with some of the greatest need, urgency, and global attention.

3. Advancement in computing power has reduced risk. AI and healthcare are advancing, becoming ubiquitously understood to accelerate drug discovery and development. Platforms stand to have transformative and multi-generational effects to treat disease, support longevity, and more.

Generational investors can act in times of change, even turbulence.

Our analysis of more than five hundred generational health companies representing over $17 billion in investment raised demonstrates a category representing eight sectors and 14 industry groups, five stages of growth, uncovering the investment trends shared in this article.

Generational health gives us a pragmatic lens to invest at critical scientific intersections that have been fantasized, yet ignored. It reduces the blur of what is/is not meaningful when assessing a generational outcome. Those trying to solve cross-sector generational problems within silos often see short-term, short-sighted solutions, and lesser returns.

As public market volatility causes flight to quality, investors will sell public equities and other liquid positions and offset that allocation with Treasuries and cash. But inevitably as yields decline and the opportunity cost of sitting on cash too long grows, private markets rebalance. Participants who move sooner invariably beat out the returns of later investors.

Investing in generational health offers a different path forward—one that is more rigorously rooted in science and physiology. Investors of all types can potentially find benefits from this grounded approach.

1. Individuals can invest in generational cures for diseases that have caused suffering while diversifying a personal portfolio to maximize a high-growth strategy.

2. Institutions may apply their influence and allocation strategies by accessing generational investments and participating in the asymmetrical upside of this premium strategy.

3. Sovereign entities should use the power of capital to advance prosperity, health, & well-being of their populace by promoting regional growth and stability, generationally.

4. Public sectors are accountable to taxpayers to protect their land, air, & water, and provide access to health care and cutting edge technologies that lead country competitiveness

The generational health premium is waiting.

The biggest roadblock of all is that traditional investors allocate within silos. Those trying to solve cross sector generational problems within silos, often see short term and short sighted, solutions. Those who can translate between the two are the market participants who stand to benefit the most due to the asymmetry of understanding.

Generational health creates an opportunity to assess how and where we live. Understanding it allows for assessing current gaps while looking toward future realities.

We believe the imperative to fund generational health will only continue to surface as society continues to grapple with urgent challenges related to human aging and health. There is a premium to be recognized by those who do.