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Health is a daunting theme for many stockmarket investors because of the endless trials, high risk and heavy jargon.

But investors who ignore the sector are missing out — as HIV fighter Biotron demonstrated last week after a 750 per cent share price rise.

What factors should an investor look for in a promising health stock?

Consultancy Ernst & Young has just released its latest annual health industry report highlighting the areas that top performing health organisations should focus on such as digital health and a focus on prevention.

The digital revolution of the last 20 or so years, from the advent of the internet to the accelerating march of artificial intelligence and machine learning, has impacted the industry in many ways.

Top health orgsnisations are offering vastly improved service and are making use of improved access to information — though there are also pitfalls to watch out for such as compromised personal data.

In general the sector has been notorious for its slow rates of adoption, EY says in its latest survey of 6000 consumers and 500 physicians in Australia.

So what are the main takeaways? And what should you be looking at as a small cap investor in terms of capitalising on the future of health?

1. Digital health solutions that put the consumer at the centre

Patients are become more active and engaged consumers, a 2017 EY health report found. This was put down to an increase in the number of social networking tools, the rapid development of technology and maturing consumerism.

“The empowerment of consumers, in part through disruptive technologies, to make smarter choices and pursue responsible behaviours is a profoundly disruptive force for change in the health care system,” EY says.

MedAdvisor (ASX:MDR) is a good example of a patient-centric medtech solution. A medication management platform, it allows patients to digitise their scripts, enabling them to order refills with the tap of a button. It also connects the patient to their pharmacy, making the relationship between the two more involved, rather than fragmented and distant.

PainChek (ASX:PCK) also puts the patient at the centre — it is the producer of a pain recognition app.

2. Prevention-focused future

While much of health care focuses on treatment, with many of the small cap healthcare companies being biotechs looking to treat various diseases and conditions, the EY report suggest a focus on prevention in the future.

“The progression from an acute hospital stay, to a clinic, to home care, to the eventual prevention of disease is a huge, hoped-for byproduct of technology,” says Gary Comiskey, EY Ireland’s Health and Government director.

He believes that data has a big role to play here. “This move is made possible by truly gathering data for an entire population of people, to track and then prevent disease. Imagine a world where we are able to manage and then stop the occurrence of Type 2 Diabetes.”

ResApp (ASX:RAP) is attempting to leverage technology and data for earlier detection, control and prevention of respiratory disease. Similarly, Respiri (ASX:RSH) has an asthma monitoring device called AirSonea, designed as a digital stethoscope.

3. Leveraging artificial intelligence

Like most industries, health will be heavily impacted by artificial intelligence and machine learning as computers are taught how to solve problems better than humans. Many health care companies are attempting to harness the promise of AI to deliver better health outcomes for patients — and EY says that’s a smart strategy.

“Technologies that systematise care delivery systems and processes such as AI, case management and care delivery pathways resonate with both physicians and consumers,” it says, pointing towards AI-assisted diagnostics.

Resonance Health (ASX:RHT) is a provider of non-invasive medical imaging software and analysis and it has been focusing on commercialising its flagship device Ferriscan, which measures liver-iron concentration.

Based on artificial intelligence, Ferrismart is a bells-and-whistles version of Ferriscan that measures liver iron from a magnetic resonance imaging (MRI) readout.

4. The growing importance of imaging 

“Advances in imaging, diagnostics and diabetes show how data and algorithms will be central to tomorrow’s value creating products and services,” reads a report by Pamela Spence, EY Global Health Sciences leader, in a report published last month. “Imaging and non-imaging diagnostics advances point the way forward for medtechs.”

There’s at least 10 ASX medical imaging stocks, and you can get a full breakdown from a previous Stockhead article on those here.

Volpara Health (ASX:VHT), a medtech SaaS company trying to improve the early detection of breast cancer, is another making advances in imaging.

Virtual care is a no-no

Much of this perhaps sounds like virtual care, where the patient and the health system are somewhat separated, but the EY report stresses the importance of connection.

“Only one-quarter and one-third of both consumers and physicians see virtual presence technologies or virtual hospitals being likely in the near future,” it says. “These new care models may seem to be just a little too far over the horizon.”