Women's health, long relegated to a dusty corner of drug companies' research departments, is likely to get a boost from investors seeking more diversity in their portfolios.

Momentum is building in tandem with the drive to adopt environmental, social and governance principles in investing, which has led to greater interest in funds related to women's health or in female-founded businesses to meet diversity targets. Biopharmaceutical companies are also trying to recruit more women into their executive ranks as well as in clinical trials, where lack of representation has come under scrutiny.

"Ever since ESG became a conversation, people have increasingly started thinking about the under-representation of women in business or science or clinical trials," Sophie McGrath, partner at law firm Goodwin's London-based life sciences division, said in an interview.

There is still a long way to go — companies with solely female founders raised just 2.2% of all venture funding for the first eight months of 2021, the lowest share for five years, according to a Crunchbase analysis. The same year, healthcare apparel company FIGS Inc. was praised as the first-ever company founded by two women to go public.

Women's health in particular has to overcome a long history of being undervalued and poorly understood. Even with the ESG push, a lack of female investors and entrepreneurs, combined with an unclear definition of what "women's health" actually means, has thwarted the market's growth.

Despite comprising half the world's population, women's health accounted for a mere 0.6% of drug sales in 2021 with a negligible 1% rise forecast by 2026, according to an SG Cowen analysis of over 1,000 medicines and pipelines of the 130 largest biopharmaceutical companies. While therapies for women's health are forecast to reach $8.5 billion of sales by 2026, respiratory medicines alone are set to hit $29.2 billion, the analysis found.

"It's just not as much of an attractive opportunity [as central nervous system or cancer drugs]," said Nooman Haque, Silicon Valley Bank's U.K.-based life sciences and healthcare managing director. "So even though the markets are large — in theory, 50% — the individual economics, and the potential competition, don't make it as attractive from a willingness-to-pay perspective."

Undervalued business

Executives at women's health companies say the field is undervalued, even decades after the introduction of hormone replacement therapy, known as HRT, for post-menopausal women in the 1940s and advances in fertility treatment. They point to data that shows that women use healthcare services more than men, in part because of a need for reproductive health. In 2015, women aged 19-44 years incurred health expenses that were more than 80% higher than men in the same age group, according to the U.S. Labor Department.

While women's health is commonly associated with reproductive health, which relates to half of a women's lifespan, of equal relevance are issues around menstruation and menopause, as well as the unclear effect of hormones on the body in general.

"It's ridiculous," said Brian O'Callaghan, CEO of Nasdaq-listed ObsEva SA. The Swiss biotech is awaiting U.S. approval for Linzagolix to treat endometriosis and uterine fibroids — common benign tumors in the uterus that can cause pain, heavy menstrual bleeding, anemia and urinary frequency.

"We all know half the population are women, we all know they suffer very specific disease states," O'Callaghan said in an interview. "We don't have to convince anybody that these disease states or this patient population exists."

A number of undervalued small-cap women's health companies are still struggling to attract the attention of institutional investors, despite having very innovative programs, the CEO said.

"There aren't enough companies that are seen as progressive enough for people to give this space its due attention," O'Callaghan said.

'A huge bias'

A male-dominated world of fund managers and venture capitalists as well as the often-wooly definition of what constitutes women's health has compounded the difficulty of attracting investment into the sector, Silicon Valley Bank's Haque said.

"Let's be honest, there was a huge bias there," Haque said. "When you have a similar-looking population group controlling the purse strings, they're going to follow each other, follow their own instinct. They subconsciously or consciously ignore this woman-shaped hole in the data that doesn't let them see or assess the opportunity in the right way."

The issue of how to ascribe value to drugs addressing women's health or the equivalent digital health therapies, known as femtech, illustrates an additional level of complexity facing the sector. While a therapeutic might potentially get some attention, or at least be properly valued, there are lots of other women's health products where it might not be immediately clear how to get a return on the investment, said Goodwin's McGrath.

"A lot of the apps that help people track their reproductive ability, menopause-tracking apps — how do you monetize it?" McGrath said. "Is it a data play? And then secondly, working out what the pricing and reimbursement of some of these products looks like."

Still, with the value of the women's health industry poised to reach $41 billion by 2027, according to Goodwin, there are early indications of change. Startups focusing on fertility and bladder issues, for example, are popping up and offering opportunities.

Even big players like Switzerland's Novartis AG see the potential. The fifth-biggest drugmaker in the world by sales has made efforts to ensure its early-stage trials reflect all parts of the population as part of its diversity and inclusion ambitions, Novartis Pharmaceuticals CEO Marie-France Tschudin told S&P Global Market Intelligence.

"From a diversity perspective, I've been very, very vocal on this internally in the company, around making sure that we have the right representation, which until very recently, was still a challenge," Tschudin said. "It's not only the female-male gender issue, but we've got to become much more responsible in representing society the way it looks, not the way the way it's easier for us to do our trials."

Impact investing blazed the trail

McGrath compares the burgeoning world of investment in women's health with the advent a decade ago of impact investment strategies — the concept of using capital for positive social or environmental results.

"It's education, isn't it?" McGrath said. "Trying to convince people why they should invest in businesses which had a sustainable business model."

"People used to roll their eyes at you and think that you were hippie trippy," McGrath said. "We started seeing that the business is the future."