Great Expectations: The Future of Health Tech
The healthcare sector is undergoing a period of transformation. What does this look like today, and what does this mean for investors in the future? Carolina Brochado, Partner at EQT Growth, and Suki Nahl, Associate, will be answering the first question in this article on the future of health tech.
To say we’re in an era of digital business won’t come as a surprise to many. The modern consumer has become accustomed to engaging with businesses online and through apps, with sectors such as retail, media and personal technology having led the way. Now consumers are bringing these expectations to the healthcare sector.
Where we stand today
Organisations’ needs for consumer and medical community digital engagement have never been greater. For several years, evolving consumer expectations and increasing costs and complexity have driven the digitalisation of the sector for the benefit of healthcare payors, providers and patients, and this has accelerated as a result of the COVID-19 pandemic.
Consumers are becoming more accustomed to living life online and today many expect digital services when accessing healthcare. In the UK, a recent poll showed that 97% of respondents had used technology when receiving care from the National Health Service and expected to do so going forward. Remote health is particularly consumer-driven, supported by the increasing adoption of health tracking devices through wearables and biosensors.
In turn, physicians are increasingly keen (and pressed) to adopt new technologies to increase adoption, savings and efficiency. At the same time, the emergence of AI and machine learning to aid disease detection has led Big Pharma to further endorse AI drug discovery. AI is also offering significant benefits in improvement of health outcomes and reduction of healthcare costs. For example, AI-driven medical imaging for coronary artery disease (CAD) led to an algorithm that was able to predict 5 year mortality rates for patients at risk of CAD with greater accuracy than traditional techniques; Deloitte predicts this could lead to cost savings of €7bn for the healthcare system. In addition, AI-driven monitoring of patients can save multiple clinic visits and administrative hours.
The COVID-19 pandemic and associated restrictions forced healthcare online in many cases. For many, this experience has been positive. Among a survey of NHS patients and staff, those who felt positive about technology-enabled approaches in the future significantly outweighed those who said it had made them feel more negative.
Driven by these structural tailwinds, Health Tech is emerging as one of the most dynamic, and vital, sectors. But which areas of healthcare are most ripe for disruption?
Where are the opportunities?
As adoption of healthcare technology has accelerated, several “value pools” have emerged. According to McKinsey, the markets for value pools are expected to grow by at least 8% p.a., with a focus on both improving delivery of care to patients and improving processes in healthcare systems for providers.
Here at EQT Growth, we think there are three value pools that are the most imminently compelling for Growth investors, based on a combination of growth, size, cost savings and valuation — research and development processes, operational efficiency and patient care delivery.
Let’s start with R&D. Traditionally, R&D processes have been costly and extremely time-consuming versus other healthcare sub-sectors. In recent years, many new enabling technologies have emerged and become more prevalent, such as AI-driven drug discovery, patient recruitment or software enablement for clinical trials. These developments have led to both the proliferation of companies addressing new technologies such as precision medicine, and the enhanced interest in the sector from Big Pharma, which has led to the emergence of viable business models. These factors mean that R&D represents one of the largest value pools, with a widespread presence.
Increasing operational efficiencies offers another significant opportunity. For many of us who have experienced countless hours waiting in A&E, it won’t come as a surprise to hear that Healthcare Systems globally are often inefficient, fragmented, and cumbersome for patient and provider alike. In the worst cases this has led to medical errors, driven by incumbent and out-dated systems. As a result of the scale, complexity and consequence of these operational issues, technology around increasing efficiencies here is one of the fastest growing value pools (growing at c. 15%). This growth is also driven by increasing potential for scalability within and across nations, given the renewed united interest of key stakeholders within healthcare systems for transparency and patient care.
We are also excited by the companies improving digital and remote delivery of care, which has become more important than ever in the post-pandemic world. COVID-19 highlighted the need for effective and efficient healthcare solutions outside traditional care settings, and as a result consumers and providers have become more comfortable with receiving digital care away from practices, hospitals and into the home — one such example is the explosion in the adoption of virtual mental health treatment.
In an increasingly autonomous society, technological advances in care delivery can provide tremendous cost-saving potential to payers and providers, whilst providing a more convenient way for patients to monitor and control their health. And in a society that is becoming more and more health conscious, the digital delivery of care is also expected to generate long-term benefits and returns for patients and providers, as the focus shifts towards prevention rather than care. At EQT Growth, we believe prevention is the cure.
Follow EQT Growth on Medium, LinkedIn and Twitter to make sure you don’t miss part two, where we will explore what these trends mean for growth investors.
