Over the past two years, Sid Paquette and Michelle Killoran, in addition to the broader OMERS Ventures team, have spent a lot of time learning about opportunities in health care through a tech lens and ultimately getting smart about the Canadian health care technology landscape. One of the reasons health care opportunities are appealing from a venture capital (VC) perspective is due to the growing total addressable market. According to Deloitte’s Global Health Care Outlook for 2018, global health care spending is estimated to reach $8.7 trillion by 2020 and life expectancy is expected to increase by greater than one year between 2016 and 2021 resulting in 11.5% of the population being over the age of 65. Chronic disease is also on the rise with 642 million people expected to have diabetes by 2040. Although there are positive strides being made in health care (e.g. value-based care), there continues to be existing and new challenges where technology can play a significant role.
Technology has enabled many trends in health care and has fueled significant innovation, including:
1. Empowering the patient: The industry has shifted to a more patient-centric approach where individuals are gaining more control over their own health data, in hopes of ultimately moving towards personalized health care.
2. Centralizing data: As wearables have resulted in large amounts of health data across multiple devices, the industry is moving to make the information (including all health records) more integrated, actionable and able to flow to clinicians and other care providers.
3. Increasing accessibility/reducing costs: Technology has enabled the adoption of location-agnostic care, resulting in the emergence of telemedicine and home-based care solutions.
HealthTech in Canada
Although we are seeing innovation across all segments within life science (i.e. biopharma, medical devices, health care IT), OMERS Ventures has focused its attention on software-first solutions in the health care space. This emerging category that we refer to as “HealthTech”, focuses on a number of health care applications where software has had a meaningful impact in driving efficiencies and improvements, including care coordination, wellness, telemedicine, drug discovery, home care and health data sharing. This space attracts talent from the traditional life sciences channels (i.e. physicians, scientists, etc.) as well as technology experts (i.e. PhDs in machine learning, software engineers, etc.) resulting in diverse teams equipped to tackle the complexities of the health care ecosystem. The following graphic highlights 100 HealthTech companies worth watching in Canada:
In the U.S. throughout 2017, USD $5.8 billion of venture funding was invested across 345 digital health companies, up from USD $4.4 billion and 324 deals in 2016. The following chart highlights select HealthTech financings in Canada in 2017/2018 (to date):
The Big Four
No, not Deloitte, KPMG, EY and PwC. We’re referring to Apple, Facebook, Google and Amazon. The four tech giants’ deep (questionably too deep as Scott Galloway discusses in his recent book, The Four: The Hidden DNA of Amazon, Apple, Facebook and Google) integration into our daily lives puts them in the perfect position to take on health care in a big way. Apple and Amazon have recently made announcements about their activity in the space. In January 2018, Apple introduced a new feature, Health Records, in its Health app allowing customers to access their medical records on their iPhone. Shortly after, Amazon announced that in partnership with JPMorgan Chase and Co. and Berkshire Hathaway, they are focused on improving employee satisfaction and reducing costs related to health care for U.S. employees. The adoption of a technology first view to the challenges in health care is a positive signal for capital flowing into the space. Further, as privacy concerns around the Big Four continue to grow globally, people may be more open to sharing their health information with an independent player — a major opportunity for start-ups.
As discussed above, many start-ups are targeting the health care industry from different angles. From a VC perspective and through meeting many companies in the space over the past couple of years, we believe there are certain indicators that make a HealthTech company intriguing to VCs:
• Ability to scale geographically: The health care industry faces different regulatory challenges on a province by province or country by country basis resulting in localized solutions with business models that are geography specific. The start-ups with solutions that are location agnostic and can scale geographically will succeed in the long-term.
• Full solution vs. a point solution: Today the industry is made up of multiple point solutions. The real value will be driven by companies that can offer a suite of solutions or focus on addressing all touch points in a given care scenario.
• Driving value from the data: The current “hot topic” is cleansing health data as companies work to address the inefficiencies around fragmented and unusable patient information. The ultimate goldmine will come in how the data is used to derive results and change patient outcomes.
• Highly adoptable business model: In a complex system, the companies with a clear and timely path to revenue with no unnatural behavior expectations will stand out — Who is benefiting, who is paying and why?
We know where the industry is today and the trends that are driving disruption in health care. The real question is where will we be by 2020? Based on what we’ve seen in the space, we predict that once patients are empowered, sharing will be the next movement in health care. The impact of social media and widespread e-commerce (64% of U.S. households had Amazon prime in June 2017) is that people are more comfortable than ever sharing their personal information in exchange for some type of benefit. Today, that benefit is targeted ads for those shoes you’ve been eyeing or insightful recommendations for your next trip. Tomorrow it will be personalized care and faster clinical trials leading to a cure. As people take control of their health information, the benefits from sharing may overpower the traditional stigma around keeping information private.
OMERS Ventures’ portfolio has two companies that fall under HealthTech today, Leagueand InteraXon, and we are actively looking for other investment opportunities in the space. If you’re a founder of a HealthTech start-up, we’d love to meet you.