State of Venture Capital in the HealthTech Sector
By Federico Brath
Global expenditure in healthcare accounts for ca. 10% of global GDP (WHO, 2020), although countries with higher GDP tend to spend more in percentage terms, with the US leading the pack at 16.8% of GDP (OECD, 2019). Healthcare expenditure has grown faster than GDP even before the outset of the Covid-19 pandemic, which has exposed the deficiencies of the current system and is thus likely to accelerate this growth trajectory. In OECD countries, 80%+ of healthcare expenditure is controlled by either insurers or governments (Dealroom, 2021)
HealthTech — or Digital Health — comprises the applications of digital technologies aimed at improving human health. It impacts a broad range of areas across healthcare, medical devices, and biopharma, and can be clustered into 5 segments: drug formulation, disease prevention, screening and diagnostics, care delivery, and provider operations. Worth ca. $350Bn in 2019, the sector is expected to grow at about 11% CAGR up until 2024 (McKinsey, 2020)[1]. The structural change towards healthcare digitization has been dramatically accelerated by Covid-19, which radically changed patient and doctor preferences towards remote care vs. point-of-care interactions.
Advances in and adoption of HealthTech technologies will radically transform the patient journey and shift the overall balance of healthcare from care and treatment towards disease prevention, which is expected to grow from 18% to 61% of total market value by 2040 (Dealroom, 2021).
By then, patients will track their well-being through wearables and wellness apps, which will nudge them towards personalized lifestyle choices aimed at preventing diseases. Connected devices and regular finger-prick blood tests will track several biomarkers, while genomics screening will examine the patient’s DNA to identify relevant mutations, i.e., associated with increased risk of a given disease. Through algorithmic interpretation of this data, the patient will receive a complete picture of its health status and will be alerted of potential issues. Algorithms will detect the onset of diseases long before the manifestation of symptoms, referring the patient to a competent HealthCare Professional (HCP) to run additional tests and/or confirm the diagnosis.
Depending on the nature of the condition and of the test required, the doctor may visit the patient face-to-face or opt for a virtual consultation through telehealth. Once the diagnosis is confirmed, the treatment most appropriate to the patient’s unique genetic and epigenetic endowment will be selected. If the disease is caused by a gene mutation, the patient could undergo CRISPR-Cas9 gene-editing to delete the relevant DNA sequence. For mood disorders, digital therapeutics can complement pharmaceutical treatment.
After the visit, the patient’s Electronic health records will be updated, prescriptions will be automatically delivered at home or at the nearest pharmacy, and the patient will be advised to sign up to monitoring platform to track symptoms and share vitals data with the hospital.
New AI-enabled R&D technologies will sift through patient records to identify possible drivers of therapeutic effectiveness, and software will automate back-end operations and enable the shift towards a value-based system of care, which will determine the provider fees based on patient health outcomes.
HealthTech Investing Ecosystem
In the past 3 years, Venture Capital funding in the global digital health sector has experienced strong growth at a 41.1% CAGR, primarily driven by an increase in the value of deals. Growth has been consistent across deal stages, with seed funding growing at a slightly slower but still sustained 28% YoY (PitchBook, 2021).
North America accounts for 72% of total funding, with Asia Pacific representing an additional 16%. Europe — which in 2018 accounted for 4% of the pie, has grown at an extraordinary 74% CAGR over the last 3 years [3], and now represents 10% of total funding.
Multiple mega-rounds have been completed before and during the pandemic: MGI Tech — a Shenzhen-based omics company providing on DNA sequencing devices and related products — raised a $1Bn of series B funding in 2020 led by IDG Capital; Babylon Health — a UK-based telemedicine company providing online primary care services — completed a $450Mn Series C in 2019 led by Saudi Arabia Public Investment Fund; Hinge Health — a US-based firm offering digital solutions for preventing and monitoring musculoskeletal pain — raised a $300Mn Series D round co-led by Tiger Global and Coatue Management.
Among investors with $1Bn AUM, 6 have acted as lead investors on more than 5 deals in the last 2 years. These companies have executed 60+ deals in the sector since 2019, deploying a total of $3.1Bn in invested capital (PitchBook, 2021).
Exits occur primarily through M&A, with 350 such deals and only 6 IPOs taking place in the last 3 years, notably including a recent SPAC IPO by Babylon Health. Acquirers of VC-backed companies in the industry include technology companies, with Alphabet acquiring wearable device company FitBit for $2.1Bn; other HealthTech companies, with Teladoc Health purchasing the virtual care platform InTouch Health for $1.1Bn; and pharmaceutical companies, with Roche acquiring oncology-specific EHR provider FlatIron Health for $1.9Bn (PitchBook; White Star Capital, 2020).
By Federico Brath, Member of the Rebel One Investor Network
[1] Other definitions of the market do not include R&D technologies (precision medicine, other novel Tx), and value the market at $150–200Bn (e.g., Roland Berger, 2019; GIA, 2021). Those reports also display higher CAGR (18–24%)
[2] Precision medicine start-ups currently focus on R&D for drug discovery stage, but will soon build a promising pipeline of effective treatment
[3] Funding levels rose during 2019, were stable during 2020, and accelerated further in 2021
