Andrew Elder, Partner, Head of Healthcare Investment – Albion Capital
Created by a confluence of unforeseen circumstances and leading to drastic outcomes, a perfect storm can occur in any complex system.
Hollywood told the tragic story of a fatal weather version, but the confluence is not always destructive - one could argue that a perfect storm of rapidly converging digital technologies is currently causing massive disruption in many business sectors. So is the healthcare sector about to experience something similar….or will its idiosyncrasies ultimately get in the way?
Healthcare has seen plenty of technology-based hype-bubbles come and go, often due to a lack of convergence of certain factors: genomics; mono-clonal antibodies; minimally invasive surgery, MRI and X-rays were all dragged into common practice a generation after they showed their first glimmers of promise to revolutionise patient care. Many got there in the end, but were more akin to years of drizzle than a perfect storm.
But there is now a sense that something big is brewing in healthcare. Digital health, where digital tools and data are used to help both patients and healthcare systems to track, manage and improve health, has seen over $12bn of venture capital and private equity invested in the US in the last 3 years, across more than 900 deals - up from less than $1bn across 90 deals in 2011. The confluence of factors driving this revolution suggests the time is now right for digital health to make an impact.
Rising healthcare demand, coupled with severe cost pressures are now creating an imperative for healthcare systems to innovate and deliver improved outcomes at lower cost. The arrival of multiple game-changing technologies which are accessible, powerful and cheap promise to power that innovation. Technologies such as smart-phones, genomic sequencing and editing tools, machine learning and advanced sensors are converging to make investigation and treatment of disease radically different - more personal, earlier, more effective. They are enabling patient-empowerment, creating the potential to open up vast new markets for consumer health and wellness - it’s no coincidence that all the large tech companies such as Apple, Google and IBM are investing heavily in the sector. Digital health offers the potential to deliver what the system is craving for …. better care for less cost.
So will we see the digital health explosion this side of the pond? We’ve seen non-healthcare business models ripped apart by these technologies in the US, and doing the same here a couple of years later. Data is increasingly at the core of high value business models, and with data as a common currency and the need for scale, these models are becoming more global. But healthcare can be slow to change, held back by its complex regulatory systems, obtuse payment mechanisms and with practitioners steeped in “doing no harm”. With a more fragmented market and a more complex data ownership model, investment in digital health in Europe is well behind the US, barely reaching three figure millions per year.
However, we are seeing signs of change. Keeping models simple, with clear and tangible efficiency benefits, seems to be the key to early digital health adoption over here. Even the simple switch from paper to digital still offers plenty of investment opportunity – our recent sale of Exco Intouch, which provides digital patient engagement solutions to the pharmaceutical industry, in the process replacing paper methods, has seen rapid growth and delivered one of the best VC returns in the UK digital health market to date. And where the pharma industry leads, others in healthcare may well follow – in a system now striving to put the patient at the centre, engaging with patients through technology will be core.
Tools that deliver outcome benefits tend to be more complex than those driving efficiency. However “digital therapies” are now emerging and adoption is fastest where patients can easily measure clear benefits from simple behaviour change….for example, in the simple bodily functions of sleeping, eating and thinking: sleep improvement tools, mental health platforms and our recent investment example of Oviva (providing digitally enabled dietetic services), are all seeing rapid growth. All promise to deliver better outcomes at lower cost and are signs of an emerging, digitally enhanced care system. Complex analytics and artificial intelligence promise further insight-based value in future and are the focus of much attention in both the US and UK, but for now key to adoption this side of the pond is keeping it simple.
So it looks like the confluence of drivers for digital health is strong and the tidal shift inevitable. Don’t believe all the hype, but do believe there’s a storm coming - it just may not be perfect.