Shifting sands in healthcare investment?

In the US, convergence across the healthcare ecosystem is diluting the meaning of "digital health", as the distinctions between clinical and consumer businesses blur. Who will win out?

I picked up on an article in MedCityNews about recent (H1 2016) trends in VC investment in the realm of digital health, which contained some interesting and thought-provoking analysis.  Inevitably, the thrust is US-centric, but I think there could be some useful read-across to other national markets.  If you choose to take a read, replace the phrases "employer-funded" and "insurance coverage" with phrases like "NHS-funded" and many of the points may resonate in Scotland and the UK.

The article is authored by Lisa Suennen, a venture capital investor and managing partner of Venture Valkyrie Consulting LLC in Northern California. Her article (which you can read in full here) was commenting on a recent Report published by Steve Allan who leads the Analytics team at Silicon Valley Bank, providing advice to investors in technology and life sciences (you can find the original Report here).

I think the content is interesting and thought-provoking - the elements of the thesis, derived from investment activity data, looks something like this:

  • Industry convergence across the health and wellness ecosystem of pharma/life audiences, med tech, health & services delivery and health IT is causing the term "digital health" to become confusing and unhelpful (something that we have commented on in the past);
  • Consumer-focussed health and wellness investments (i.e. where the consumer/citizen pays) may be starting to struggle for funding - the number of consumer digital health investments is down in H116;
  • But the % of these deals which involve a "strategic investor" (such as Merck, GE Ventures, Kaiser Permanente) is growing - and they are shifting the market towards clinically-focussed investments, into products/services that drive behaviour change for consumers/users to improve health outcomes; remote monitoring; and complex disease management;
  • What's happening here? Lisa's view is that "consumers/people/humans, a.k.a. those of us walking around with organs, really don’t want to spend our time thinking about our health if we can avoid it."  Businesses already in the wellness market are now looking to build clinical programmes, or to shift their emphasis to collecting real-world clinical grade data (which is where Apple and Google are also playing).  Consumers are seeing "fitness tech" more as consumer technology than health care products - which could also explain why the exit route for investors in this sector may be shifting to acquisition by sports and fashion companies where branding, not technology, becomes key;
  • Scaling a business seems to be extremely challenging without working directly with clinical enterprises ("big pharma"), or inside an ecosystem like that surrounding the NHS;
  • And what of the coming investment landscape to 2020? Watch for digital therapeutics - providing predictive, personalised clinical interventions that focus on clinical efficacy and cost savings for healthcare providers.

So adding familiar consumer branding to a clinical product may just prove to be an easier sell than vice versa - so perhaps Apple and Google may end up struggling as the Empire Strikes Back?


ian-sibbald230x230.jpgAuthor: Ian Sibbald
Director, Citrus Mind Ltd.


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