Ed Ort, Writer for Corum Group
Healthtech: 2022 and Beyond
The Healthtech (also called digital health) sector ‒ the segment of the economy related to technology-enabled healthcare products and services ‒ continues to thrive as the COVID pandemic remains a worldwide concern. As new variants of the COVID virus emerge, hospitals, doctors, and other facets of the global healthcare system look for innovative technology solutions to combat their effects. And that continued need for technology-based solutions makes for a strong Healthtech market that experts see continuing to grow in the foreseeable future. That has also stimulated an expanding M&A market for Healthtech companies that provide these innovative solutions.
State of the Healthtech market
The Healthtech market is large and growing. According to a report by market research firm Research and Markets, the global digital health market size, currently valued at $216.7 billion, is projected to grow at a compound annual growth rate (CAGR) of 27.7%, reaching $1.5 trillion by 2030.
Research and Markets attributes this growth estimate to advancements in internet connectivity, growing smartphone penetration, rising healthcare IT expenses, developing IT infrastructure, technology readiness, a growing shortage of healthcare providers, overburdened healthcare facilities, and rising medical expenses. All of these factors point to a growing demand for technology solutions, such as smartphone based applications, that make healthcare more personalized, efficient, and cost saving.
One key indicator of Healthtech market growth is private investment. Healthtech companies raised over $39 billion in 2021 from VCs and other investors according to Silicon Valley Bank's Healthcare Investments and Exits report. That was a huge jump from the $14 billion invested in 2020. Investment in the sector slowed down in the first half of 2022 to $17.6 billion, reflecting some investor caution in an economy marked by rising inflation and war in the Ukraine. However, many investors see the current Healthtech market as a multi-year opportunity.
There are a number of significant trends that are driving growth in the Healthtech sector. These include:
- The growing adoption of telehealth
- Greater dependence on data analytics and AI
- Personalized medicine and remote patient monitoring
- Streamlining services
Telehealth, sometimes called telemedicine, is the interaction between a healthcare provider and a patient through a telecommunications approach such as videoconferencing. It allows medical staff to remotely offer care and advice to patients as well as monitor their progress. In addition, it often reduces the cost of providing that care. Those two factors spurred a remarkable growth in telemedicine adoption during the pandemic. By mid-2020, over 50% of patients surveyed in the U.S. said they received care via telehealth. That percentage has dropped somewhat to 38% so far in 2022. However, experts expect that patients will continue to rely on telehealth for their care ‒ not as a replacement to in-person visits but as a complementary service.
Some of the major reasons patients are adopting telehealth include convenience, efficiency, quick access to care, privacy, comfort, and protection from being exposed to other illnesses. The main benefit for healthcare providers is a reduction in costs. Telehealth reduces the overhead that a medical staff faces when seeing patients in person. Some practices have reported saving as much as half of the cost when a traditional onsite doctor’s office visit is replaced with a telehealth virtual visit.
The global telehealth market is growing rapidly, and experts see telehealth continuing to be an essential means of delivering care to people, even in a world without COVID. As reported by Research and Markets, the telehealth market size was $12.5 billion in 2021 and is expected to reach $41.5 billion by 2027, exhibiting at a CAGR of 22.2%. That growth trend aligns with a future vision of hybrid care, where patients receive a combination of virtual and in-person care. Not only does this model offer greater convenience to patients, but it has the potential for better outcomes.
The dramatic market growth in telehealth has led to some major deals in the space. In the biggest deal to date, virtual care provider Teladoc picked up diabetes coaching company Livongo Health Inc. in an $18.5 billion megadeal, at nearly 90 times trailing twelve months revenue, creating a giant consumer-centered virtual care platform. Significant M&A activity continues in the telehealth market, as witnessed by recent transactions such as the acquisition of SecureVideo, a cloud-based telehealth software platform by Dura Software, a company that specializes in acquiring and operating hyperniche software products; the purchase of Cleared, an allergy telehealth platform, by LifeMD, a direct-to-patient telehealth company; and significant funding rounds in telehealth companies such as Learn to Live, a tele-cognitive behavioral therapy provider, and Mantra Health, a behavioral telehealth startup.
Healthcare systems contend with huge amounts of data ‒ medical records, MRI scans, prescriptions, patient vitals ‒ the list goes on. However, making better use of this data has become a sort of Holy Grail in healthcare. And that has led to a growing dependence on data analytics, the process of analyzing large amounts of data to distill useful information. Data analytics can lead to improvements in patient care, faster and more accurate diagnoses, more personalized treatment, and more informed decision-making.
As a result, there is a flourishing market for data analytics products and services to healthcare providers. According to a report by Grandview Research, the global healthcare analytics market, which was was valued at $29.1 billion in 2021, is expected to grow to $35.3 billion in 2022, and by 2030 will reach $167 billion ‒ a CAGR of 21.5%.
Along with this market growth there is heightened interest in acquiring companies that provide these products and services. For example, last year Oracle acquired Cerner in a $28.3 megadeal. Cerner provides software used by hospitals to store and analyze medical records and related data. And in another 2021 megadeal, a consortium of PE firms led by Nordic Capital and Insight partners acquired Inovalon for $6.6 billion. Inovalon offers a cloud-based platform that aggregates and analyzes data in real time, giving healthcare providers insights to drive meaningful impact at the point of care. And recently, PE firm Francisco Partners completed the acquisition of the healthcare data and analytics assets that were part of IBM’s Watson Health business.
Closely aligned with data analytics is artificial intelligence (AI) ‒ the use of computer systems and other devices to perform tasks that normally require human intelligence. The growing use of AI in healthcare is giving healthcare providers insights that can help them make better clinical decisions. For example, AI-based software is being used to aid in screening tests for several kinds of cancer, such as breast cancer. In addition, AI is making a significant impact in new drug discovery. For example, in early 2022, biotech companies using an AI-first approach had more than 150 small-molecule drugs in discovery and more than 15 already in clinical trials.
Interest in AI’s application in healthcare has led to a number of megadeals, including Microsoft's purchase of Nuance Communications for $19.7 billion. Nuance provides speech recognition and AI-based software for healthcare providers. The acquisition will combine solutions and expertise to deliver new cloud and AI capabilities across healthcare and other industries. Also, GE Healthcare acquired BK Medical, a company that provides advanced surgical visualization, for $1.45 billion. BK Medical's solutions guide clinicians during minimally invasive and robotic surgeries and help visualize deep tissue during procedures in neuro and abdominal surgery, and in ultrasound urology.
The AI market size in healthcare was pegged at $11.06 billion in 2021 and is estimated to grow to $187.95 billion by 2030 ‒ a CAGR of 37% ‒ according to a report by Precedence Research.
Advances in medicine are enabling healthcare providers to develop treatments that are customized for an individual patient. For example, insights in genetics are enabling physicians to make clinical decisions, such as prescribing a drug or therapy regimen tailored to a patient's genetic profile. Approaches like these, often called personalized medicine, depend in large part on the active involvement of patients through personal health monitoring, which generates data that health care providers can act on.
Healthtech plays a crucial role in personal health monitoring especially in the use of remote patient monitoring (RPM) devices, including wearable devices such as Fitbits and Apple Watches, and smartphones equipped with remote patient monitoring apps. RPM devices allow people to monitor their health status and enable better management of chronic conditions such as high blood pressure. These capabilities are leading to a future where most day-to-day health monitoring will be conducted by the individual. Healthcare providers are looking to take advantage of the data recorded by these devices to make more informed decisions about patient care.
A surge in the use of RPM devices is driving growth in the patient monitoring device market. According to a Grandview Research report, the global patient monitoring device market size, valued at $37.3 billion in 2020, is expected to expand at a CAGR of 8.8% from 2021 to 2028. The report cites COVID as a primary driver of growth in the market. However, increases in the incidence of chronic disorders such as diabetes, stroke, and kidney disease have also increased the demand for these devices.
A growing list of companies offer personalized medicine products and services, which range from IBM Watson for Genomics, a product developed by Merative, formerly IBM Watson Health, that helps clinicians implement personalized healthcare approaches for cancer patients, to British Healthtech company Huma's RPM portal that enables patients to track their vital signs, such as heart rate, blood pressure, and oxygen saturation, and securely transmits that information for use by their healthcare providers.
Companies that provide RPM products and services have also been hot commodities in the M&A market. For example, last year medical products company Baxter International bought medical technology company Hillrom for $10.5 billion. Hillrom's product set includes a variety of RPM devices such as remote monitoring blood pressure devices. The acquisition is expected to accelerate the delivery of healthcare that is patient- and customer-centered and focused on improving clinical outcomes.
And recently, Guardian Medical Monitoring, a provider of remote patient monitoring solutions to Managed Care Organizations (MCOs) and state Medicaid payers, was acquired by Modivcare, a technology-enabled healthcare services company that provides a platform of integrated supportive care solutions focused on improving patient outcomes. The deal adds to Motivecare's remote patient monitoring offering that allows patients to safely age in their homes with technology-enabled connectivity.
The continual drive for greater efficiency and cost reduction in healthcare has put increased emphasis on streamlining procedures that range from how patient data is collected and managed, to the way medical supplies are processed and packaged, to improvements in nursing workflows. Drug discovery and development is another area where a lot of attention is being paid to increase efficiency and reduce costs.
According to a report by PhRMA (Pharmaceutical Research and Manufacturers of America), it takes at least ten years, on average, for a new drug to go from discovery to availability. Clinical trials alone typically take six to seven years. And the average cost to research and develop a new drug is estimated to be $2.6 billion.
This has led to a thriving market for Healthtech companies that offer products that can streamline the drug discovery and development process. Precedence Research recently reported that the drug discovery services market size, valued at $12.68 billion in 2021, is expected to hit $33.2 billion by 2030, a CAGR of 11.3%.
One company in this niche is Corum client McCreadie Group, which provides software solutions serving research pharmacies and Health Science Residency Programs. Their pharmacy research product, Vestigo, streamlines the research drug-trial process by automating the manual tasks associated with investigational drug operations. Recently, McCreadie Group was acquired by Cordance, a software company dedicated to accelerating the growth of vertically focused business-to-business (B2B) software-as-a-service (SaaS) companies through acquisition. Cordance's business and SaaS expertise will help McCreadie Group scale to match the growing needs of the pharmacy research market.
Pharmaceutical companies are increasingly relying on Healthtech deals to reinvent the drug discovery and development process. Many of these deals are designed to improve the process through sophisticated AI and machine learning technology. One recent example is Nurosene Health, a company focused on delivering innovative AI-based technology solutions in support of mental performance and wellness, acquiring NetraMark, a pharmatech company that uses AI to optimize new drug development and accelerate clinical trials.
Other technology-related M&A deals in the phrama space are designed to streamline processes through automation. This was behind Becton, Dickinson's recent pickup of pharmatech solution provider Parata Systems for $1.5 billion at almost seven times revenue. Parata provides a portfolio of innovative pharmacy automation solutions that reduce costs. The deal enables Becton, Dickinson to offer the growing pharmacy automation market segment a comprehensive set of technologies across the care continuum.
Over the last few years Healthtech companies have been attractive targets for equity investors and strategic buyers, leading to a jump in the number of M&A deals. 2020, the year generally seen as the start of the COVID pandemic, saw 310 M&A deals in the sector, which almost reached the record of 323 set in 2016. Disclosed M&A value also rose that year to a then record of $34.1 billion. Although the number of deals dropped in 2021 to 250, as buyers continued to consolidate the market, disclosed deal value spiked to more than $125 billion, driven by megadeals such Oracle's pickup of Cerner for $28.3B. Activity in the sector has already rebounded with 160 M&A deals transacted in the first half of 2022, but disclosed deal value has returned to a more normal level at $16.8 billion for the first half of the year, as consolidation continues.
Healthtech companies offering virtual care solutions, clinical trial management, pharmacy automation, and healthcare data analytics and healthcare systems (including sensors for remote monitoring) saw the highest valuation multiples over the last 12 months, with median multiples rising during H1 2022 to over four times revenue.
Private Equity investors have been particularly active in the Healthtech market over the last few years, accounting for almost 40 percent of the M&A deals since 2020. In fact, nine of the top 10 most active buyers of Healthtech companies in the last 12 months were PE firms. And one of the biggest recent megadeals in Healthtech was the $17 billion purchase of EHR and practice management SaaS Athenahealth by two PE firms: Hellman&Friedman and Bain Capital.
VC investment has also been sizeable in the sector, as witnessed by the $63 billion invested in Healthtech startups in 2021. VC funding in the sector has slowed in 2022. However, VCs raised a record amount of funding in 2021, according to a funding report from Rock Health, a seed fund for digital health startups, and are flush with cash to make further investments in the Healthtech market.
M&A interest in Healthtech is also starting to spread beyond North America. Although most buyers and sellers in 2021 were based in the United States and Canada, more than ten percent of Healthtech deals were based in Europe followed by a smaller percentage in Australia, New Zealand, and India. That trend has continued in the first half of 2022.
The Healthtech sector’s future is positive, driven by the continued need for innovative technology solutions to combat the continuing impact of COVID. Even in a post-COVID world, the ongoing demand for greater efficiency and cost reduction in healthcare, the urgent need for better, more informed diagnosis and decision making, the imperative of quick, safe, and convenient access to care, the vision of more personalized approaches, and the drive to discover, test, and quickly bring to market new and more effective drugs, will sustain accelerated growth in Healthtech. With a market size projected to grow to $1.5 trillion by 2030, the Healthtech sector is potentially on a skyrocketing growth trajectory. And the trends that underlie that trajectory will continue to drive M&A activity in Healthtech companies that provide creative, cutting edge solutions.