Ed Ort, Contributing Writer
The Healthtech market had remarkable growth in 2020 despite a pandemic that contracted the worldwide economy by 35 percent. And forecasts for the coming years indicate continued growth in the sector. In addition, Healthtech companies are becoming very attractive targets for investors and strategic buyers, leading to a jump in the number of M&A deals in 2020 compared to 2019, and a record high in disclosed deal value.
What is driving the growth and buyer interest in Healthtech? And will those drivers continue to impel the Healthtech market upward?
Emergence of virtual healthcare
COVID-related lockdowns forced many people to stay home and miss medical appointments. As a result, healthcare systems turned to virtual healthcare approaches such as telemedicine (also called telehealth) as a way to remotely offer care and advice to patients as well as monitor their progress.
Prior to the pandemic, healthcare providers were starting to adopt virtual healthcare approaches. However, COVID spurred adoption of these approaches in a big way. Though lockdowns have become a thing of the past in many countries, adoption of virtual healthcare continues to grow, driven in large part by patients who are getting more comfortable interacting with healthcare professionals through videoconference calls and online chats.
In a recent survey conducted by the COVID-19 Healthcare Coalition Telehealth Impact Study Work Group, patients who had at least one telehealth visit during the pandemic were asked to choose whether they would prefer an in-person or telehealth appointment in the future. Fewer than a third of respondents indicated they would prefer an in-person visit. Two of the reasons cited for preferring a telehealth appointment were removing the need for transportation and reduced cost.
Corum Senior Vice President Jaber Tannay echoes the fact that virtual healthcare is gaining wide acceptance. Tannay, who is based in France, says, “The virtual element has become part of life in France and in Europe in general. People see that it doesn't make sense to go and sit in the doctor's office for half an hour if they’re just getting a consult from a GP for a condition. You’ve got to go to a hospital for special procedures, but if you're not being touched you can do that virtually.”
The expansion of virtual healthcare is expected to continue. Fortune Business Insights reported that the global telemedicine market will grow from $79.79 billion in 2020 to $396.76 billion in 2027a CAGR of 25.8% for the 2020-2027 period.
As healthcare systems grow their use of telemedicine, companies look to make deals that expand their footprint or geographic reach in the telehealth market. For example, Teladoc paid $600million for competing telemedicine platform InTouch Health, expanding Teladoc’s virtual care solution across the continuum of in-patient care to home care.
Other companies are seeking to gain entry into the telehealth market, as evidenced by the recent purchase of telemedicine vendor 2nd.MD for $360 million by Accolade, a company that provides technology solutions that help people navigate and utilize the healthcare system and their workplace benefits.
Emphasis on preventive healthcare
Preventive healthcare consists of actions such as annual check-ups, immunizations, diet, and exercise, as well as tests and screenings that help prevent or detect diseases and medical problems before they become major. Technology plays a significant role in preventive healthcare. In fact, the growing incidence of chronic diseases such as heart disease and diabetes coupled with an aging population is stimulating healthcare providers to invest heavily in preventative healthcare technologies. According to market research firm UnivDatos market insights, the market for global preventive healthcare technologies and services is expected to reach $493.1 billion by 2027, a CAGR of 10.5%.
A large and growing share of the preventive healthcare technology market involves the use of wearable devices such as FitBits and smartwatches that can monitor vital signs such as heart rate, blood pressure, and body temperature, as well as track weight and exercise. The data these devices collect can be sent to doctors and other healthcare professionals to assist in maintaining a user's health. According to data presented by the HIMSS (Healthcare Information and Management System Society), there are already more than 300 healthcare institutions that use wearable devices as part of their preventive healthcare approaches.
The demand for wearable devices has generated a booming market and stimulated established companies such as Apple and FitBit to provide innovative preventive healthcare solutions. For example, Apple's latest smartwatch, the Apple Watch Series 4, includes an electrocardiogram (ECG) sensor that notifies the user when they have high or low heart rates and irregular rhythms. The wearer can then consult their doctor for review. A growing list of startups is also getting into the market. For example, U.S.-based startup Shade offers wearable sensors that measure a user's exposure to the sun's ultraviolet radiation. An accompanying application notifies wearers when they approach their daily limit of exposure.
Tannay feels that the use of these personal healthcare devices can accelerate even further when more people trust how the captured data will be used. He notes, “It is tricky if you use a device like your mobile phone to capture your exercise data and that device is linked to an insurance company that underwrites your policy. Currently, insurance companies can adjust your risk level based on the way you drive, and use it to develop an auto policy quote. They can do exactly the same thing for your health policy. You can have a device in your pocket and depending whether you walk or you don't, they can monitor your activity and adjust your health policy accordingly.”
The burgeoning interest in preventive healthcare has also led to some consolidation in the market. For example, Preventice Solutions, a designer of mobile health solutions that include wearable devices and remote monitoring offerings for patients with cardiac arrhythmias, was recently acquired by medical device manufacturer Boston Scientific for $925 million. The deal gives Boston Scientific a foothold in the high-growth ambulatory ECG space.
Focus on patient data across the continuum of care
Another factor driving Healthtech growth is an expanded focus on continuity of care after a patient leaves the hospital. This includes care provided in rehab facilities, skilled nursing facilities, and in the patient's home. A key element enabling effective care across the continuum is the ability to seamlessly exchange patient data between all of the patient’s care providers.
That need is propelling investment in platforms that foster real-time access to patient records across the continuum. A case in point is PointClickCare Technologies’ recent acquisition of Collective Medical, a network-enabled platform for coordination across the continuum of care. PointClickCare develops web-based products and services that manage the lifecycle of resident care in long-term care facilities. The combination of companies will provide diverse care teams across the continuum of acute, ambulatory, and post-acute care with access to patient records at any stage of a patient’s treatment.
Steve Jones, an industry advisor for Corum, points out that the insights gained from Collective Medical's platform will help PointClickCare improve the lives of seniors. He says, "Because PointClickCare is focused on the long term skilled nursing and hospice environments, they can use Collective Medical's platform to gain knowledge into where their patients came from and the history that comes with them. It really improves the way they can define products and services for the care of these senior patients."
Jones adds that Healthcare providers are on a quest to have an overarching master single source of record for patients. That single authentic source of data provides healthcare providers with better insights into a patient’s care over time. According to Jones, "Providers are able gain an expansive view of patients who come into and out of third-party systems and optimize their treatment accordingly."
Reliance on leading-edge technologies
Leading-edge technologies such as artificial intelligence (AI), augmented reality/virtual reality (AR/VR), and the Internet of Things (IoT) are quickly becoming an integral part of healthcare as providers look for better, more effective ways of providing care. The market for companies that provide healthcare solutions based on these technologies is expanding at a rapid rate. The global AI market in healthcare is expected to exceed $733 billion by 2027, while the healthcare IoT market is expected to grow to more than $446 billion by 2028, and the market for AR/VR technology in healthcare is predicting to hit $30 billion within six years.
Companies are developing innovative healthcare solutions based on these technologies. For example, Subtle Medical provides a suite of AI-based deep learning software solutions that enhance radiology images, something that can lead to improved diagnostic accuracy. AppliedVR offers VR-based treatments that help hospital patients train their brains to manage acute and chronic pain associated with a variety of health conditions. And CapsoVision makes digestible capsules that provide 360 degree panoramic images of the small bowel, enabling at-home endoscopic examinations. The captured images can then be reviewed by a physician using associated software.
Jones sees VR as a growing trend in educating patients. He notes that, “Providers are creating a virtual experience to educate patients on pending procedures. You can watch yourself being operated on in a virtual scenario and be educated on what's going to happen. That has increased patient satisfaction and led to quicker and more effective recovery and rehab. “
Interest in these technologies is fueling major investments by VCs, PEs, and strategic investors. For example, in 2020, VC funding for medical imaging AI companies alone was almost $600 million, which was an increase of $142 million over the previous year.
Among recent strategic investments in companies on the leading edge of healthcare technology is Microsoft’s acquisition of Nuance Communications for $19.7 billion. Nuance is a specialist in conversational artificial intelligence and speech recognition technology that helps healthcare workers streamline the capture and analysis of clinical information. And in an IoT-related deal, multinational conglomerate Royal Philips recently bought Capsule Technologies, for $635 million. Capsule provides data platforms that connect medical devices and record systems in a hospital.
Consolidation into one-top shops
Paralleling the growth of Healthtech is a market consolidation trend that has companies acquiring providers of complementary products and services with the goal of becoming "one-stop shops" for healthcare. For example, Teladoc followed up its purchase of In-Touch Health by buying diabetes coaching company Livongo Health Inc. for $18.5 billion, creating a giant consumer-centered virtual care platform. Teledoc sees the combined company as spanning a person’s entire health journey, enabling patients to receive personalized, technology-enabled longitudinal care, including care of chronic conditions, in a virtual setting.
Another example of this trend is the purchase of digital physical therapy company Physera for $30 million by behavioral medicine company Omada Health. Physera specializes in virtual physical therapy for muscle and joint pain and delivers interventions digitally and through telehealth-based consultations with physical therapists. Omada offers a digital care and coaching program for diabetes prevention and management, hypertension, and behavioral health. The acquisition adds digital coverage for musculoskeletal issues and makes Omada a more comprehensive digital healthcare solution.
Investors have also fostered this trend as witnessed by a recent $300 million investment led by PE firm Durable Capital Partners in digital pharmacy Capsule (not to be confused with medical device integrator Capsule Technologies). Capsule will use the money to create a single point of service for digital healthcare, where consumers can access Capsule’s digital pharmacy as well as products and services, such as telemedicine and mental health support, through a single application.
Tannay sees this trend continuing. He says, "We'll probably see a strong consolidation over the next couple of years because you don't need to have that many providers in a country. You just need to have a few. Most of the winners in Europe are unicorns that have more than a billion dollars in valuation."
The Healthtech industry is driven very much by innovation. According to Tannay that has always been true. He says, “If there is a new procedure or treatment it will obsolete older procedures or treatments that are not as good, no matter the cost of the new technology. And that drives more money into Healthtech." He also sees the pace of innovation in Healthtech accelerating, which is increasing the pace of investment. According to Tannay, Healthtech company valuations drive investors. He notes that, “The valuations in Healthtech are absolutely astronomic. One dollar of revenue in Healthtech might be sold for 20 times revenue or more.” And those valuations are increasing, with a dramatic jump in Healthtech M&A disclosed deal value that has already exceeded $40 billion in 2021, as reported in Corum Group’s Healthtech Exits Report.
Jones also sees this acceleration of investment continuing into the future. “I think the investment in Healthtech that's occurred in the last five years has created its own flywheel. Investors saw how to extract value and that's led to more investment coming at a quicker pace.”