Time to invest in healthcare tech?

Soaring healthcare demands, and consequently costs, are driving a real commercial need to find ways to do things more efficiently.  With an increasingly complex regulatory environment digital solutions are the best way to ensure monitoring and compliance.  

The opportunities are huge where the right tech solution is found, with those that can become platform providers – providing the basis for consolidated data exchange, analytics and user engagement being especially attractive. 

Over the 2015-2018 period, healthtech companies with a strong technology component were valued, on average, at 17.1 times earnings, compared with a 14.9 times average across the health sector more generally – with some exits tipping the scales as high as 23 to 25 times EBITDA.

A base level ofc.$10m of revenue is generally seen as a pre-requisite for initial traction but as the article makes clear, the opportunity is current and early adopters are likely to win big:

“Incumbents and corporates are already trying to establish themselves as platform providers, and those that succeed are likely to become the standard for their portion of the healthcare value chain. …Because platform providers are exceptionally difficult to replace, companies need to become standard-setters now and win disproportionate returns later”

Despite this backdrop, for 2015-2018 only 7% of healthcare deals were healthtech, of which 83% were done in the US. This balance towards tech is bound to change as the efficiencies it offers become more recognised, proven and necessary.  To me, there is no good reason why solutions to these global issues cannot be found from the host of very strong healthtech businesses this side of the pond.

Indeed, from direct experience here at Polestar, we can reference a good number of tech businesses offering world class, or potentially world-class technologies.  Occasionally, we also see platforms that have capabilities way in advance of the associated business financials.   Here we can sometimes help by making introductions through our contact base, whether that be to additional experienced operators or potential licensing partners that can assist in establishing a scalable footprint.

As a side note, we have recently seen 3 smaller businesses where the technology has taken time to develop or have started life as something completely different before changing what they do.  As a result, they breach the age rules for VCT funding – when they are just the sort of businesses that the VCT rules were meant to assist. How common is this? Should the time limit on these rules be reconsidered?

Healthcare lags behind other industries on digitization….However, healthcare will soon have no choice but to catch up—fast……. funding deficits in public healthcare systems and price pressures on pharmaceuticals, have driven healthcare players to seek ways to reduce operating costs and improve productivity.

By Richard Hall on 13/06/2019