Will we see a boom in UK digital health investment opportunities? Seasoned investor Andrew Elder, of Albion Ventures, thinks so.
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 – a perfect storm of rapidly converging digital technologies is currently causing massive business disruption in a number of many business sectors.
So is the healthcare sector, until now relatively in the digital doldrums, about to experience similar drastic impact, or will its idiosyncrasies ultimately prevent it?
Healthcare has seen its fair share of technology-based hype-bubbles come and go, often due to a lack of confluence of certain factors. Take, for example, the promised genomics revolution in the early noughties, which took a further 15 years to really start to deliver on its promise, when the data became meaningful and cheaper to access. Rational drug design and combinatorial chemistry in the late 90’s and mono-clonal antibodies ran a similar course in the 80’s and 90’s. Also, 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.
The common theme is that (with the partial exception of rational drug design) they got there in the end, but were more akin to a season of drizzle than a perfect storm. But is something big brewing in the industry now? To the outside observer looking at digital health in the US over the last few years it certainly looks so.
Digital health, where digital tools and data are used to help both patients and healthcare companies and systems to track, manage and improve health, has seen over $12bn of venture capital and private equity invested in the US in the last three years, across more than 900 deals.
This is up from less than $1bn across 90 deals in 2011. While growth of investment has recently slowed, the intensity levels remain high. Signs of the market maturing are starting to be seen with M&A levels doubling despite the flattening investment levels, perhaps indicating the market is moving into its next phase beyond the early investment hype.
The confluence of factors provides a compelling context to believe this time it could be different. The main healthcare drivers – an ageing demographic, rising levels of chronic disease, globally rising expectations – coupled with widespread systematic cost pressures are driving the sector to deliver improved outcomes at lower cost. It’s always been thus, but the difference now is the combination of real cost pressure and the confluence of truly dramatic technology change.
The wide accessibility of technology now makes profound change more likely this time round. The confluence and maturation of technologies such as genomic sequencing and editing, machine learning and advanced sensors are coming together at just the right time to make investigation and treatment of disease radically different (more personal, earlier, more effective, etc) from previous technology hypes.
Technology is enabling patient-empowerment, creating the potential for digital consumer health and digital wellness to open up vast new markets for the healthcare sector – it’s no coincidence that large tech companies such as Google and Apple are investing heavily into the sector.
So given that, in the UK, we have basically the same diseases and macro-drivers as the US, will we see the digital health explosion this side of the pond, just with our customary trans-Atlantic lag?
There are reasons to believe it – other sectors have seen business models ripped apart by some of the these enabling technologies Stateside, only to jump across the water a couple of years later and wreak the same havoc over here.
As business models increasingly have data at the core of their value, so they are becoming more global, with data the common currency and scale the imperative. But healthcare can be a cantankerous old granny of a sector compared to the analogous nimble, adolescents of the consumer-driven sectors.
Immersed in complex regulatory systems, obtuse payment mechanisms and with practitioners steeped in the concept of ‘doing no harm’ rather than incentivised to change, adoption of any technology in healthcare is notoriously slow.
Add in a more complex data ownership environment and a smaller, more fragmented European market and it’s no wonder investment in digital health in the UK is miles behind the US, barely reaching three-figure millions per year.
US health customers historically understand how to use data and are incentivised to do so. They see value in data analytics and so they buy analytics capability. In the UK, health customers are only just beginning to understand the promise of data and what it can do for them. Until they do, their ability to free up budget to pay for it will take some time. But hang on, my 80-year-old mum now uses an iPad having shunned computers as too hard to grasp – grannies can change when the confluence is right and will pay for it when they see the benefits.
So can the analogy stretch to the sector as a whole in the UK? Is this the time when healthcare properly and quickly embraces change, is this convergence different from cycles seen before?
Improving the system
Digital health offers the potential to deliver either system efficiencies, better clinical outcomes or both. This is what the system is craving: delivering better care for less cost. And it doesn’t have to be complex to deliver benefits.
In fact, we see the simple models with simple and tangible benefits gaining the early traction. Digital adoption has historically been so low in the sector that even the simple switch from paper to digital in some areas still offers plenty of investment opportunity.
So keeping things simple may be the key to early success in the start of mainstream digital health adoption – simple business models with clear, demonstrable wins for all stakeholders.
For example, other simple efficiency-based gains might include improving the coordination of care through workflow and data sharing tools, resource management tools (getting the right person in front of the patient at the right time) and tools that proactively enhance and prioritise decision making to ensure patients get the appropriate care at the right time.
Tools that deliver outcome benefits tend to be more complex than pure efficiency tools and often harder to measure. But where better for patients to measure the benefits of outcomes than in their basic bodily functions – eating, sleeping, thinking. We are seeing examples in Europe with the emergence of some ‘digital therapies’ for these basic functions gaining rapid adoption.
In future, the more complex insight-based value offered by analytics and AI, and the potential for cloud biology, genomics and computational medicine, all delivering new tests and treatments for individuals’ disease, should start to be seen in the UK. Indeed in the US, much investment is being seen in these areas already, driven by their more rapidly adopting customer base.
So even though we may lag the US and we may have more structural challenges in the rapid adoption of technology, we believe the confluence of drivers for digital health is strong and the tidal shift inevitable.
So don’t believe all the hype, but believe there’s a storm coming – it just may not be perfect. With such a large potential opportunity in play it’ll be no fun to be left on the side lines – so we’re getting our raincoats on and getting out into the building storm, but all should be prepared to get just a little bit wet.
This article first appeared on edition 13 of Tech City News’ popular print magazine – The HealthTech Issue.