Digitalising healthcare
Compelling investment opportunities abound in the healthtech sector
Christoph Kausch: Healthcare expenses are weighing heavily on economies around the world. In 2022, around $10trn was spent globally on healthcare, accounting for a considerable portion of government and private spending. Furthermore, healthcare expenses are expected to continue to grow over time, due in part to the increasing prevalence of chronic conditions. Currently, 40% of the adult population suffers from at least two chronic diseases. Chronic conditions are not curable and must therefore be managed over time. They also lead to clinical complications, associated with massive healthcare costs.
Another critical factor influencing healthcare expense is, of course, an ageing population. Again, this is a trend that is only moving in one direction. In 2022, there were one billion people aged 60 and above. This number is expected to increase to 2.1 billion by 2050. Global healthcare expenses have clearly reached unsustainable levels, and this in turn is creating attractive investment opportunities.
Kausch: Digitalisation is going to be crucial in helping to lower costs, broaden access to healthcare and ultimately to improve outcomes. The healthcare sector has historically struggled to integrate new technologies, lagging a decade behind other industries. However, the pandemic acted as an enabler for the adoption of healthtech solutions, which is one reason why this is such an exciting time to be specialising in this sector.
Among the various subsegments within healthcare – biotech, healthtech, and medtech – healthtech stands out as the category experiencing the most rapid growth. Projections show the healthtech market is poised to reach $720bn by 2027, with an impressive CAGR of approximately 28%. We firmly believe that this growth trajectory positions healthtech as the most attractive segment within healthcare, offering exciting opportunities for investment.
Kausch: As previously mentioned, increasing healthcare costs have spurred demand for digital solutions within the healthcare industry. We invest in companies catering to pharmaceuticals, providers and patients across three key sub-sectors. The first is digital care – digital solutions that help deliver better care to patients. Second is digital pharma – digital solutions applied across the value chain of pharmaceutical companies in order to create efficiency gains – and finally health IT – software and tech-enabled solutions designed to increase workflow efficiency in healthcare practices.
We believe that digital health, digital pharma and health IT stand out as promising investment opportunities within the healthtech space for a number of reasons. These sub-sectors are experiencing rapid growth driven by increasing demand for efficient healthcare delivery and advancements in technology. In addition, they offer solutions that improve efficiency, reduce costs, broaden access to healthcare and enhance outcomes across the healthcare landscape, while also empowering patients through personalised care and engagement.
Kausch: All of our Fund II portfolio companies belong to one of these categories, but perhaps we can take a closer look at digital pharma, in particular. When examining the top 20 big pharma companies, we observe an annual R&D expenditure of $150bn, alongside increasingly lengthy clinical trial durations. While the average trial duration was previously nine years, it is now trending towards 11 years, depending on the therapeutic area. In this context, we believe that digital solutions can play a crucial role in streamlining these processes.
It is worth bearing in mind that only nine percent of drugs entering phase one trials ultimately gain FDA approval in the US. It is evident, therefore, that optimising the clinical trial phase is essential. This is where our investments in solutions targeting clinical trial improvement, such as Trialbee, come into play. Patient recruitment, in particular, can be an area of significant inefficiency. Trialbee addresses this issue by accelerating the patient sourcing process, offering a B2B solution directly to leading pharma companies.
Deep industry expertise is essential for understanding the intricacies of healthtech, including regulatory compliance and market dynamics
Kausch: I believe artificial intelligence is certainly a powerful tool which can be used to help make healthtech solutions more efficient. Certainly, there are ample statistics that show the growing use of AI in the healthcare sector. We have observed a growing trust in AI amongst medical providers, as well as increased investor appetite for developing AI-enabled healthcare solutions. Indeed, I believe the continued development and adoption of AI technologies has the potential to transform the healthtech market, improving healthcare outcomes, and advancing the delivery of patient-centred care. With the increasing integration of AI, we can expect great advances in the near future.
However, it is essential to navigate these advancements thoughtfully, addressing challenges such as the lack of skilled specialists and inefficient cooperation between the public and private sectors. By overcoming these obstacles, we will be able to maximise the benefits for patients, healthcare providers, and society as a whole.
Kausch: There are a number of significant challenges associated with healthtech investment including the need to navigate a complex regulatory landscape; technological risks associated with advancements in healthtech solutions; uncertainties surrounding reimbursement policies; the need to employ the right growth strategy and the complexity of a fragmented market characterised by diverse stakeholder groups.
To surmount these hurdles, we employ various strategies. Deep industry expertise is essential for understanding the intricacies of healthtech, including regulatory compliance and market dynamics. Forming strategic partnerships with industry experts, advisers, investment banks and healthcare providers can also provide valuable insights.
Ultimately, however, we believe that being hands-on value-add impact investors is critical for success. MTIP specialises in growth equity funding opportunities. By providing not only capital but also operational support, we empower companies to refine their product-market fit, establish robust operations, and develop a replicable strategy for rapid international expansion.
We pursue an active ownership investment approach designed to unlock value and expedite growth, viewing ourselves as sparring partners for the executive team, supporting their scale-up without seeking to take over operational roles. In addition, thorough due diligence is paramount in assessing potential investments, including dynamics of local markets, and the business’s commercial, financial, and technological aspects.
Kausch: Competitors in the healthtech space typically operate as generalist funds or healthcare funds. Healthcare funds generally invest across different sub-sectors including medtech, diagnostics, life sciences tools and healthcare services. Therefore, healthtech is diluted as part of a broader scope of investment. In contrast, MTIP invests exclusively in healthtech and has built the largest portfolio of companies in the sector across Europe.
As of now, the other sector-specialist funds in healthtech are exclusively venture capital structures. They finance companies at an earlier stage of maturity, typically in their seed round or Series A. MTIP invests as part of the next round of financing and maintains good relationships with venture capital investors to actively source investment opportunities.
Being a specialist fund has definitely helped us to differentiate ourselves. Our deep sector expertise in healthtech enables us to identify emerging trends, disruptive technologies and innovative business models within the healthtech landscape. Being a pure-play European healthtech investor is certainly one of our USPs and we believe that by maintaining a focus on thematic investing, we are ideally positioned to identify opportunities that may go unnoticed by generalist investors in the ever-evolving healthtech market.
I also believe that being an Article 9 fund is an important differentiator. As an Article 9 investment manager, our commitment to socially responsible investment is foundational to our identity and operating philosophy. It not only guides our investment strategy but also shapes our approach to ESG integration, underscoring our dedication to creating both financial and societal value through healthtech innovation.
The Article 9 designation reflects our unwavering commitment to realising a future where all communities have equitable access to quality healthcare. This mission closely aligns with our core objective of empowering healthtech innovation to transform lives and make a meaningful impact on the world. This year, we are very proud to have achieved B Corporation certification with a score of 107.5. Certified B Corporations are companies verified by the nonprofit network B Lab to meet high standards of social and environmental performance, transparency and accountability.
Kausch: We are undoubtedly observing a significant increase in investor appetite for healthtech, driven by its underlying innovation and growth. However, in the growth capital space, where we operate, competition is relatively light when compared to other segments. Indeed, while we have observed some fluctuations in asset prices as a result of market dynamics and investor sentiment, our focus on growth-stage healthtech companies has allowed us to navigate and even capitalise on these shifts at times.
Furthermore, many competitors in the healthtech sector are either investing out of generalist funds or broad-based healthcare funds, deploying capital across multiple sub-sectors including medtech, diagnostics, life sciences tools, and healthcare services. As mentioned earlier, MTIP invests exclusively in healthtech, allowing us to build the largest portfolio of companies in the sector across Europe, and we look forward to continuing this trend.
