As the world continues to navigate the reality of post-pandemic life, it’s prudent to keep updated on the latest trends and opportunities within the health care sector. Investment in this space has evolved in recent years, enabling groundbreaking research and innovative outcomes that deliver life-changing, patient-centric solutions.
Today’s health care investment landscape is defined by fewer (but larger) deals, a slower pace of investments, and more scrutinous investors. These factors have led to more sustainable and long-term growth, helping investors meet targets.
With this in mind, let’s dive into some of the latest investment trends in health care and what they might mean for the sector.
Venture Fundraising Has Rebounded
According to management consultants Bain & Company, “Ample dry powder and a track record of returns ensured a strong year in 2022 for [health care private equity] investing that continues to attract health care-specific funds, and we expect this trend to continue in 2023. Despite the slowdown in health care private equity deal flow in the second half of 2022, firms continued to create health care-focused funds and raise near-record levels of capital.”
There’s no shortage of examples of where funding has gone — much of it has landed at pharma companies. Eledon Pharmaceuticals, a clinical-stage biotech that’s developing treatments for people undergoing organ transplants, raised more than $185 million in April. Investors included BVF Partners LP and Armistice Capital, a global long and short value-oriented hedge fund that focuses primarily on the health care and consumer sectors. Founded by Steven Boyd, Armistice Capital invests predominately in equities and seeks to maximize the opportunity set of investment candidates. For firms such as Armistice Capital, keeping a watchful eye on health care industry developments is critical going forward.
Cybersecurity Threats to Investors
Private equity firms, along with their portfolio companies, face a mounting number of cyber threats. These risks include highly sophisticated attacks such as ransomware, third-party hacks, and supply chain breaches. Any of these can severely disrupt a portfolio company’s operations, strain relationships, damage its reputation, and result in financial losses.
As the industry becomes more vigilant, there’s a heightened awareness of cyberattacks, with firms improving their ability to monitor state filings for breaches. Some experts anticipate a rise in cyber-related lawsuits in 2023, while insurance companies closely evaluate coverage limits in response to these evolving threats. Investors must stay aware of prevailing data privacy and security trends, diligently assessing the risk profiles, security policies, and practices of their target and portfolio companies.
Biotech and Pharma Remain Attractive
The biotechnology and pharmaceutical sectors remain attractive to investors due to ongoing research and development efforts for new treatments, vaccines, and therapies. Advances in gene editing technologies, immunotherapies, and personalized medicine were among the areas of interest.
The concept of personalized medicine has also gained momentum, offering tailored treatments based on a patient’s genetic makeup, lifestyle, and other individual characteristics. Advances in genomics and biomarker research have paved the way for more precise and effective therapies, leading to improved patient outcomes. Investors are drawn to companies at the forefront of developing personalized medicine approaches.
Enforcement of Antitrust Legislation
U.S. federal antitrust enforcement is expected to accelerate and may delay certain high-profile mergers. Health care is a highly regulated industry, however, which means such challenges are nothing new. As fresh health care deals gain traction and size, antitrust reviews might begin to pay more attention to cross-sector convergence with companies outside the health care bubble.
The U.S. Department of Justice is particularly interested in so-called roll-up transactions, which consolidate market share and negotiating power. In addition, the DOJ is troubled by the lack of filings and conflicts of interest involved in the appointment of private equity representatives to the boards of competing companies. As such, investors must prepare for more scrutinization of their dealings from government agencies.
Telemedicine Continues To Grow
Telemedicine isn’t a new practice — according to the Cleveland Clinic Journal of Medicine, “Modern telemedicine began in the early 1900s in the Netherlands with the transmission of heart rhythms over the telephone, which was followed by transmissions to radio consultation centers in Europe in the 1920s. In the 1940s, radiographic images were transmitted by telephone between cities in Pennsylvania.” The COVID-19 pandemic significantly accelerated the adoption of telemedicine and virtual health services. Investments began to pour into telehealth platforms, remote patient monitoring solutions, and digital health startups that offered telemedicine services to provide accessible and convenient health care remotely, and this is expected to continue going forward.
The global telemedicine market was valued at $60.8 billion in 2022 and is expected to reach $225 billion by 2030, growing with a compound annual growth rate of 17.16% during the forecast period of 2022 to 2030, according to a Precedence Research report published in January 2023.
Artificial Intelligence in Health Care
Artificial intelligence and data analytics in health care continues to gain traction, with investment flowing into companies that leverage AI algorithms to improve diagnostics, drug discovery, personalized medicine, and operational efficiency in health care settings.
The technology has a substantial range of applications in health care, from analyzing vast data sets and identifying potential drug targets in a shorter time, to using AI and big data to help users access accurate information on their symptoms and connect with physicians. It’s a highly versatile technology that could transform the health care space. AI is seen as one of the top current investment priorities across most industries, according to GlobalData’s latest report, Digital Transformation and Emerging Technology in the Healthcare Industry – 2022 Edition.
It’s a sure bet enterprises like Armistice Capital will keep a sharp eye on emerging changes in the health care sector as it continues to grow and evolve with these developments, challenges, and advances.
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