The accelerated adoption of online services, such as GP appointments and prescription renewal, during COVID-19, has proven that digital solutions work. At the same time, an ageing population, staffing shortages, and rising costs prove they're needed.
A highly-regulated environment
Digital healthcare companies offering diagnostic solutions must gain approval from a regulator, such as the Food and Drug Agency (FDA) in the USA, or the Medicines and Healthcare Regulatory Agency (MHRA) in the UK. Others may have to meet strict cybersecurity requirements. These checks may create a slightly longer route to market than other tech, but it can be substantially shorter than traditional pharmaceutical products. This higher regulatory need means that there's less competition on arrival.
ESG benefits
Digital health is an attractive sector for funds dedicated to environment, social, and governance (ESG), though it delivers more on the S and the G. It has the potential to solve social problems, such as inequality of access to GP services, as well as advancing cheaper and more efficient treatment. On the governance side, it can help with anything from the security of patient records to logging the sign-off process for prescriptions.
More public sector investment
Following a disastrous attempt to roll out a national IT system over a decade ago, the NHS has moved to localised IT procurement. This opens the playing field for small and mid-market high-growth companies. Nourish Care Systems, which was this year acquired by private equity firm Livingbridge, is a case in point. In June 2022, the UK government also set out plans to invest £2 billion in the UK.
Healthy returns: six digital health areas to watch
Digital health can fall into several categories including administrative solutions (such as patient records), therapeutic and diagnostic technology (eg, patient health apps), and research and development (eg, AI for drug research). From these groups, I've focused on six high-growth areas that are making waves in digital health.
1 Electronic health records
The UK health secretary has set a target for 90% of NHS trusts to be using electronic records by 2023, with the remaining 10% expected to be in process. This large-scale transformation is expected to result in a surge in demand for solutions providers. In June 2022, US-based UnitedHealth gave a huge vote of confidence to the future of UK electronic health records when it agreed to acquire EMIS for £1.24 billion. The scale of the deal shows the potential of the UK’s creaking records systems.
Outside the NHS, electronic health record and pathway manager firms like Meddbase are offering innovative solutions and joining up patient pathways to improve efficiency in the private healthcare sector.
2 Patient experience, practice management, and administration
With over 30K vacancies currently advertised on the NHS website and pressure to cut costs, there's a strong demand for systems that will save time and money. Examples include enabling patients to book appointments online, allocating staff resources, or helping with billing and payments.
In April 2022, we advised adam HTT on its sale to Access Group. The UK-based company provides a platform for the procurement of public services, such as health and social care, to over 60 public bodies, with a particularly strong presence in the NHS.
3 Patient health platforms and apps
Patient health platforms and apps can provide a cheap, scalable, and more accurate way to improve patient outcomes.
UK-based Closed Loop Medicine, for example, develops combination drug and digital products. It's currently developing what could be one of the first single prescription drug plus digital therapy (DTx) combination products for insomnia
There's been a boom in apps, some of which are available on the NHS.
Clinical Partners, which provides services to the NHS and the private sector, employs 300 dedicated people carrying out online and face-to face support. They offer free online tests for conditions such as autism, ADHD, and bipolar disorder, removing the need for a GP to refer them for further assessment.
In the US, Akili has launched the only FDA-approved video game treatment for children with ADHD, called EndeavorRX. It's available with a prescription, which can be obtained on its website through a virtual appointment.
4 Monitoring
Digital health is not just about saving time and money, but improving patient outcomes. Digital monitoring frees up medical staff and enables them to catch life-threatening conditions, such as a heart attacks, before they escalate.
Oxford-based OBS Medical specialises in predictive algorithms for identifying critical instability in patients, hours before most physicians and nurses. Interestingly, it was spun out from a company that monitors Rolls-Royce jet engines.
5 Clinical research
The average cost of bringing a new drug to market is c. USD 2 billion and the process can take between 10-15 years. Returns reduce dramatically when patents expire. There are a handful of companies that use big data and AI to make the process cheaper and more efficient.
London-based BenevolentAI, for example, uses AI to enhance and enable the discovery of new drugs by connecting the relevant scientific data and clinical papers. The business has partnered with AstraZeneca to develop a number of new drugs. The discovery of a new use for a drug can enable pharmaceutical companies to extend their patent, making its proposition extremely valuable.
6 Diagnostics
AI diagnostics can cut waiting times, costs, and help deliver more accurate results. A global shortage of consultant pathologists makes demand for such benefits even more pressing.
Optellum claims to be the world’s first AI-based early lung cancer decision support software. Its platform aids clinicians in identifying at-risk patients and guide lung cancer management.
The future of healthcare reimagined
Some of the most innovative digital health solutions have emerged due to their use of cutting-edge AI and big data. An extreme example is Google’s sister company Deepmind, which in 2020 successfully used artificial intelligence to predict the 3D structures of nearly every catalogued protein known to science. This has huge implications for the advancement of drug discovery.
Though less headline-grabbing, cybersecurity is set to play a supporting role in the digital health boom, due to the sensitive nature of the data involved.
It's ironic that it took COVID-19, a health disaster, to unlock the potential of a sector that can both save and transform lives. As the sector reinvents itself for the digital world, investors have a key role to play.
For more insight and guidance, get in touch with Peter Jennings.
