At FH22, Managing Partner at Digital Health Ventures (DHV) and Conference Steering Committee member, Min-Sung Sean Kim, delivered a plenary keynote providing an overview of the overall drivers, investment trends and activities in digital health.
Given the impressive attention the presentation received, the author agreed on sharing an accurate synopsis of his talk, and an updated and open version of his thorough presentation for public fruition
As great market momentum meets a high level of macroeconomic uncertainty, a central question arises: Where to spend your attention and money on as a CEO of a digital health company or portfolio manager in a Venture Capital fund? We at Digital Health Ventures, Syte and Stout have joined forces to deliver a 2022 update on digital health investment trends that reflect this unique dynamic and gives you comprehensive insights to navigate the stormy times ahead.
2 years ago, the Covid-19 pandemic accelerated the need to digitalize healthcare. The lack of a patient-centric system became more obvious and digital health companies filled that gap. Consumer companies followed and started to discover healthcare as a new market opportunity. What is the rationale of consumer companies like Amazon, Apple, Best Buy and Otto Group for entering the healthcare industry?
Consumers demand for digital innovative solutions in healthcare and moreover the public market doesn’t seem to have confidence in public healthcare companies to offer a new consumer or patient-centric digital experience. Consumer players are best positioned to enter this huge market where they can leverage their experience with consumer needs, scale, operations, and with data facility. Those new entrants fuel innovation and are confronted with the slow-paced healthcare system that is heavily regulated. Our analysis shows that the market has clear oligopolistic structures (i.e. regulatory barriers) that enable incumbents to delay and influence new innovation.
Is healthcare really resilient? The pandemic is not the last exogenous shock to shape the healthcare industry. The global recession will affect the healthcare players and thus, also digital health companies and their investors. We aim to provide comprehensive insights to the crisis resilience of major players and its impact on industry structure and capital allocations. Pharmaceutical companies were identified as valuable partners for ventures during economic turmoil, as mid-term investment rates are not expected to be significantly affected. Additionally, insurance companies are relatively resilient despite facing unique challenges depending on the healthcare system. Contrastingly, margin pressure on MedTech and medical service providers will reshape industry structures and decrease investment rates.
The demand for digital health increased significantly due to the pandemic and the strong global market growth increased the total number of investments. However, this year global digital health funding is projected to reach USD 35.3B (in comparison to USD 59.3B in 2021).
M&A activity has significantly slowed down this year but will remain healthy. Private Equity groups and strategics still maintain large cash reserves, and lenders will probably show debt underwriting preferences for recession resistant sectors likely healthcare and Life Sciences in the near term.