This article is part of a series sponsored by HLTH highlighting topics that will be discussed at HLTH Conference November 13-16 in Las Vegas.
If you were to summarize healthcare investment trends in 2022, behavioral health, on-demand healthcare, and automation would be among the most active investment areas. Although digital health funding fell in the third quarterinvestors attributed it to factors such as rising interest rates, a limited market for initial public offerings and preparation for the risk of a recession.
Other areas of notable appeal include pharmaceutical technology and health equity. Here’s how some investors view healthcare investing. They each answered questions sent by email.
Steve Kraus is a partner at Bessemer Venture Partners which invests in stages from seed to growth. He described the firm’s investment strategy as taking a “roadmap-driven approach to investment.” He said they want to understand where technology and regulatory trends are driving change and adoption of new health care products and services.
“We’ve also spent the last year re-examining our views and also learning key trends in how health technology businesses scale over time across business models (initial report here)… In the last two years we have invested earlier in seeds and A [stages]given that the foam and valuation are not related to the fundamentals of business model scalability, but we are looking to invest more around stages A, B and C in the coming quarters.”
Every year, the healthcare industry sees more consolidation. While this has happened on an institutional scale among hospitals and health systems, as well as among payers—it has happened on a much larger scale in health technology, particularly in certain sectors.
“We are likely to see consolidation of point-of-care solutions treating specific conditions across specific channels or across specialties, e.g. mental health or platforms for employers to better navigate,” Kraus said.
This year has also seen significant layoffs in the healthcare sector, particularly in health technology. Kraus noted that cmost of the capital has increased in the cloud, healthcare software as a service (SaaS), and technology services businesses. He also pointed out that eEntrepreneurs will have to widen the runway and be more diligent in making investments that drive efficient growth.
“This will be felt more acutely by technology services businesses given the capital intensity of early-stage models, but those that understand the drivers of improvement to scale their models will be able to raise capital in any market,” Krauss said.
Dennis Deppenbush, director of the Venture Capital New Ventures Initiative at BlueCross BlueShield of Kansas and president of Mid-American Healthcare Investors Network (MHIN) also shared his thoughts on health tech cuts this year.
“There were so many market participants in some verticals that the market couldn’t support them all (if you have 10 companies assuming they will take 10% of the market, what do the other companies stand to gain if they achieve their projections?) – once they hype dies down and the reality of monetization and their smart growth hits the market, then change will happen.”
Krauss also highlighted several emerging investment trends he sees in healthcare. He highlighted drug pricing, but also cited the successful evolution of risk models in primary care, but also noted that his firm is starting to see innovation in specialty care focused on providers “who act as advocates for specific groups high cost patients such as renal care, cardiology and oncology”.
“The success of public market models will help accelerate adoption and sharpen the focus on how to scale these businesses. The regulation-driven increase in data liquidity is driving the adoption of new use cases where the user has access to their own data, providers are empowered to break down silos and monetize datasets. For the first time, we are seeing action around drug pricing that will push various stakeholders to develop new pricing models, better patient access, etc.
Women’s health has also been in the spotlight due to the recent upheaval of the Roe v. Wade but also in recognition of inequalities in maternal health. Krauss said his firm has invested in women’s health companies, pursuing a roadmap in categories including maternity, fertility, primary care as well as majors that predominantly affect women.
Asked if there are any areas of healthcare they haven’t invested in or are underinvested in that they plan to invest in next year, Hubert Zaycek, CEO, partner and co-founder of the Dallas-based accelerator Hi Wildcatterssaid they would allocate funds to “more predictive and genetic medicine startups.”
“We are also ready to invest in more new and non-invasive sensor technologies.”
When it comes to bullish bets in health care, Kraus stressed the ttechnology and platforms that enable clinicians to take more risk and perform care at the top of their license. He also pointed out mmodernizing the health care payment set to align incentives between payers and providers and reduce the system’s administrative costs (fee-for-service)
For his part, Deppenbusch said he is bearish on “all things value-based care (except Medicare Advantage)” and bulls for the pharmacy sector.
“Pharma seems to have great opportunities as this spending sector is growing dramatically. The new solutions will be interesting and have the potential to be cost-effective through adherence and substitution – and better pricing of specialty drugs.”
He added: “There is no virtual solution that can replace the human touch and human responsibility. There’s more of an approach to an integrated method, but it costs gross margin, and VCs generally don’t like that, even though these competitors are growing revenue faster.”
picture: Who I am, Getty Images