Growing Opportunities In Health Care Innovation

March 24, 2021 - John Osbon (3 mins to read)

The global pandemic greatly accelerated the adoption of virtual healthcare. Innovative technology in the healthcare sector offers an opportunity to reduce costs while reaching more people in need. Spending on healthcare goods and services is almost four trillion dollars annually, currently 18% of GDP. Let’s take a look at the near-term trends and contributing factors.

Exponential evolution

There are a handful of exponential trends that will continue to dramatically accelerate innovation in the healthcare sector in the next few years. There are multiple great business opportunities within each of these trends:

  • Continued falling costs of genome sequencing
  • Greater access to machine learning and AI tools for modeling and analysis
  • Increasing live data collection from patients
  • Data storage tools approved by HIPAA standards that can connect to other tools for collection and processing
  • Further digitization of all processes from document sharing, patient portals, telehealth visits, prescription management, fulfillment of at-home medical devices, etc, all in order to reduce friction, reduce waste, reduce error and save time.

Regulatory challenges are lighter and the pressure to perform is on
According to a report from McKinsey & Company Health Care Systems & Services,  physicians and other healthcare professionals are seeing 50x to 175x the number of patients via telehealth than they did before the pandemic. That is a staggering increase in adoption rates. The report also states that virtual visits could potentially account for $250 billion, or about 20%, of what Medicare, Medicaid and commercial insurers spend on outpatient, office and home health. Telehealth is clearly more convenient and while it’s not meant to completely replace in-person visits, it helps provide greater access to more people who are in need of care who would otherwise turn to Google/WebMD.

Congress is beginning to examine whether the temporary policy changes implemented during covid should be maintained or modified. Regulators are rightly concerned about privacy, security, effectiveness and quality of care. When you’re forced to innovate during a crisis, those lessons learned and the positive momentum gained should carry forward.

Biology is a complex system

It’s important to be rightly skeptical of digital health solutions. The WHO has warned that digital health applications have been rapidly incorporated without sufficient research into implications for all participants. 

Digital health research represents a major shift in creativity and idea generation because it allows patients to become active participants in research and practice. Sentiment towards trusting digital health solutions may be trending in the right direction, which would add to the tailwinds of the industry as a whole. One global study shows that 89% of healthcare practitioners, 75% of patients, and 73% of users, believe that digital health research tools can improve real-life outcomes.

Risk management

Successful health-related investments are notoriously tricky to identify with repeatable confidence. We routinely see greater levels of volatility in all businesses tied to genomics, biotechnology, digital health monitoring, etc. This volatility makes sense. Risks are higher when the source of revenue is uncertain. It’s not always clear who will pay the final bill after the care is delivered. The financing arrangements inside the healthcare system are diverse and opaque. Investors in this sector should expect higher levels of price volatility. Additionally, elevated valuations are always a concern in this market.

Implementing health-related investments

Today’s most innovative health technology companies are tackling massive total addressable markets. The platforms that can improve outcomes with autoimmune diseases, cancer, cardiovascular disease and infectious disease will be entirely deserving of their economic rewards. Investors in broadly allocated funds will benefit from the direction of these industry tailwinds, and a handful of targeted single company investments for the right person can be a powerful wealth creation tool.

The risk-reward for investors is positive but it comes at the cost of tolerating higher levels of price volatility compared to other investment themes. Two of our favorite themes are directly involved in this opportunity: the growth and emergence of cloud computing and the semiconductor industry’s contribution to advanced artificial intelligence tools. Please let us know if this is an area of interest or curiosity as we’re happy to dive in deeper with specific examples.



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