In recent years, all the buzz has been about FinTech, RegTech and Mobility. But, 2020 will see the rise of MedTech as the demand for digital solutions in health grows.
There is an ever-widening gap between demand for and supply of healthcare. With the rapid ageing of populations in major economies such as the US, Europe, China, Japan and across the developed world, the current political, economic, and social climate is creating a need for processes that digitise and link up the healthcare sector. Therein lies the opportunity, deploying MedTech as the solution to generate cost savings, efficiencies and improving capacity and client experience.
The Secretary of State Health and Social Care, Matt Hancock, has been explicit about his vision to widely implement the use of technology to advance the NHS and better meet the needs of clinicians, patients and managers, committing to a digital-first primary care system by 2023. Investors in MedTech can help these plans be realised by providing the financial resources to companies working to digitise the primary healthcare system.
Enabling digital technology to be better implemented into the NHS workflow will make it more cost effective and efficient. For example, Doctorlink’s platform can save GP surgeries up to 30% in frontline administration costs, as well as generate 20% additional appointment capacity, saving surgeries on average £150k a year each if fully implemented.
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A growing market
The current climate is making MedTech a necessity and has led to the increase in development of the sector. In Japan, 30% of the population is over 65 compared to just 6%, 50 years ago. This is forecasted to rise by another 10% in the next 30 years. Likewise, the UK’s elderly account for approximately 40% of the NHS’ budget, despite representing just one fifth of the population. With birthrates declining and lifespans increasing across the world, we are going to see even more elderly in need of good access to healthcare, yet the current system is neither cost effective, nor fit for purpose to accommodate the expected demand.
This is a key factor driving innovation in MedTech, with the growing online primary healthcare market estimated to be at £40 billion globally.
Any solutions that can help companies and countries close this gap through greater efficiencies, cost savings and a better patient experience is going to win, no matter in which corner of the MedTech sector they are competing.
Artificial intelligence is the hot buzzword in the sector at the moment, but this will be a long term (10 to 20 year) play in many areas. For investors with shorter investment horizons there are a lot of companies like Doctorlink that are right now creating a huge amount of value to providers and patients by digitising processes and joining up care pathways.
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Factors investors must consider
• A complex market: MedTech investing is difficult because it is not just about understanding the product and its market fit, but also the complexity of healthcare systems around the world — how money flows and incentives are driven in different systems. This can often affect the how different solutions are adopted in different markets and at which price points — irrespective as to the benefit such a product might bring.
• Public vs private: When considering solutions focussed at the private sector, you will find it faster and easier to commercialise your products, but if you want to scale, it is important to consider public healthcare systems. As so many MedTech solutions are about using technology to generate efficiencies through scale, you are likely to make a name in the public sector, but margins are made investing in the private sector.
• A long-term investment: MedTech investors have to be patient and expect long payback periods, but if the company is successful those paybacks can be very large. In my experience the businesses that investors like the best are those with strong gross margins, highly predictable and recurring revenue contracts, strong Intellectual Property, network effects and those that operate in large markets. MedTech companies – especially those like Doctorlink that are in the business of selling technology and not selling clinical services such as doctor’s time — demonstrate all those qualities, which make them a highly attractive opportunity for investors.
• Do your research: It is important to invest in something that has proven it works. There are lots of solutions on the market in test, in pilot, or making outrageous claims and it is difficult to discern between viable opportunities, and those which will waste your time. If a solution is being used in one part of the market and has passed all accreditations, regulatory requirements, and has applications in a broader market, then it might be an awesome investment with the right management team.
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Where social conscience meets profitability
Overall, there is a strong argument to be made for the financial reasons to invest in MedTech, and with major corporations like those within the oil and gas industry receiving a lot of bad press for their unethical practices, there is also a social benefit to investing in MedTech over other commodities. 2020 is likely to be a year where societies’ socially conscious attitudes extend to investment decisions.
There is no other sector that can claim to be able to literally save lives. Retailers can talk about improving your shopping experience, banks about improving your ability to manage or invest your money, or car companies can tell you how they can help you get from A to B. MedTech companies are improving access to healthcare, creating a better patient experience and saving human life. As we become increasingly aware of the finite nature of our resources, and this includes capital, people are thinking harder about prioritisations for capital deployment and where risk and return are equivalent — and sometimes even when it is not — are adding a social aspect to their investment criteria.
For investors with medium term investment horizons, there are a lot of companies like Doctorlink that create a huge amount of value to providers and patients, while also offering a socially responsible proposition for investors.
