The Evolving Digital Health Landscape

The Evolving Digital Health Landscape

Current Perspectives & Future Trends

The healthcare industry has been at the forefront of government and investor agendas in recent years, mainly as a consequence of the COVID-19 pandemic. One of the key trends that have emerged regards the increasing adoption of digital technologies, certainly fuelled by capital allocation towards innovative health-tech solutions.

Pharma companies lagging in digital adoption may run the risk of conceding competitive position, profit margin and even customer loyalty. Pharma executives clearly believe digital technologies can help accomplish improving patient outcomes, yet companies have been slow to embrace digital strategies and tools. An analysis conducted by Albion VC shows the market cap of the largest digital health companies in 2019 only accounts for roughly 3% of total annual spend on healthcare. This is incredibly small if we compare it with the same statistics across different industries; digital value in the financial services industry is 40% of the annual industry spend, and 3x the annual spend in the advertising industry. So in healthcare the ratio is less than a tenth than that in financial services and one hundredth of that in advertising, suggesting a significant under-penetration of digital solutions. There are multiple reasons why digital health has not yet reached its full potential, mainly:

  • The healthcare industry is highly regulated
  • It involves multiple stakeholders dealing with very sensitive information
  • It is inherently more complex than the majority of other industries where digital is dominating (consumers, retail, etc.)

Despite these challenges, there is a significant opportunity for digital health to tap into multiple steps of the value chain, suggesting strong room for growth. The Covid pandemic certainly represented a catalyst for disruption forcing all stakeholders, whether associated with commercial, R&D, and clinical teams in pharma companies or with broader healthcare services, to rethink their approach and embrace change, which has been promoted by strong capital influx into innovative solutions.

Based on an analysis conducted by Silicon Valley Bank, the amount of seed/ Series A deals more than doubled compared to 2020, to reach more than 400 health-tech investments across US and EU, for a total combined value of more than $3bn. We noticed an increasing specialization of investment funds whose investment mandate is strongly focusing on digital solutions across the full spectrum of the healthcare/ pharma value chain. A few examples of these funds are Heal Capital, Lauxera, AlbionVC and Octopus Ventures. Additionally, we also noticed increasing health-tech focus from some established corporate VC arms, with Leaps by Bayer and Boehringer Ingelheim Venture being two prominent examples. We expect continued investment in the space, followed by increasing sector consolidation as companies look to scale up.

Based on an analysis conducted by Silicon Valley Bank, the majority of investments across heath-tech were allocated towards decentralized clinical trials, wellness solutions, alternative care including digital treatments and medication management companies. With the growing demand for healthcare providers to embrace digitalization, we expect increasing investment focus towards companies pursuing workflow optimization, including teleconsultation solutions. These were of significant importance at the peak of the pandemic, and saw the emergence of new leaders in the industry such as Teladoc, a US teleconsultation service company mainly focused on primary care and diabetes support (via Livongo acquisition). However, the adoption of digital tools and solutions has broader applicability across all aspects of the pharmaceuticals industry value chain, healthcare providers and patients.

When looking at the pharmaceutical industry, we noticed that there is promising growth especially in the areas of drug discovery and clinical development. The first area still represents one of the great tabu of the pharma industry, due to its inherent complexity and inefficiency of its processes. Historically, R&D efforts were empirically-driven; the emergence of AI and machine learning solutions is meant to disrupt the lead selection/ lead optimization and drug repositioning processes, implementing a paradigm shift which moves away from “serendipity” towards methodical efficiency and probabilistic enhancement. We noticed multiple players emerging in the space, with Atomwise and BenevolentAI being a few examples of companies striking successful partnerships with large cap pharma to optimize their drug discovery processes. Moving away from drug discovery to clinical development, we believe that there is a lot of potential for companies to optimize multiple activities starting from trial design, to patient enrolment and retention, to data capture, analysis and regulatory submission. Clinical development represent a strong revenue opportunity for pharma technology vendors and we expect the trend to scale-up significantly and move towards a broader adoption of decentralized clinical trial solutions.

While still at its infancy, another interesting area that is emerging, fueled by strong regulatory momentum, is the advent of digital therapeutics. Digital therapeutics (DTx) are software-based products (apps or VR tools) for the prevention, management and treatment of health conditions, which can be used either as monotherapy or as adjunct solutions to augment or complement existing medications or devices, with the objective to improve health outcomes. A true DTx is a digital tool that interacts with a patient in a specific way, intended to modulate the patient’s behaviour in a manner that generates a measurable clinical improvement in a specific condition suffered by the patient. DTx’s require FDA approval, and requisite clinical development. They need to be prescribed by physicians, are likely to be subject of reimbursement and are expected to be commercialized in a manner similar to pharmaceuticals. In broader digital care, there is a strong emergence of companies focusing on prevention, symptoms checking, diagnosis/ AI-driven genomics, and treatment (teleconsultation, chronic care).

In summary, strong innovation on multiple fronts is happening in health-tech and the healthcare industry is currently observing significant disruption in the way it operates, driven by the worst pandemic in generations and the resilience of bright entrepreneurs that are committed to re-shape the whole sector. We expect more of this to come in the near future.

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