Just as in banking and finance, millennials are demanding new, more client-centered approaches across a range of healthcare services, giving rise to offerings that are more patient-centric, flexible, adaptive, transparent, and cost-effective. Because they gravitate towards optimal customer experiences, millennials represent inroads for innovative healthtech companies to seize market share in a market long dominated by national health services and large-scale providers.
As healthtech innovators decentralize the marketplace, patients' control of their healthcare is growing. This includes more direct control of an estimated 1,000 exabytes of global healthcare data, which is expected to double by 2020. A path to making our personal data safely available for far-reaching R&D is possible for the first time. Blockchain technology will allow research AI to curate and parse our health data even as it remains our private property. Powerful research algorithms will access vast stores of global health data, accelerating research, drug development, and treatment.
The curation and sifting of healthcare data is where companies like Tempus are planning to radically improve patient outcomes. Tempus has created a clinical and molecular data library designed to accelerate cancer research. The goal is to personalize and optimize treatments through data analytics and machine learning algorithms. Genomic tests will analyze cancer tumors, DNA, RNA, and proteomic data, creating treatment options tailored to each and every patient.
In health insurance, wearable tech designed to harvest and upload our vital health statistics in real time to health data analytics in the cloud is driving new and powerful models of preventative care. Annual checkups, which take place every one or two years, if at all, will become a thing of the past. By predicting potential health crises like strokes or cancer and consequently alerting physician intervention much earlier, companies like United Health Care are reshaping patient care. These companies are incentivizing savings in healthcare markets and creating revenue for companies working to reduce hospital stays or eliminate them altogether.
All of this can look very threatening to doctors and hospitals as the traditional gatekeepers of our data, exams, diagnosis, and treatment. A successful preventative healthcare model will be vastly more cost-effective, meaning that doctors and hospitals alike may face significant revenue losses.
And the questions don't end there. What is the role of insurance companies in the management of personal health data? Where will regulatory entities seek to locate the exabyte-churning algorithms that will hold the most personal health data of billions?
Companies like Clover Health who help hospitals and providers reduce costs will do well during what promises to be a challenging realignment. Incumbents will create or acquire preventative care arms in a bid to stay relevant.
The challenges this realignment creates cannot be underestimated. Until major health providers design and then commit fully to a profitable preventative healthcare business model, true decentralization will be elusive. Major players may seek to impede implementation of preventative care infrastructure and policy and maintain their existing crisis care business models, but they will do so at their peril.
Robots vs. Doctors
Human doctors remain central to major treatments and surgery, but even that is changing quickly. The Smart Tissue Autonomous Robot, or STAR, is able to successfully conduct surgeries start to finish and has already proven itself better at cutting and stitching up soft tissues than experienced surgeons, who tended to cause more char and deviated more from the optimal cut line.
While successful STAR surgeries are only being conducted on live pigs, the da Vinci robot has been allowing doctors to do remote surgery on humans for years. In China, an autonomous dental surgery robot has successfully 3D printed and fitted dental implants in a volunteer's mouth.
The short-term result is a growing partnership between human surgeons and automated surgical systems, but the developers of STAR are intent on making autonomous robotic surgery a reality. Ultimately, it will come down to costs, errors, and efficiency — a contest that all too many human surgeons will lose.
Healthcare innovation, driven by potent new technologies, represents a major threat to incumbent healthcare providers. The coming contest between human and robotic surgeons, as well as the tensions between crisis versus preventative care models, ultimately become moot, leapfrogged by a revolution in AI-assisted research, design, surgery, and treatment.
The Flow of Capital
The flow of capital into healthtech has grown dramatically. Global private equity investments in the healthcare sector breached historic highs in 2017 reaching $43B, a roughly 20 percent increase over the $36B deal volume registered in 2016. While investments from the U.S. and North America declined from $28.4B in 2016 to $22.1B in 2017, advancements were offset by robust investment growth in Europe and Asia. EU private equity investments in 2017 almost tripled to $12.8B relative to the $4.6B registered in 2016. Similarly, Asian private equity investments more than doubled in 2017 to $7.2B from $3.2B in 2016.
While there was significant pullback in U.S. and North American private equity investments in 2017 in terms of total disclosed deal value, the interest in PE deals appears to be fairly robust. In 2017, 130 PE deals were struck in the region — the highest level since 2010. The decline in deal volume appears to be owed to a combination of factors including persistent uncertainty surrounding the legislative process, robust competition in a relatively well-developed PE market, and historically high valuations as a result of the extended bull market run in U.S. financial markets.
PE investors in the U.S. appear to bet big on the synergies created by the consolidation of medical practices in regional markets and a marked shift of the sector towards providing lower-cost non-hospital-based care. Another key sector that captured the imagination of North American PE investors was pharmaceuticals, which accounted for 38 percent of the total PE deal volume. The largest deal of 2017 was the acquisition of Parexel International by Pamplona Capital Management for $5B. Paraxel International is a contract research organization that focuses on the biopharma sector.
Artificial intelligence is the buzzword in the entrepreneurial healthtech space. AI and machine learning are particularly well-suited to curating and interpreting massive, previously incompatible pools of research data — and doing so quickly.
AI-driven drug discovery platforms like Innoplexus, an end-to-end platform for life sciences research, use artificial intelligence to generate smart data and insights to assist in the discovery, clinical development, and regulatory compliance of pharmaceutical medicine.
AI-based diagnostics as a first-tier of clinical diagnostics are already entering the marketplace. How good are healthcare diagnostics? In July of 2018, Babylon Health announced its AI had demonstrated diagnostic ability on par with human doctors, after scoring 81 percent in a Membership of the Royal College of General Practitioners (MRCGP) exam in its first sitting. Although the results of Babylon Health's AI test await a more strenuous peer-reviewed process, the promise of diagnostic AIs is already clear.
Big players partnering with agile startups represent a significant growth driver. Far from resisting innovation and decentralization, Johnson & Johnson is investing in an incubator platform to lure healthtech innovators into partnerships. In July 2018, the U.K.'s highly successful Medopad opened a base in New York City as part of Johnson & Johnson’s incubator platform JLABS.
The scale of realignment required by the healthtech revolution is unparalleled. The transition from a crisis care model to a truly dynamic preventative model will challenge the revenue models of doctors and hospitals alike. Incumbents, with the most invested in legacy crisis care models, aging infrastructure, and outdated IT, will seek to realign their business model by aggressively acquiring or partnering with healthtech innovators.
However, until the industry aligns with a data-driven model of preventative care, power will not fully shift to patients, but instead remain fragmented among insurers, incumbent healthcare providers, and legacy segments of the industry that will continue to treat patients under the waning crisis care model.