In the past couple of years there has been a rise in sovereign wealth funds’ investments in healthcare. These cover a wide range of areas from hospital chains to pharmaceutical companies, but it also includes direct investments in digital health startups. China Broadband Capital invested in smartphone diagnostic developer Scanadu and French Groupe Arnault includes Clue, a maker of female health apps, among its investments. Alaska Permanent Fund is one of the founding investors in Denali Therapeutics, a biotech business targeting neurodegenerative disorders.
The motivation behind these investments is a mixture of bullishness about healthcare and the practical reality that companies that can solve healthcare pain points such as improving access to healthcare professionals for underserved populations to treating chronic conditions can improve the care of citizens in the countries these funds serve.
Looking back, 2013 stands out visibly with sovereign funds investing $14.5 billion in the sector. In an interview with Michael Maduell, the president of the Sovereign Wealth Fund Institute, he explained that the jump in investments was caused by significant demand in listed equities and healthcare was a sector that rode the wave. This year, the Institute expects healthcare investments to reach $4.6 billion compared to $4 billion last year.
“Healthcare is a necessity for people and for the United States, the sector represents a significant proportion of GDP, Maduell said. “With regards to the United States, it remains a deep liquid market compared to other countries.”
Sovereign wealth funds are attracted to technology and healthcare startups, including cutting-edge pharmaceutical companies, Maduell said. “In the past few years, we’ve witnessed sovereign funds backing innovative companies such as Tesla Motors, Juno Therapeutics, Uber, and Square.”
The U.S. market is appealing to them, partly because it is easier to start businesses here and that has spurred these funds to open offices here. Last year, Malaysia opened an office in San Francisco to be closer to Silicon Valley. Qatar recently opened an office in New York.
From a government investor’s point of view, this technology could improve companies in their respective countries or provide a service at a more affordable price, Maduell notes. Warsaw-based physician scheduling startup Doc Planner raised $10 million from a Series B round led by the European Bank for Reconstruction and Development. China Development Bank Capital invested in medical appointment and billing technology business Guahao as part of its plan to reform its hospital system.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
But governments have also developed strategic funds to stimulate the development of health tech in their own countries and to help those companies successfully grow in larger markets like the U.S. Israel’s incubator initiative encourages venture investors, medical device and pharma companies and health systems to collaborate to invest in Israeli startups or establish a network for startups to partner with US businesses to pilot their technology. Most recently, IBM and Medtronic won a grant to open a digital health incubator.
Finpro collaborated with StartUp Health to adopt its model to support digital health entrepreneurs in GE Healthcare’s innovation village. The Finnish government allocates about $100 million to investment in small- and medium-sized companies in the life sciences and digital health space.
The Canadian Consulate has opened up a string of technology accelerators in U.S. cities such as New York, San Francisco, and one focused on health IT in Philadelphia to help its health tech companies succeed in the U.S. market.
Chart: Source: Sovereign Wealth Fund Institute, www.swfinstitute.org
Photo: Flickr user epsos.de
