What’s the health tech investment and M&A outlook for 2017?

 

As Cascadia Capital’s healthcare team contemplates the outlook for 2017, we believe the future of the industry will be affected by the agenda of the new administration. We believe this will have a significant impact on expense containment and prioritization of the wellness agenda.

However, we also believe that the healthcare sector will equally be driven by structural shifts that have fueled consistent equity investment and M&A transaction volume since 2014, including the growth of technology-enabled services.

Digital health and technology-enabled services companies are expected to hit nearly $5 billion in equity capital this year. We have also noted a significant change taking place: technology-enabled services are rising as the preferred mechanism to scale and the most astute investors are realizing their benefit in humanizing an otherwise byzantine system.

One highlight in this area is Accolade’s recent $70 million capital raise. The scale and nature of participants in the transaction bode particularly well for technology-enabled services and is indicative of the industry direction for 2017. The healthcare concierge company recently announced an alliance with ClearCost Health to improve the visibility and understanding of healthcare costs for individuals, which is a smart move given the shift toward consumer-centric care.

We expect technology-enabled services that help keep patients out of hospitals to represent attractive targets for investment and M&A as they expose new models for primary care and patient engagement.  Outcomes and analytics will layer on top of the service models to create what investors hope will be a path to Healthcare 3.0. The self-insured employer will benefit here as they adopt more patient-centric models from firms like Vera Whole Health, a local favorite, and Iora Health.

We also expect an increased focus on new care models that target cost and waste while adding a focus on wellness and prevention, as the new administration wraps its arms around the economic fundamentals of the nation’s healthcare. Recent moves by the U.S. Food and Drug Administration also indicate the likely loosening of regulations governing precision medicine. The promise of precision medicine is that information at the genetic and cellular level can predict chronic conditions, medication sensitivity and certain predispositions, and if you catch it early enough the patient may avoid a lifelong attachment to the healthcare system, dramatically reducing the systemic cost.

The ugly truth of medical fraud and litigation is also beginning to have more public exposure and will surely attract more attention from both the new administration but also entrepreneurs who spot a problem with huge potential for efficiency gain.

Finally, the past year also heralded the emergence of investor caution which has seen a slow down in the gravy train of easy money and increasing pressure for profitability among investor targets. This is no doubt the result of some unexpected outcomes that left industry analysts somewhat bemused. Of particular note is the demise of HealthSpot, the kiosk-based telehealth provider. Despite securing $43.8 million in funding the company filed for bankruptcy at the start of 2016.  Much as been said about Theranos and Zenefits, both unicorns with interesting business models that got too far ahead of themselves.  That sort of activity buzzes through the investment community, creating caution.

However, with healthcare spending at 18 percent of GDP and rising, the deal making community believes that some of our most active years are still ahead of us and will “power through” all but the most severe of cyclical changes.

Image: appleuzr Getty Images

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