BIO Digital: Investment Panel Sees Continued Rising Adoption Of Telehealth, Remote Monitoring

BY MARION WEBB

Executive Summary

BIO Digital investment panel sees strong investment opportunities in telehealth, remote monitoring and converging digital products.

An investment panel at the BIO Digital virtual health care conference agreed that the COVID-19 epidemic will impact the investment environment throughout 2020 -- but to what extend remains to be seen.

All four panelists agreed that investments in telehealth, remote monitoring and data-driven technologies, which have seen unprecedented adoption during the pandemic by consumers and health providers alike, will continue to rise.

Digital health funding was off to a great start in the first quarter of 2020, with a record $3.1bn invested across 107 deals. That’s more than 1.5 times the total funding in the first quarter of any previous year, according to a report from venture capital firm Rock Health.

The first quarter of 2020 was the second-largest quarter in terms of total funding, and 57% greater than the average quarterly funding across 2018- 2019. Investors expected a more challenging fund-raising environment in 2020 after venture investment in digital health slowed to $7.4bn in 2019 from $8.2bn in 2018, but no one could have predicted the new territory that the COVID-19 pandemic created.

“What we’re seeing is that COVID will undoubtedly impact the investment environment throughout 2020,” said panelist Ruoxi Chen, an associate at US-based private equity investment firm Warburg Pincus.

“We’re at a very strange place right now – on the one hand, you’ve got 40 million Americans who are unemployed. You’ve got social unrest. You’ve got potential and question marks [about] whether there will be a second wave for the pandemic. And when you put all those pieces together for investors, there is just increased uncertainty, which makes it harder to price risk.”

But Chen also pointed to a disconnect between the factors above and the current equity markets.

“When you look at the equity markets, you couldn’t tell that any of these circumstances are actually present,” he said, noting that he was shocked to see the Nasdaq up 80% and the S&P 500 remaining flat.

On 9 June, the Nasdaq composite hit 10,000 for the first time ever, closing at a record high with tech companies Apple and Amazon shares hitting all-time highs. The S&P 500 Index fell 1.2%. That comes after the stock markets began to rapidly decline in mid-February, when the COVID crisis hit.

However, sellers’ expectations around valuations haven’t changed. “What we’re finding is that generally very strong businesses do not need to put themselves up for sale at the present moment or raise capital ... [they] will wait for a better market environment or window,” Chen said.

Private Equity Market Remains Competitive

Rock Health had a diminished outlook for initial public offerings and mergers and acquisitions in 2020. “An impending recession will diminish public investor appetite for IPOs,” the report said.

Chen, however, finds that there is ample opportunity for investments. In this he echoes David Rubenstein, co-founder of the Carlyle Group, who recently said that his firm and other private equity companies have a “fair amount of dry powder,” or cash.

Chen said Warburg has a $19bn private equity fund and is actively pursuing investments in companies that are at the intersection of health care, technology and pharma services, he said.

On the digital side, companies that have a software or software-as-a-service business model are the most resilient.

“Those are highly recurring business models, multi-year contracts, very high renewal rates and incredibly sticky services,” he said. “In this sort of market environment and backdrop those are still seen as very critical services for companies … business models that have those characteristics are going to continue to be incredibly resilient.”

Investors, however, are now also facing other obstacles.

For instance, the pandemic has made it more difficult to have face-to-face meetings, which Chen sees as being critical for investors to build trust with leadership teams and to align strategies.

“While Zoom [virtual meetings] has come a long way, there are some limits,” Chen said, adding that not being able to meet in person will dampen investments on the private equity side this year.

Sales cycles are becoming longer, because sales representatives are no longer able to physically meet with health providers in hospitals. Recent financial announcements from orthopedic companies show this has hurt sales of medtech products. And many hospitals are also now facing capital constraints because the pandemic has led patients to put elective services and procedures on hold. (Also see “Orthopedic Roundup: Zimmer Biomet, J&J, Smith & Nephew, Stryker Hope For Post-COVID Recovery As Elective Surgeries Restart” - Medtech Insight, 13 May, 2020.)

“2020 will be a lost year for some companies, but the horizon looks a lot brighter beyond that,” he said. (Also see “Device Week, 17 May 2020 – COVID-19 Impact On Q1 2020 Earnings In Orthopedics; Highlights From HRS 2020” - Medtech Insight, 17 May, 2020.)

Rising Adoption Of Telehealth

Among the bright spots is the wide adoption of telehealth and telemedicine during the pandemic. Many insiders believe that regulatory flexibilities introduced during COVID-19 will remain in place beyond the crisis and that telehealth will become a regular part of health care delivery.

What has changed as a result of the pandemic, is a willingness by customers and health providers to adopt new technologies, said Thomas Kluz, senior investment manager at Qualcomm Ventures.

“I think in the last six to 12 weeks we’ve accomplished what we would have hoped to accomplish over the next two to three years, so there’s been an accelerant on a willingness to adopt novel technologies, and where I see that the most is at the end-user level,” Kluz said. He added that many technology entrepreneurs believe that their technology or AI is the “best in class,” but what has changed in the last 12 weeks is that “customers are listening to the pitch about the AI solution, because it’s clearly solving a critical need.” He added that users are at a “point of desperation, because ‘brick-and-mortar’ is no longer the end-all, be-all,” he added.

He pointed to digital health company Tyto Care, which is powered by a Qualcomm chip and backed by Qualcomm Ventures. Tyto Care markets a handheld device that allows for the remote examination of the ears and throat. It also listens to the heartbeat and lungs and is used by both health providers and consumers. (Also see “TytoCare Raises $50M Amid Rising Demand To Remotely Monitor COVID-19 Patients” - Medtech Insight, 8 Apr, 2020.)

Moderator Wainwright Fishburn, a partner with the law firm Cooley LLP, cited a patient survey that suggests that almost 60% of the patient population have expressed comfort with using telehealth to interact with practitioners. Onethird said they would be willing to seek a new practitioner if their current practitioner was not accessible via telehealth.

What does this mean for investment trends in the next 18 to 24 months?

Jessica Zeaske, a partner at Echo Health Ventures, said she’s been looking for a disruption in health care delivery. The rising use of telehealth expedited by the pandemic puts the patient’s need at the center of health care, which she said offers advantages for patients, providers and insurers.

“We are seeing the necessity of that now,” Zeaske said, adding that the rising use of telehealth will make health care more affordable, which is critical during this time of high employment. She sees

telehealth as a way to open up access to care and make it more convenient for consumers.

“Just as retail was driven by this [consumer online shopping] 10 years ago, we’re going to see the cost of [telehealth] actually be the driver going forward,” she said. (Also see “The Rise Of Digital – Deloitte Offers COVID-19 Recovery Strategies For Medtechs” - Medtech Insight, 22 Apr, 2020.)

Kluz echoed that there is a trend toward consumer-minded health care, citing technologies like TytoCare that empower consumers by allowing them to take more control over their care. (Also see “Start-Up Spotlight: Tyto Care Brings Medical Exams To Homes” - Medtech Insight, 24 Dec, 2019.)

Health care has lagged behind technology companies in offering consumers enabling technologies, Kluz said. He noted that Qualcomm recognized early on that its technology innovation was powered by consumers, not by enterprises.

He gave the example of 5G, the fifth-generation technology standard for cellular networks, which cellphone companies began deploying worldwide in 2019. Kluz said the development of 5G was driven by consumers demanding “faster and better internet enterprises.”

He also believes that some of the lessons learned during the pandemic will have a lasting impact, giving the example of Tyto Care, which became a technology use case during the last few weeks.

“We’re actually seeing a convergence of best-inclass, upper-echelon technology use cases and the health care practicalities coming together … I think it’s just the tip of the iceberg. I think there’s a lot more interesting AI, Internet of Things and other innovative things that will spin out of 5G.”

Digitization Of Clinical Trials

Chen also considers telehealth a hot spot for investment, saying that provider groups are now embracing telemedicine as a complementary service to office visits.

Warburg will continue to look for investment opportunities in the area of tech-enabling digital health services and tools. That said, he noted that life science companies are “woefully behind the adoption of technology.”

Chen further anticipates that digital health solutions will be used to help digitize clinical trials, conduct site-less or patient-centric clinical trials, and even commercialize drugs because physicians are no longer willing to meet with pharma reps face-to-face. And innovative tech solutions that can capture clinical trial data, riskbased monitoring, real-world evidence faster will be in high demand.

“If we think about the enormous costs and complexity of clinical trials … it now takes about two and a half billion dollars of development costs and R&D to get every successful drug approval,” Chen said.

There is an expectation that consumers and providers who use telemedicine for the first time will remain long-term users. Surveyed investors anticipate growth in remote monitoring, symptom checkers and triage tools, according to Rock Health’s report.