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How do investors think about healthcare investment trends for 2023?

This article is part of a series sponsored by HLTH that highlights the topics that will be discussed at the HLTH conference November 13-16 in Las Vegas.

If you were to summarize healthcare investment trends in 2022, behavioral health, on-demand healthcare, and automation would be among the most active investment areas. Although digital health funding fell in the third quarter, investors blamed factors such as rising interest rates, the limited market for initial public offerings and preparing for the risk of a recession.

Other notably attractive areas include pharmaceutical technology and health equity. This is how some investors view investing in health care. Each of them responded to the questions sent by email.

Steve Kraus is a partner at Bessemer Venture Partners, which invests from seed to growth. He described the firm’s investment strategy as “a roadmap approach to investment.” He said they like to understand where trends in technology and regulation are driving change and the adoption of new products and services in health care.

“We also spent the last year refreshing our views and also studying the key trends of how healthtech companies scale over time across business models (initial report here)…In the last two years we invested earlier in seed and A [stages]given the disconnection of foam and valuation with the fundamentals of scalability of business models, but we are looking to invest more in stages A, B and C in the coming quarters”.

Every year, the healthcare industry sees further consolidation. Although this has happened at an institutional level between hospitals and health systems, as well as between payers, it has happened in a much larger volume in health technology, especially in certain sectors.

“We are likely to see the consolidation of point-of-care solutions that treat specific conditions into specific channels or specialties, for example, employer or mental health platforms for better navigation,” Kraus said.

This year has also seen considerable staff cuts in the health sector, particularly in health technology. Kraus observed that the cMost of the capital has risen in the cloud, healthcare software as a service (SaaS), and technology-enabled service businesses. He also pointed out thatEntrepreneurs will need to widen the track and be more diligent in making investments that drive efficient growth.

“This will feel most acute in technology-enabled service companies given the capital intensity of early-stage models, but those who understand the drivers of improvement to scale their models will be successful in raising capital in any market” Kraus said.

Dennis Depenbusch, director of the New Ventures Initiative with Corporate Venture Capital at BlueCross BlueShield of Kansas and president of Mid America Healthcare Investors Network (MHIN) also shared his thoughts on healthtech layoffs this year.

“There have been so many market entrants from some verticals that the market cannot sustain them all (if you have 10 companies assuming they will take 10% of the market, what can the other companies get if they hit their projections?) – once the hype sets in and the reality to generate revenue and grow smart hits the market, then change will happen.”

Kraus also highlighted several emerging investment trends he’s watching in healthcare. He highlighted drug pricing, but also touched on the successful evolution of risk-taking models in primary care, but also noted that his company is beginning to see innovation in specialty care focused on providers “acting like marshals services for specific high-cost patient groups, such as renal care, cardiology, and oncology.”

“The success of the models in the public market will help accelerate adoption and sharpen focus on how to scale these businesses. The regulation-driven increase in data liquidity is driving the adoption of new use cases where the consumer has access to their own data, providers are empowered to break down silos and monetize data sets. For the first time, we are seeing action around drug pricing that will drive various stakeholders to develop novel pricing models, better accessibility for patients, etc.

Women’s health has also been in the spotlight, most recently with the overthrow of Roe vs. Wade but also in recognition of inequities in maternal health. Kraus said his firm has invested in women’s health companies, following a roadmap in categories including maternity, fertility, primary care. as well as specialties that predominantly affect women.

Asked if there are areas of health care they haven’t invested in or underinvested in that they plan to invest in next year, Hubert Zajicek, CEO, partner and co-founder of Dallas-based accelerator Health Wildcatters, said they would allocate funds to “more predictive and genetic medicine startups”.

“We are also ready to invest in more new, non-invasive sensor technology.”

When it comes to bullish bets on health care, Kraus highlighted tTechnology and platforms that allow doctors to take more risks and provide care to the maximum of their license. He also pointed mestreamlining the health care payment stack to align incentives between payers and providers and reduce system administrative costs (fee-for-service)

For his part, Depenbush said he is bearish on “everything related to value-based care.” (except Medicare Advantage)and bullish on the pharmaceutical sector.

“The pharmacy seems to have a great opportunity since this sector of costs is increasing dramatically. The new solutions will be interesting and there is room to be profitable through adherence and substitution, and better prices of specialized medicines”.

He added: “There is no virtual solution that replaces the human touch and human responsibility. There are more ways to approach an integrated approach, but it costs gross margin and venture capitalists generally don’t like that, even though those competitors are growing revenue faster.”

Photo: Who_am I, Getty Images

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