What do investors think of healthcare investment trends for 2023?

This article is part of a series sponsored by HLTH highlighting topics that will be covered during the HLTH Conference From November 13 to 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 attributed it to factors such as rising interest rates, the limited IPO market and preparedness for recession risk.

Other remarkably attractive areas include pharmaceutical technology and health equity. Here’s how some investors view healthcare investing. They each responded to questions sent by e-mail.

Steve Kraus is a partner at Bessemer Venture Partners who invests through the stages of startup to growth. He described the firm’s investment strategy as adopting “a roadmap-driven approach to investing.” He said they like to understand where technology and regulatory trends are driving change and the adoption of new healthcare products and services.

“We have also spent the last year revamping our views and studying key trends of how health technology companies are moving over time across business models (initial report here)… Over of the past two years, we have invested earlier in seeds and A [stages]given the foam and the disconnect in valuation with the fundamentals of business model scalability, but we are looking to invest more around Stages A, B and C over the coming quarters.

Every year the healthcare industry sees more consolidation. While this has occurred at the institutional level among hospitals and healthcare systems as well as payers, it has occurred at a much higher volume in health technology, particularly in certain sectors.

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

This year has also seen significant downsizing in the health sector, particularly in health technology. Kraus observed that the cMost of the capital rose in cloud, healthcare software as a service (SaaS) and technology services companies. He also pointed out that thEntrepreneurs will need to extend the runway and be more diligent to make investments that drive effective growth.

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

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

“There have been so many entrants into certain verticals that the market can’t support them all (if you have 10 companies assuming they’ll 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 income and develop them smartly hits the market, then change will happen.

Kraus also highlighted several emerging investment trends he is watching in healthcare. He highlighted drug pricing, but also referred to the successful evolution of at-risk models in primary care, but also noted that his company was beginning to see innovation in provider-focused specialty care “who act as shifts 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 better target how to scale these businesses. The increase in data liquidity driven by regulation 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 datasets. For the first time, we are seeing action around drug pricing that will push various stakeholders to develop new pricing models, better patient accessibility, and more.

Women’s health was also in the spotlight due, most recently, to the reversal of Roe vs. Wade but also in recognition of inequalities in maternal health. Kraus said her company has invested in women’s health businesses, pursuing a track record in categories including maternity, fertility, primary care as well as specialties that mainly affect women.

When asked if there were any areas of healthcare they had little or no investment in that they planned to invest in next year, Hubert Zajicek, CEO, partner and co-founder from the 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 and non-invasive sensor technologies.”

When it comes to bullish health bets, Kraus pointed out ttechnology and platforms that enable clinicians to take more risks and perform care at the peak of their license. He also pointed mmodernization of the healthcare payment stack to align incentives between payers and providers and reduce administrative costs of the (fee-for-service) system

For his part, Depenbush said he was bearish about “anything about value-based care. (except Medicare Advantage)” and bullish in the pharmaceutical sector.

“Pharma seems to have great opportunities as this cost sector is increasing significantly. New solutions will be exciting and there is room to be cost-effective through adherence and substitution – and better pricing of specialty drugs.

He added: “There is no virtual solution that replaces human contact and human responsibility. There’s more of an integrated method approach, but it costs gross margin and VCs generally don’t like it even though those competitors are growing their revenue faster.

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