The emergence of the digital tools sector in the medical industry has generated large amounts of investment, but this enthusiasm should be measured against the background of actual market trends.

[Health 2.0] Medical Apps: Promising Business Environment but Investors Require Caution

There are now close to 97,000 medical apps on the market, not including the many platforms and connected objects which either already exist or are due to be launched soon. All this means that since 2006 some $7 million has been invested in the digital health sector – an impressive figure which covers a wide range of startup companies and products.  Nevertheless, this investment figure is not at all reflected in the actual penetration of these devices into medical institutions, which remains extremely low. So how can investors be sure of a return on their investment in the sector today? This was the question addressed by a number of sector experts and investors at a lunchtime workshop held during the Health 2.0 event which took place in London in mid-November.

A unique opportunity…

During the workshop, on the theme of ‘Investing in Digital Health – Why and How?’, Vishal Gulati, Managing Director of Radiant Capital, an independent private equity advisor to dedicated international cross-border funds, underlined: “Digitisation of healthcare is evolving very fast, but as for knowing whether the impact will have expected results, the dynamic is of epic proportions, but it’s the timing we can’t be sure about.” Janke Dittmer, a Partner at Dutch company Glide Healthcare Partners, provided more detail: “We find ourselves in a particularly promising situation due to four major factors. On the one hand the reform of healthcare services in the United States is forcing profound changes in the business models. In addition, our aging population means a rise in costs linked to chronic illness. On top of these changes in the structure of the sector come the added advantages arising from the current economic climate: "[...] the digital revolution is today acknowledged by everyone and moreover we’re right in the golden age of entrepreneurship,” he told the audience. Of course it is not only the US that has felt the need to make fundamental reforms in the way their medical institutions work; European countries also recognise the need, faced with the rising costs of social security, France being a prime example.

...Timing rather tight, though

So the pressure to reduce costs and increase productivity is certainly there. However the medical sector is characterised by some very special features. In contrast with other technology sectors, the medical industry takes a long time to implement innovative ideas, even more so when it comes to medical devices and patient data. Basically the lack of clear regulation is holding back adoption of the innovations. Vishal Gulati is therefore thinking medium term: “The business models will change slowly, so it could be risky to count on an explosion in the sector in less than ten years.”  What is happening in digital health is similar to the boom in environmental technologies – i.e. their mere existence does not mean they will immediately be adopted in practice. Janke Dittmer is well aware of this, pointing out that: “The problem remains that these technologies are being created by young engineers who see a possible application in the healthcare field. I think that for a real return on investment, demand needs to precede supply, and there must be a greater focus on real consumer needs.” This is a particularly valid argument in the medical field, where integration of new procedures demands clear proof of their usefulness and where existing apps and products still suffer from a ‘gadget’ image, precisely due to their business models.

By Quentin Capelle