How Private Capital Is Turbocharging Healthcare Innovation

The article below is from our BRIEFINGS newsletter of 9 September 2021

The pandemic is accelerating the pace of innovation and investments across the global healthcare landscape, explain Goldman Sachs’ Jenny Chang, a portfolio manager in Asset Management’s Fundamental Equity business, and Jim Sinclair of the Investment Banking Division. Both shared their views at a recent Healthcare Investor Forum event.

Jim, you work with companies across the healthcare services and technology sectors. How would you describe the flow of private capital into the space?

Jim Sinclair: The amount of private capital that is being invested in companies that support both healthcare innovation and technology is growing exponentially. In 2012, for example, investors allocated about $1 billion of private capital into this space. That number grew to around $13 billion for the first half of 2021, according to our analysis. While valuations are higher and there is, to a certain extent, an exuberance in the market, there is more permanency to the capital that is flowing into growth equity investments that is likely to continue throughout different market cycles.

And how is that capital affecting innovation?

Jenny Chang: It’s turbocharging technological innovation. Drugs are being developed more quickly and timelines are getting shorter. And the pace of that innovation is unlikely to slow. Advancements in medical devices and minimally invasive procedures like robotics are accelerating, and advances in genomics and gene editing have created enormous opportunities to find cures for the world’s diseases.

So what types of innovations are you most excited about?

Jenny Chang: Genomics and next-generation medicines are key areas of interest for us as investors, as are sectors where technology and healthcare intersect, such as minimally invasive technology and digital healthcare more broadly. Take genomics, for example: We’ve seen a dramatic reduction in the costs of sequencing a human genome, from billions of dollars 20 years ago to several hundred dollars today. The technology is not only ready for broad usage but it’s creating data and insights that are leading to next-generation medicines such as targeted oncology treatment. To put this in perspective, we’ve sequenced only about 0.2% of the human genome and we’ve found cures for only about 5% of an estimated 5,000 rare diseases, according to industry estimates. There’s a long runway of growth as we continue to improve our understanding of the connection between genetic mutations and diseases, so the opportunity here is enormous.

Jim, from your perspective, how is technology reshaping the companies you work with?

Jim Sinclair: Technology is actually reorganizing the way companies have traditionally made money in the sector. In the healthcare insurance sector, for example, next-generation insurance companies are accessing the public markets through IPOs in order to use technology to automate processes, drive engagement and create a more user-friendly experience for members and providers.

Looking into the near term, what are some emerging trends that you’re watching?

Jim Sinclair: Two trends to watch are increased demand for mental healthcare and treating diabetes; both are conditions that appear to have proliferated during the pandemic-induced lockdowns. Delivery of long-term healthcare is evolving, as well; the pandemic has accelerated home care models, including hospital-at-home models and specialty-at-home models. We’re spending a lot of time with clients on acute care and discussing how to use technology to serve patients at home, across the spectrum of disease. There’s a lot of capital out there to support the growth companies that focus on these areas of care.