Venture capital and growth equity firm Endeavour Vision has a 20-year history of investing in growth-stage medtech and digital health companies in Europe and the US. Here Private Equity Wire asks Bernard Vogel, co-founder and managing partner, and Meret Gaugler (pictured, above-right, with Vogel), head of investment strategy, for their thoughts on the innovations and key drivers that are shaping the sector’s future.
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Covid-19 has put healthcare in the spotlight, acting as an accelerator in the next leg of the sector’s transformation through the adoption of new digital health and medical technologies. Venture capital and growth equity firm Endeavour Vision, which has just announced the closing of its Endeavour Medical Growth II (EMG II) LP Fund at USD 375 million in capital commitments, has a 20-year history of investing in growth-stage medtech and digital health companies in Europe and the US. Private Equity Wire asked Bernard Vogel, co-founder and managing partner, and Meret Gaugler (pictured, above-right, with Vogel) head of investment strategy, for their thoughts on the innovations and key drivers that are shaping the sector’s future.
How has Covid-19 affected investor confidence in healthcare and specifically medtech?
Sentiment towards healthcare and medtech has been boosted. Although valuations in the sector initially fell in the Q1 2020 equity market drop, they have since recovered strongly. Within just a few months, the sector’s valuations were up 50% compared to January 2019 – well ahead of the rebound for broader market composite indices.
Digital health companies recovered even more strongly, partly as a result of investor excitement over the increased use of virtual health and other remote technologies. Last year also saw a boom in venture capital funding for health tech innovations, at USD14 billion – almost double the corresponding level in 2019.
With cheaper debt and easier access to financing all around, existing and newly-listed companies alike were also given more credit for future growth and were cut increasing slack for being some time away from breaking a profit.
We saw that trend reflected in medtech, where the highest-growth companies solidly outperformed their large-cap peers. Finally, corporate buyers started responding to increasing competition from IPOs and following the trend towards earlier-stage exits.
Overall, the strategic importance of healthcare systems has become more fully acknowledged. Healthcare systems were seen in the past mainly as a big cost centre by governments, but the Covid-19 crisis has made them realise their strategic nature and importance.
And there is hope that as we emerge from the pandemic, the key stakeholders – patients, doctors, hospitals, insurers and governments – will be increasingly aligned on the need to accelerate the transformation of healthcare to build more robust, flexible systems that are better equipped to deal with long-term trends as well as short-term crises.
How do you see healthcare evolving as a result of the pandemic? What changes are coming? And how has this led you to reconsider your investment strategy?
The urgent need for remote consultations, diagnostics and monitoring due to Covid-19 has transformed attitudes towards digital technologies, disrupting current structures and accelerating the adoption of new, patient-centric technologies. We expect this trend to continue and extend to many other areas of healthcare, ultimately to enhance efficiency and deliver more personalised and predictive patient care.
That is why we have placed more emphasis on digital health in the new fund. The three main trends we see resulting from the convergence of digital technologies within healthcare are:
Rise in remote/virtual care: This was a trend before Covid-19, but the pandemic has served as an accelerator showcasing that delivering care outside the hospital walls – through telehealth, remote/self-monitoring, and diagnostics for example – is not only possible but can in some cases deliver better results, while at the same time optimising healthcare resources. In these new models of care, the patient experience often becomes an important consideration alongside outcomes and economics.
Harness the power of big data: Healthcare generates more than a third of all data produced in the US. Yet, the sector has been one of the last to embrace digitalisation. However, the pandemic seems to have shaken things up finally. Over the past 12 months, we have seen many new opportunities for data-driven, personalised care with greater use of data analytics, machine learning and AI.
Streamlined healthcare delivery: Expectations for improving care are rising, yet the need for cost-containment has never been as great as it will be in a post-Covid world. We are seeing many examples of innovations that are allowing healthcare to be delivered faster, closer to the patient and more cost-effectively. Examples of this include: virtual patient care pathway solutions that incorporate electronic health records, reduce the administrative burden on healthcare systems and reduce spending overall; minimally invasive surgery options that can help to avoid lengthy hospital stays and save valuable resources while reducing the impact of invasive surgery on patients; and the automation of labour-intensive processes that is increasing productivity, delivering results faster and reducing human error.
Why is now the right time to invest in healthcare? And is it going to last?
Healthcare is one of very few truly innovative sectors that will continue to stand out with sought-after secular growth in the medium term. In addition, we find ourselves at a unique crossroad in the history of the sector with a particularly favourable environment for the adoption of new technologies.
Medtech is a fast-growing, resilient and dynamic sector with high barriers to entry. With the number of medtech patents increasing three-fold between 2000 and 2018, innovation is thriving in a sector that is bringing new solutions to today’s health challenges. In so doing, the industry has been rewarded with significant investor interest, an exceptional environment for IPOs and the most active quarter in Q1 2021 for medtech M&As in six years.
Across the healthcare sector, factors such as unmet need, secular trends and mounting budget pressure are driving innovation. Today, 9 per cent of the global population is aged over 65 years and that proportion is projected to rise further to 16 per cent in 2050. Healthcare spend already represents a double-digit percentage of most economies (at around 17 per cent of GDP in the US and around 12 per cent in many European countries), which is not sustainable.
Ageing populations, a corresponding rise in chronic, expensive-to-treat conditions and strained healthcare budgets will continue to fuel demand for cost-saving medtech and digital health solutions.
Combined with a post-pandemic environment, these underlying trends favour the adoption of new technologies. Covid-19 accelerated the demand for and adoption of cutting-edge technologies that improve patient care and address the need for more streamlined healthcare delivery, generating a positive environment for healthcare innovation. One example is telehealth, used by only 11 per cent of US consumers in 2019 and rising to 46 per cent during the pandemic in 2020.
Healthcare innovation is therefore set to remain a long-term priority, creating a vibrant landscape of opportunities for investors.
What role does an investment firm like Endeavour Vision play in this future?
Investing in healthcare is unique in its potential to improve, extend, and save lives. As a firm, we never lose sight of the patient. The sector is also highly regulated and complex, which requires deep industry knowledge.
Endeavour Vision has built one of the largest international investment teams in the industry focused exclusively on medtech and digital health.
The objective of an investment firm is to identify and bring to market the best innovations, which is achieved by doing the following:
Allocating money to the highest-potential innovations: There are multiple sources of capital available to healthcare companies, including government funding, university research, large strategic investors and so on. Investment firms provide another essential source of capital, as innovation in healthcare tends to take a lot of time with clinical, regulatory and reimbursement hurdles, as well as phase 3 clinical trial costs that can run into the millions.
Supporting companies beyond capital: Healthcare is a complex sector and developing winning strategies every step of the way can be challenging. Entrepreneurs tend to need and appreciate the support of specialist investors along the different development stages, from clinical to regulatory to manufacturing and commercialisation to bring their ideas to fruition.
Sharing the financial risk: Investing in potentially disruptive innovations also means sharing the financial risk, which is why deep sector expertise is required to conduct thorough evaluations and exhaustive due diligence processes. This requirement thins out the field of qualified investors considerably.
Building investors’ trust in healthcare technology: The positive impact that new technologies can have on patients’ lives is a key measure of success. Investors are increasingly interested in contributing to broader societal impacts, but investments are of course held to compete with other sectors in demonstrating strong and sustainable returns.
About Endeavour Vision
Endeavour Vision is a venture capital and growth equity firm founded in 2000, which invests in growth-stage medtech and digital health companies in Europe and the US. Its investments are focused on transformative healthcare technologies that bring superior clinical benefits for patients and significant efficiencies to healthcare systems.
Endeavour Vision’s international investment team, global network and extensive deal flow gives it a unique view on the sector, allowing investment opportunities in best-in-class or first-in-class technologies. The firm partners with companies in the early stages of commercialising game-changing technologies and actively supports them beyond capital with strategic and operational expertise.
Recent investments include CeQur, IntelyCare, Lumeon, Nalu Medical, Rapid Micro Biosystems, Relievant Medsystems and SOPHiA GENETICS; and exits include Vertiflex, Symetis and the Medartis IPO on SIX. Endeavour Vision’s offices are based in two global healthcare hubs –Geneva, Switzerland, and Minneapolis, US. For more information, visit www.endeavourvision.com
