The healthcare sector has a strong track record for successfully solving some of humanity’s most urgent challenges via medical innovation, a trend traditionally led by breakthroughs coming mainly from the scientific community. However, in recent years we have begun to witness healthcare solutions originating from organisations where technology is increasingly used to enhance scientific research processes – with advanced robotics, diagnostics and artificial intelligence (AI) equipment now occupying prominent roles in the modern medical research lab.
This increase in momentum could not have come at a more opportune time, with demographic challenges now creating pressure points throughout the global healthcare supply chain centred around ageing populations, a rise in lifestyle-linked ‘diseases of modernity’ and soaring costs.
Cost in particular is responsible for driving the creation of underserved patient populations, otherwise known as ‘medical deserts’. These deserts have historically arisen within rural communities; however, they are becoming increasingly prevalent within developed countries across regions which would otherwise be considered urbanised. For example, in the US almost 80% of counties are judged to lack adequate access to essential health services, whilst in France almost 50% of the population has either delayed accessing healthcare or foregone treatment entirely.
One notable example of a medical sector dramatically transformed by the confluence of technology and scientific research is cell and gene therapy, which has seen rapid growth, with over 1,200 therapies now in clinical trials globally. This is a significant leap from just five years ago when there were fewer than five therapies approved by the US Food and Drug Administration (FDA). Today, there are 38 approved therapies and the market has diversified its focus from rare diseases and oncology to include genetic disorders and autoimmune conditions, among others. This progress is largely driven by the enhanced precision of gene editing tools as technology has evolved.
Despite these encouraging advancements, one of the surprisingly persistent challenges facing the medical industry is the ability to scale production as a drug reaches commercialisation stage. The high costs associated with manufacturing coupled with the complexities of scaling the production of a new treatment often halts the progress of these lifesaving therapies and makes it difficult to find investors willing to commit the necessary funding to develop new treatments in the first place. This creates a space where active private equity investment by sector specialists can make a real difference.
Healthcare companies in the meantime are positioning themselves to capitalize on this wave of investment interest by strengthening and diversifying their supply chains, as well as outsourcing to ensure scalability of production can actually be achieved – resulting in a compelling range of opportunities for investors.
At Patria Private Equity Trust, we invest in the 'picks and shovels' of the medical industry rather than taking on the significant, often binary, risk associated with individual drug development or single product investments. In the cell and gene therapy market, this has included contract development and manufacturing organizations (CDMOs) and manufacturers of inputs into gene therapies, such as plasmids and reagents.
One example is Clean Biologics, a contract manufacturer and testing business based in France, which provides services for biotherapeutic development that are compliant with the FDA’s good manufacturing practices (GMP) regulations. Clean Biologics benefits from the rising pipeline of biotherapies and, particularly for such biotherapies, the trend towards increased outsourcing by biopharma companies due to stringent regulatory requirements and a lack of in-house expertise and capacity. As the leading testing provider in the European market, Clean Biologics is well positioned to benefit from this structural tailwind.
Looking beyond cell and gene therapy, Patria Private Equity has made several investments in health tech, including DocPlanner, a rapidly expanding digital health ‘matchmaking’ platform which connects patients with healthcare providers. We have seen an increase in consumer demand for accessible and convenient healthcare services offering a streamlined process, something which DocPlanner delivers through its software as a service (SaaS) tool, which enables healthcare providers to optimise patient flow, reduce no-shows for appointments and digitize certain aspects of operations.
Focusing on the mid-market, technology advancement is moving particularly fast within smaller, agile healthcare businesses, which are less likely to be encumbered by legacy processes or dated technology stacks. This corner of the market is accelerating the pace of change across the wider healthcare market, leveraging emerging technologies to develop medical products and services faster and more cheaply than larger competitors.
Companies fitting this profile are the kind of investments likely to be found within Patria Private Equity’s portfolio because of the greater potential to unlock value. It is our view that the future winners in the healthcare market will be those businesses who understand clearly that success relates just as much to the practical aspects of running a business as it does to the scientific talent driving the discovery of a new cure. Companies which strike this difficult balance will stand a much greater chance of building long-term profitable businesses whilst simultaneously delivering life-saving treatment – two concepts which are no longer mutually exclusive.
Karin Hyland is a partner and deputy head of co-investments and Andrew McMillan is an investment director at Patria Private Equity Trust. The views expressed above should not be taken as investment advice.