McDermott was delighted to partner with the BVCA (British Venture Capital Association) on its recent virtual Sector Forum Series: Healthcare event. The event gathered industry experts – from entrepreneurs, to investors and advisers – to discuss the challenges, trends and opportunities within healthcare across the United Kingdom, Europe and globally. This half-day forum took an in-depth look at healthcare’s attractiveness, characteristics, rate of growth and the outlook for private equity and venture capital appetite.

IN DEPTH

General Market Conditions

As business and investors continue to adapt to the continued disruption of COVID-19 and as wider M&A transactions slow, the health and life sciences sector has shown its resilience and continued attraction to investors.

Despite an initial slowing of healthcare transactional activity in 2020, deals are continuing apace particularly in certain sectors.

Headline Market Trends

Headline trends across the UK market are:

• Digital health, medical diagnostics (particularly clinical labs, radiology, remote diagnostics) continue to prove particularly attractive areas for investors.

• Investments in pharma, biosciences and pharma services remain attractive, despite some impact on the market due to a slowdown in clinical trials in 2020.

• COVID-19 is likely to increase demand across mental health and learning disability sectors, particularly in adult specialist care, mental health, children’s services, where public funding has received a boost following the UK Chancellor’s November Spending Review.

• In hospital settings, the private insured market slowed during the pandemic as facilities lent capacity to the NHS, but operators are reporting a significant increase in self pay and private care as patients choose to pay for their own care rather than wait for treatment.

• The market will continue to experience significant demand for services with a huge demand / supply imbalance for the next few years, with somewhere between seven – ten million patients on the elective waiting list (one in every household).

• Increasing focus on investment in health technologies. Not only on remote medicine, which has seen a significant increase during the pandemic, but on technology that drives efficiencies through patient care pathways, including AI, data analytics and better use of diagnostic tools.

• The uptake of new technologies (and attractiveness of the UK market) may depend on an adequate and clear reimbursement regime. Panellists pointed to markets which have introduced attractive reimbursement strategies, most notably Germany.

Investment Philosophies

Panellists at the BVCA event included some of the UK’s most experienced health care investors and operators in the sector.

Some key themes from the event focussed on the move to digital and remote services, the continued emphasis on science, technology and geographic diversity, tapping into the longer term demand for services and care. At the same time, diversification was important with broad portfolios faring well.

• Liz Jones of Livingbridge emphasised the “need to be geographically diverse to serve all parts of the market” “consistency is key, look at longer term enduring trends in healthcare, social care and education.”

• Dave Parker of Ampersand highlighted a “focus [is on] on core vertical products in healthcare, laboratory products, research and services, and investing in outsourced services pharma and medical device – segments that tend to have scientific and technological expertise.”

Distinguish Yourself from the Competition

The discussions at the BVCA panel also emphasized the need for trusted and experienced private equity investors with a deep understanding of the market, particularly those investors with a focus on:

• Policy, regulatory and compliance requirements: whilst healthcare remains a resilient and attractive sector, it is highly regulated and investors who thrive on delivering high quality services to patients will thrive.

• Continued attraction of operational talent and leadership.

• Innovation, using the experience of adjacent industries to drive improvements and diversification of portfolios, particularly with respect to consumer trends and technology.

Deal Pricing

Despite the climate, prices have remained buoyant with health and life sciences companies attracting high premiums. This is expected to continue into 2021 and panellists pointed to the continued resilience and attraction of the sector.

Future Regulatory Landscape for Investors in the Pharma and Life Sciences Sectors

In the United Kingdom, uncertainty continues with changes anticipated through Brexit and anticipated legislative change on medicines and medical devices.

At the time of the panel, the status of a trade deal and mutual recognition was still up in the air. Panellists recognised that there may be an opportunity to develop a more agile regulatory regime but that needed to be balanced against market certainty and confidence in the UK regime.

At the same time, operators and investors did not report any significant impact on prices or appetite to invest in anticipation of Brexit. The sector remains resilient and relatively well prepared although providers have a continued focus on supply chains, stock-piling and retention of talent.