Who’s Fueling the Health Information Technology Investment Boom?

9 Oct

By Shaoyu Chang, Research Analyst, LSN

Shaoyu 10*10Health information technology (HIT) refers to a broad spectrum of technologies, ranging from personal health-monitoring applications to big data analytics. The venture capital firm Rock Health recently reported that venture capital funding in the HIT field reached $3 billion for 2014, well surpassing the $1.9 billion invested in the sector during 2013.[1] The LSN research team tracks investors in early stage life sciences, and we have noticed a growing interest in HIT as well.

The reason for increased interest is twofold. First, large IT corporations are diversifying their product lines and gaining exposure to the growing healthcare sector. Wireless implantable medical devices that enable remote monitoring of patients’ vital signs, smart bracelets that track an individual’s physical activity level, and algorithms that interpret genomic data are just some of the new products that corporations are hoping will reinvent how we look at healthcare. Corporate venture capital firms, such as Google Ventures and Verizon Ventures, are leveraging their expertise in electronic hardware, software, and wireless communication in order to tap into the growing number of relevant healthcare opportunities in these areas.

Second, traditional life science investors are being attracted to the HIT sector because of the lower risk, shorter development period, and rapid growth potential when compared with the traditional medical-device and pharmaceutical sectors. These investors are leveraging their life science expertise to capitalize on these opportunities when they can identify and comprehend the unmet needs these opportunities are solving. Of the hundreds of investors we interviewed, 88% of medical-device investors are either investing or seeking to invest in HIT, and 60% of biopharmaceutical therapeutic investors are doing so as well. Exhibit 1 shows the total composition of life science investors interested in HIT, as interviewed by the LSN team.

Exhibit 1

Exhibit 1

Investors’ enthusiasm is also supported in part by a favorable regulatory environment. The Affordable Care Act provides financial incentives for healthcare providers to use electronic medical records and make meaningful use of HIT systems.[2] Furthermore, in the eyes of regulatory authorities, HIT products differ significantly from medical devices and therapeutics in terms of risk profile. In its 2013 final guidance, the U.S. Food and Drug Administration made clear that it will take a hands-off approach on low-risk HIT technologies, making this field much more attractive to risk-adverse investors.[3]


 

[1] Rock Health, Q3 funding update: Digital health rakes in $3B, October 2014, accessible from http://rockhealth.com/2014/10/q3-funding-update-digital-health-rakes-3b/.

[2] U.S. Department of Health and Human Services, New Affordable Care Act tools and payment models deliver $372 million in savings, improve care, September 2014, accessible from http://www.hhs.gov/news/press/2014pres/09/20140916a.html.

[3] U.S. Food and Drug Administration, Mobile Medical Applications: Guidance for Industry and Food and Drug Administration Staff, September 2013, accessible from http://www.fda.gov/downloads/MedicalDevices/DeviceRegulationandGuidance/GuidanceDocuments/UCM263366.pdf.

 

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