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 Venture capital firms and portfolio managers of large mutual funds
are among those investing in companies that gather and analyze
healthcare data, all in hopes of tapping into the shift to
electronic record keeping and consumer acceptance of personal health
tracking devices. Unlike biotechnology firms, which are often
hit-or-miss based on the success of drugs under development,
investors say these health technology firms tend to have a reliable
path to profits by selling services and data to insurance companies,
doctors and hospitals.
Overall, venture capital funding for healthcare technology firms is
up 176 percent so far this year, at $2.3 billion, versus the same
period last year, according to Rock Health, a San Francisco–based
seed funding firm. Most of the funds have gone to companies focused
on payment management and data analytics.
In contrast, funding for biotechs, a sector whose rally this year
has prompted the Federal Reserve to warn about a potential bubble,
has increased just 28 percent this year through June 30, compared
with the year-ago period.
Andreessen Horowitz, Qualcomm Ventures and Google Ventures are among
the venture capital firms that have invested in healthcare
technology firms this year, according to Rock Health, while Intel
Corp, General Electric Co and Medtronic Inc have acquired digital
health companies.
Mutual funds are moving in the same direction. Among all growth
funds, healthcare investments have increased 14 percent over the
last three years, to make up 16 percent of portfolios, according to
Lipper, a Thomson Reuters company. The average actively managed
technology mutual fund has doubled the portion of its portfolio in
healthcare companies over the last three years, but to only 4
percent, Morningstar data show.
Fund managers are finding health technology a reason to like even
industry leaders such as Apple Inc. Over the last year, Apple has
hired several senior medical technology executives who focus on
sensor technology that can monitor health, ranging from blood-sugar
levels to sleep quality.
The company is expected to unveil an updated iPhone and a so-called
wearable device on September 9, each of which will include health
sensors that power its HealthKit operating system to share data with
health providers such as Mount Sinai and John Hopkins and electronic
health records company Allscripts Healthcare Solutions Inc.
"The line between what is healthcare and what is technology has
become blurred," said Robert Stimpson, the lead portfolio manager of
the Black Oak Emerging Technology fund. Apple makes up the second
largest portion of his portfolio.
Healthcare technology can be just as risky as other areas in the
rapidly changing tech sector. Yet fund investors say that aging
populations in the United States and Europe, along with the
transition to digital health records mandated by the U.S. Affordable
Care Act, should provide a growth catalyst for the industry.
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Skip Aylesworth, manager of the Hennessy Technology fund, now
devotes a quarter of his portfolio to health technology companies
because he expects growth in U.S. healthcare spending. He recently
bet on drug distributor McKesson Corp largely because of its
division that provides IT services to hospitals and physician
offices, and has higher profit margins than those of the entire
company, he said.
Other well-known technology funds are taking large bets on
healthcare. The $3.7 billion Waddell and Reed Science and Technology
A Fund and the $5.6 billion Ivy Science and Technology fund each
have about 14 percent of their portfolios in healthcare funds.
Zachary Shafran, the lead portfolio manager of both funds, holds
companies such as health insurer UnitedHealth Group Inc, device
maker Boston Scientific Corp and generic drug maker Teva
Pharmaceuticals Ltd along with Facebook Inc.
"Medical technology, biotechnology, medical records and
pharmaceuticals are among the greatest innovators and early adopters
of new science and technology, so we are paying particularly close
attention to companies in those areas," Shafran wrote in a recent
note to investors.
Kevin Spain, a general partner at Emergence Capital Partners, said
he has invested about $40 million in health tech startups, including
Augemedix, which is developing applications that would allow a
doctor wearing Google Glass to access a patient's health records on
demand. He expects more startups to focus on health technology in
the future, largely because of the potential to disrupt established
companies.
"Health care is a massive market," he said.
(Reporting by David Randall; Editing by Linda Stern and Richard
Chang)
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