Investing in digital health | Barclays Private Bank

Q. What are the key trends driving innovation in digital health? 

Badri Wadawadigi: A range of mega-trends is driving greater adoption of digital healthcare models. Ageing populations are putting increasing demands on existing health systems, yet the world is facing a shortfall of 11 million healthcare workers by 2030, according to WHO estimates^{. At the same time, governments are looking to contain costs by reducing reliance on the traditional hospital-led model, driving a shift towards community care, pharmacies and smaller, local interventions.}  

Another key trend is the consumerisation of healthcare. Over the last 10-15 years, people have taken greater ownership of their own health as more information has become available, challenging the traditional physician-directed model. That’s also changed expectations around healthcare provision, with many seeing it as no different to buying a complex product such as a mobile phone – they expect a simple, accessible service that is easily navigated by a non-expert.  

Meanwhile, the ability to capture health data has been transformed with the development of wearables and remote monitoring. These devices can provide a huge amount of information about a person’s health, on a continuous real-time basis, which is ‘raw fuel’ for healthcare providers and innovators. 

Q. Which technologies or segments do you think offer the greatest opportunities to exploit some of these trends?  

Badri Wadawadigi: Continuous data capture is an interesting area. Wearable devices, which came out of the consumer realm, are increasingly being approved to collect regulated healthcare information, which can highlight opportunities for further interventions. For example, they have helped diagnose conditions like nocturnal hypertension (high blood pressure which only occurs during sleep), which might otherwise go undetected. Wearables are still an emerging trend: many companies are developing these technologies and there isn’t a clear winner yet. Most likely, we will see practitioners measuring different biomarkers through a combination of data sets, rather than relying on any single solution. 

Another interesting emerging area is digital therapeutics and their interaction with medicines. Drugs can impact people in different ways, which can be down to physical differences in height, weight or sex – or even influenced by mood, diet, exercise and the time of day. Digital therapeutics can use both software and hardware to facilitate more tailored dosing that can be dynamically adjusted, by analysing an individual’s personal responses to medication.  

Kieran Whitty: Success in digital health is very specific to each individual business and its target markets, so it’s difficult to call out any single sub-vertical that will be the overall winner. But one area I’d highlight is AI drug discovery. While this is still unproven and therefore high risk, the potential market is huge, given the size of the global pharmaceutical sector. No one has found the magic bullet yet, but I expect further development in this space, to supplement more traditional drug discovery methods.  

Q. What are the main challenges faced by digital health solutions providers? 

Kieran Whitty: There are three potential challenges when it comes to launching a new healthcare solution. One is regulatory approval, which usually demands a level of clinical evidence to demonstrate safety and efficacy in humans. The regulations and data required vary by country, so there isn’t a one-size-fits-all approach.  

Another key challenge is securing reimbursement, which again differs by market. It can be slightly easier in Europe, where you tend to have national health service bodies and government payors, but it is often difficult in the US, as businesses will typically need to approach multiple insurers.  

Finally, you need to get physicians to trust the product enough to prescribe it. Businesses often fail at the commercialisation stage, even after securing clinical evidence and reimbursement. While this is a challenge for early-stage companies across the healthcare sector, it’s especially true for digital health because it’s such a new area.  

Badri Wadawadigi: Navigating regulatory approval, reimbursement and convincing physicians is a bit like a jigsaw puzzle, involving some trial and error. You might have the clinical evidence but find you need to revisit your business model. Such as we’ve seen with a US ADHD treatment provider, which went to market with a prescribed product, but found it difficult to generate enough revenue, and later shifted to an over-the-counter model.  

Some companies have gained early traction by going direct to consumer in this way, which can remove the first two hurdles. However, that approach requires an effective consumer marketing strategy, which has cost and speed implications as well. The landscape is evolving all the time, with new reimbursement and regulatory pathways opening up, so there isn’t a single route for scaling a digital health intervention.  

Q. How can investors access the digital health theme? What factors and risks should they consider when evaluating potential opportunities?  

Badri Wadawadigi: How investors access this theme depends on their risk appetite. You could gain exposure through traditional healthcare or established med-tech businesses, because almost all healthcare companies are looking at applying digital health in some capacity. Alternatively, investors might consider startups developing more groundbreaking technologies, such as digital therapeutics or breakthrough diagnostics, which could be transformational but carry a much higher risk profile.  

Investors should be aware that timeframes for digital health can be very different to traditional tech investment. Regulatory timescales, and the need to build clinical evidence, mean you can’t necessarily accelerate the process by throwing money at it, as you can in some other tech sub-sectors. It requires patient capital, which is why it may suit angels and those investing for social impact. I’d also say that you don’t need to try and change the world with a wide solution (e.g. treat all cancers, diagnose all blood diseases) – narrow use cases defended by strong intellectual property (IP) can be quite impactful.  

Kieran Whitty: There are many ways to access digital health, whether that’s telehealth, robotic surgery, AI-based radiology, but again it really comes down to the individual business, its founder and its technology platform, as they are quite idiosyncratic. Essentially, due diligence is key.  

Proof of traction is a key part of due diligence – and that might look quite different for digital health. There’s often a tension between taking an innovation to market quickly to satisfy investors and building robust clinical evidence to convince the medical establishment. Often there’s a trade-off between the two at the early stages, which is something for investors to consider.  

Q. Finally, how is AI supporting the digital health transformation, and how do you see it shaping the future of healthcare provision?  

Badri Wadawadigi: I think of AI as an accelerant. It will accelerate tailoring and personalisation of healthcare journeys, and reduce dependence on medical professionals for low-risk interventions. It will also help doctors save time, allowing them to make better use of their skills and training. We’re seeing a lot of companies developing clinical decision support systems, which use data to help physicians triage and make care decisions. We’ve also seen a number of AI medical scribes raise significant funding, to help reduce the administrative burden on doctors.  

There’s a significant risk that AI could transpose human biases into an automated medical context or be inadvertently trained on incorrect data. So, I think we’re some way from unleashing it on the patient directly. If we can build enough trust in AI and its safeguards, doctors’ role could become more like air traffic controllers – intervening only where their skills are needed – rather than pilots flying every plane themselves.  

Kieran Whitty: When it comes to healthcare provision, I think people value an element of human connectivity, so it will be difficult to replace humans entirely. A human check on AI remains essential, as many AI algorithms are viewed as black boxes. They have been developed using computer processing power in a very short timeframe and are often perceived as no substitute for years of human experience. We’ve already seen examples where startups promising to replace humans have failed when their technology was tested beyond surface level.  

Over the longer term, as people get used to (trusting) different interfaces, AI will likely take a bigger role in healthcare provision – and it’ll be fascinating to see how that plays out.