The life science sector is in upheaval
The life sciences and healthcare sector is facing similar disruptive upheavals as the “classic” industries with the topic of Industry 4.0.… This upheaval is being driven on the one hand by groundbreaking molecular research and diagnostics, which are generating unprecedented gains in knowledge — and thus also gigantic new volumes of data — and on the other hand by consistently advancing digitization in research, testing and approval of new active substances, in diagnostics, therapy selection and sustainable patient care, as well as in new digital business models of “classic” medical technology.
One consequence of this development is new areas such as personalized medicine, which pursues treatment concepts tailored to the individual patient, but also the use of Big Data analytics tools for the consistent analysis and improvement of individual therapies or holistic therapy workflows (“outcomes”). This will have a significant impact on the entire healthcare value chain and will also have a massive impact on the pharmaceutical industry in particular. If we consider the share of the pharmaceutical and medical technology industry in Germany’s gross national product together with the share of medical providers (e.g. hospitals), we obtain a total share in Germany’s gross national product that is almost comparable with that of the automotive industry. Similar conditions can be observed in all other Western countries.
The topic must certainly be viewed in a differentiated manner and each company will have to make such a decision individually. However, there are a few clear indicators that can influence such a decision:
The U.S. is simply the largest healthcare market in the world, with the corresponding growth potential; moreover, the U.S. spends the most money on healthcare in the world, as measured by a share of nearly 20% of its gross national product. Also, the majority of research-based pharmaceutical companies are located in the USA. In connection with this, the USA has the largest capital and investor market for life sciences in the world, with a large number of experienced, professionally operating and in some cases very specialized investors. The number of corresponding investment companies and the associated fund volumes are disproportionately larger than in Europe, so that companies wishing to become involved in the USA encounter a very investment-friendly environment. This also applies to seed and early-stage financing, an area that is comparatively weak in Europe.
In the USA, the life science sector is one of the top growth areas. Many cities and communities, most of which have a very good scientific infrastructure, have recognized this and are currently advertising attractive models to attract European companies to the USA. These are not only the well-known locations, such as Boston or Palo Alto, but also cities such as Orlando, Florida(https://vimeo.com/120180046), or San Antonio, Texas.
Another important point is simply making money: Every company in the life science sector must first provide clinical proof of the “efficacy” and “applicability” of its products, and then the corresponding approval procedures must be successfully completed. In order to earn money afterwards, the products and applications must be paid for by the corresponding payers, otherwise only the comparatively small area of self-payers remains. Unfortunately, in Germany, once products and applications have been approved, they still have to wait an average of another four years (exceptions excepted) before they can be reimbursed by health insurers. This is a major hurdle for many companies, but also for investors, as the cycles before a company starts to be commercially successful are much longer than in other technology sectors.
In the U.S., reimbursement procedures are considerably more diverse and therefore more complex. However, this results in a wide range of different billing options, so that reimbursement after successful approval is generally easier and much faster to achieve than in Europe. In addition, large U.S. health systems, such as Kaiser Permanente or Adventist Health, are very innovative and often willing to take special paths.
The U.S. is indisputably the world’s largest capital market for life sciences and health care. The number of funds investing in a wide variety of corporate phases and their fund volumes is many times greater than in all other regions of the world combined. NASDAQ is now the world’s most attractive stock exchange platform for life sciences companies, not for IPOs, but especially for secondaries and add-ons. The world’s largest capital market event in the life sciences industry is the JP Morgan Life Sciences Investor Conference, which is held in San Francisco every January.
China is in the process of catching up tremendously. Healthcare is one of the five strategic pillars in the new five-year plan of the government of the People’s Republic. The sector is booming and new excellent startups are emerging every month in a wide variety of life science fields. The same applies to the capital market. Together with our partner company in Hong Kong, we have just completed an analysis of the Chinese VC market in the life sciences sector. In addition to already established financial investors, such as Decheng Capital or Tencent , we have been able to identify more than 30 new VCs that have emerged in the last two to three years. The fund volumes are generally in the three-digit million range.
Regrettably, the situation in Germany and Europe is clearly lagging behind (once again). There are a respectable number of mutual funds and investment companies that have achieved respectable success in the past, but the number of new funds is very limited. A significant number of the established funds focus either only on pharma/therapeutics or on later stage companies. Funds that focus more on the new themes, such as new diagnostics, digital medical technology or genomics, are in the minority. There are a few exceptions, e.g. in the UK, where a broader positioning can be seen, but there are a number of companies that only invest in the UK or in the spin-off environment of British universities. In Switzerland, too, a new CHF 500 million start-up fund has just been launched, which invests broadly in all new technologies. Unfortunately, there are comparatively few funds in Germany and Europe that invest in seed or early-stage companies.
About Dipl. Ing. Lutz Voelker
Mr. Völker is Managing Partner at aspect.partners and Head of the Healthcare Practice. In addition, he serves as a member of the Healthcare Big Data Council at Gerson Lerman Group, New York (GLG), where he advises investment companies on investments in the life sciences sector. He also serves as a strategic advisor to the business unit leadership of the SAP Health Group at SAP SE and provides strategy advice to the executive team of Adventist Health System, one of the largest health systems and hospital operators in the U.S. healthcare industry with more than $9 billion in revenue and more than 4.7 million patients annually.
As the founder of aspect.partners, Mr. Völker has accompanied a large number of transactions and financings. In addition to mandates for young companies in the life sciences environment, in 2015 he managed various capital market roadshows for life science companies in the U.S. and raised €54 million in two financing rounds for a U.S./European company in the life sciences sector. Currently (August 30, 2017) aspect.partners manages five European mandates and one US mandate in the Lifesciences sector.
aspect.partners is an independent consulting firm based on a partnership of former industry managers and investment bankers. Our partners all have solid, long-term, international industry experience as senior managers, general managers or as board members of international companies and have usually led international organizations.