An Investment Gray Area: How to Cash In On Aging Populations?
June 26, 2014
Populations worldwide are aging. Developed countries will be the hardest hit; even the U.S., which may appear relatively youthful as its census recently revealed that it has more 22-year-olds than any other age group, is graying. But boomers and their peers are still a huge proportion of the worldwide population, and, more importantly, generally have more money. So as median ages rise, how will PE and VC firms take advantage of the demographic shift?
Healthcare: The Usual Suspect
PitchBook data shows PE investment levels in healthcare have stayed fairly steady over the past seven years, barely shifting from between 420 to 460 deals worldwide (although there was a slight decline in 2013 and 2014 thus far). Pharma & biotech have staged a comeback since 2009, rising to 75 deals last year. The majority of PE investment goes to healthcare services, with traditional care providers like Tracscare and DomusVi primary areas of focus. Those two in particular reflect a demographic shift, as they are residential care providers for the aged or disabled. Given PE’s primary focus on healthcare services, and indeed, the nature of PE investment, it makes sense that PE would wade into the hospital M&A fray, adding on more and more (176 alone last year, compared to 139 in 2010) of smaller, independent clinics.
But what else will PE look into? Organizations of independent care providers that can visit senior homes, healthcare EFTs, nursing homes…all the segments that cater more to the swelling ranks of older consumers will attract more and more investor attention these days. PE may not back companies striving for technical innovation, but as firms refine established business practices, it seems reasonable to predict further consolidation of healthcare chains, especially in markets like the U.S., where the Affordable Care Act promotes unification of practices and diffusion of insurance costs.
VC investment reflects similar steady interest in healthcare; 2011 saw 941 deals, 2012 saw 999, and last year logged 987. Healthcare tech systems that enable better care of a growing patient population also capture more attention; VC investors, for example, cut 53 deals with healthcare tech companies in 2010, but 105 last year. But pharma & biotech capture the most VC capital: 328 deals last year, almost 52% of capital invested, although healthcare devices & supplies trump sheer deal count with 386. VC investment in healthcare takes three predictable approaches: merging the latest tech and healthcare advances, as in Chrono Therapeutics’ wearable SmartStop which offers transdermal nicotine replacement therapy and behavioral support; expediting traditional systems a la Genzum Life Sciences, generic pharmaceutical developer that unites drug pipelines and in-house R&D to reduce costs; and finally, biotech companies designing proprietary cells, antibodies, drugs and more, like K2 Therapeutics and even more like AuraSense Therapeutics, each one seeking to use the incremental advances in gene regulation and patient genome-specific treatments to innovate.
The steady rise in VC healthcare tech investment also presages similar fields that may benefit from an aging population. For instance, robotic systems are already indispensable in manufacturing, yet the requirements of an elderly population may accelerate expansion even more. Generator Ventures, mentioned in a recent WSJ blog post, is seeking to capitalize on fields that will particularly benefit from aged consumers, namely, wearables that track health and smart home tech that helps people live at home longer and more safely. Innovation Capital in Europe is adopting a similar strategy. And of course, Google-backed Calico is focusing on anti-aging research, hoping to produce truly innovative health products.
A little aside re Calico: it’s worth noting that most of the healthcare companies getting funded aren’t that outside the box, i.e., genetically customized therapy developers are hot once more, but that field has been around for awhile. It’s not that advances aren’t being made with the combination of tech and healthcare, it’s that they’re more incremental than anything else.
For more on how PE and VC firms can capitalize on shifting demographics, stay tuned for a sequel post on more industries that are poised to reap rewards from advancing median ages.
Featured image courtesy of Hester Eugene, U.S. Fish and Wildlife Service