A nuanced, deliberate, and thematic approach to investing in healthcare could yield strong returns despite increased activity and strong asset prices over the past few years
A nuanced, deliberate, and thematic approach to investing in healthcare could yield strong returns despite increased activity and strong asset prices over the past few years
Healthcare presents a wealth of investment opportunities in Australia. Spending on healthcare goods and services has risen from $91bn per annum 20 years ago to over $185bn per annum today.¹
We foresee three key trends that can help drive outperformance over the next decade. Investing with these in mind will allow investors to tap into the growing number of opportunities that may provide outsized returns.
Biotechnology revolution
Advances in biotechnology have been game-changers in the treatment, prevention, and potential elimination of some of the world’s most devastating diseases. In particular, developments in genomics² and gene editing³ are helping to improve patient outcomes in cystic fibrosis, hemophilia, and sickle cell disease. This has led to record levels of investment in medicine development, including biologics⁴. Global drug and biologics R&D spending grew from US$88bn in 2004 to US$188bn in 2020 and is forecast to reach US$233bn by 2026.⁵
While early-stage investing in drug and biologics development may not be for all investors, fields like clinical research can provide LPs with the ideal risk-return profile. In Australia, successful investors have been able to support the scaling up of small, local businesses, helping them to grow and serve a global market. One such example is Nucleus Network, a phase 1 clinical trial site business based in Melbourne. When acquired, Nucleus was a single-site business and with our support and investment, it was able to grow into a multi-site global player.
Democratization of healthcare
The convergence of healthtech and changing consumer expectations has led to innovation in accessible and convenient healthcare options. The COVID-19 pandemic has also helped accelerate the uptake of new models of care delivery like telemedicine and online scripting services, which are now here to stay. With artificial intelligence, robotics, the integration of automated health devices, and a shift toward home care redefining healthcare, businesses that can adapt to a patient-centric model of care where consumers feel in control of their healthcare, are likely to do best. Healthcare Australia, a healthcare workforce agency we acquired in 2018, was able to harness its strength in workforce management to embrace this trend.
Personalized medicine
In the next decade, doctors will be able to tailor treatment plans individually and deliver nuanced prescriptions based on the specific genetic make-up of the disease and the patient. The first beneficiaries of this trend are diagnostic companies which provide doctors with genomics information such as our investee, Australian Clinical Lab. This company is advancing the use of genomics through its Molecular Cancer Service to provide oncologists with better healthcare information for more personalized diagnosis and treatment.
¹Australian Institute of Health and Welfare, Health Expediture Snapshot, July 2020
²Genomics is the study of genes, and the interaction of genes with each other and with the environment.
³Gene editing is the process of cutting out a defective segment of the patients' genome and replacing it with a 'normal' healthy segment.
⁴A biologic drug is produced from a living organism, or contains components of living organisms.
⁵ Strategy& 2021 analysis
About
Founded in 2000, Crescent Capital Partners is a leading mid-market private equity firm assisting emerging and growth companies across Australia and New Zealand. Crescent has deep expertise in healthcare and has developed a reputation of being one of the most successful and experienced private equity investors in healthcare in Australia. Crescent takes great pride in building long-term partnerships with our investors based on an established reputation for delivering consistently strong performance.
Daren has over 30 years’ experience in healthcare, including private equity investment and CEO roles, and leads the firm's focus in healthcare.
This article originally appeared in Australian Private Capital Market Overview: A Preqin and Australian Investment Council Yearbook 2022. The opinions and facts included within the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin and Crescent Capital Partners providing the information in this content accept no liability for any decisions taken in relation to the above.