Impact themes in focus: Health

The pandemic made existing inequities in healthcare harder to ignore.

If evidence were needed that the world requires massive and sustained investment to strengthen health systems, it came in the shape of the virus that appeared in Wuhan in the last days of 2019. Almost three years on, covid-19 has cost trillions of dollars and brought immeasurable suffering. More than 6.5 million people are confirmed casualties of the virus, according to the World Health Organization – though the true toll is likely to be much higher. 

One of the ironies of the pandemic is that the US, the country that spends by far the most on healthcare, has suffered the highest number of confirmed covid deaths. In fact, by almost every measure of healthcare performance, the US achieves worse outcomes than most other developed countries. Life expectancy in the US is very similar to Turkey – even though, in per capita terms, Americans spend almost nine times more on healthcare than their Turkish counterparts, according to data from the Organisation for Economic Cooperation and Development.

Private equity firms operating in the US healthcare market therefore have myriad opportunities to generate impact alongside financial returns. “Our investors were very interested in solving the challenges of healthcare pre-covid,” says Peter Spring, managing director at Bain Capital Double Impact, the impact investing arm of Bain Capital. “Covid exposed even greater inequities in the sector.”

Indeed, research commissioned by a coalition of NGOs found that the poorest counties in the US have suffered a covid death rate almost twice as high as the richest counties, while data from the Centers for Disease Control and Prevention shows racial disparities in covid infection and mortality rates.

Spring says Bain Capital Double Impact is focused on improving access and serving vulnerable populations. A key tool to achieve these aims, he says, is investing in healthtech. “There is a great need for lower-cost solutions to access care in a more cost-effective way, and I think often that can be achieved through digital channels,” he says. “Covid accelerated people’s willingness to try new things and so I do think that will be a big tailwind for the industry going forward.”

7%

Percentage of AUM impact investors allocated to healthcare in 2020

Source: Global Impact Investing Network’s Annual Impact Investor Survey 2020

As Spring acknowledges, many tech firms in the healthcare market still need to demonstrate the value of their offerings. Indeed, healthcare investors will themselves be under the microscope to prove that their strategy is genuinely achieving impact. 

“It is important to consider how best to define outcomes and quality in these sectors to ensure that advancing quality and outcomes is a key priority as a business scales,” says Jon Samuels, a partner at Vistria and co-head of the firm’s Portfolio Resources Group. Ensuring that services benefit underserved populations, he says, “begins by capturing data on who a company is serving”.

“The regulatory regime in this space will continue to evolve as well, so between the increased visibility into relevant data and new requirements, everyone is going to have to do more to prove the value-add on each investment,” adds Samuels.

Emerging markets

While covid has drawn attention to the inadequacies of healthcare systems in the US and other advanced economies, the extent of the heath challenges across large swathes of Africa, Asia and Latin America are vastly greater. The average person in most high-income countries can expect to live into their mid-eighties, for example, whereas life expectancy remains below 60 in many African countries. 

But despite the gaping need for healthcare investment, the volume of impact capital actually put to work in healthcare in emerging markets is relatively limited. Data from the Global Impact Investing Network’s Annual Impact Investor Survey 2020 indicates that investors that are focused on developed markets allocate twice as much AUM to healthcare than emerging markets-focused investors – while impact investors allocate 7 percent of their total AUM to healthcare on average, those focused on emerging markets allocate just 4 percent.

Vincent Lecat, head of impact and ESG at Development Partners International, says private equity firms operating in Africa can make a “stronger case” that their investments in healthcare are achieving a positive impact. But he warns that a lack of scale among healthcare providers is a challenge for PE firms looking for investments. “We don’t have that many companies that have that critical level where they are interesting for a private equity firm,” says Lecat.

Pharma and healthtech opportunities

An alternative to investing in large private hospital groups in emerging markets, which are likely to mainly benefit the wealthy, is to focus on the pharmaceutical sector. Lecat says that DPI has invested in a pharmaceutical company that produces generic medications aimed at the mass market. “The idea is to provide accessibility and affordability of drugs to a wider population,” he says. 

Another strategy, much as in developed markets, is to focus on healthtech investments that have the potential to allow lower cost solutions to be scaled up. India is a promising market for healthtech, with four start-ups achieving ‘unicorn’ status in 2021. Other countries such as Brazil, Mexico, Nigeria and Kenya have also seen rapid growth in healthtech start-ups. 

“We’re quite keen at looking at more digital healthcare plays,” says Eline Blaauboer, a partner at the Investment Funds for Health in Africa, an impact-focused private equity firm. “For a long time, there wasn’t sufficient dealflow, not enough companies were being started – that’s starting to change now.” 

Blaauboer warns that early-stage healthtech companies in Africa still face challenges in accessing finance from equity investors. However, the success of such companies that have focused on achieving impact in low-income countries may convince investors to pay more attention to emerging markets. For example, Zipline, a US-based start-up that has received capital from multiple private equity and venture capital investors, has used Rwanda to prove the value of its service that delivers blood by drone. A study published by the Lancet in April found that the service cuts delivery times to patients and reduces waste.