Throughout 2020 and 2021, healthcare has been at the forefront of almost every agenda: public and private, company and government, young and old. Much of it, of course, driven by the worst pandemic in generations. We at AlbionVC have been investing in healthcare and technology in Europe for over two decades and never have we experienced anything like this before. The stories we're hearing from our companies on the frontlines of healthcare every day make it clear that the industry is undergoing the most monumental shift of modern times. We therefore thought it would be good to take stock, look at what's happened and share our thoughts on the state and future of healthcare technology in Europe (that is, including the UK).

This is the first of a series of releases by AlbionVC on European health tech and provides a high level overview of what has happened over the last 10 years incl. the pandemic. In the future, we will be diving into details of various subsectors such as digital care, AI drug discovery, etc. - all viewed from a European lens.

Deep tech and economics - the case to be bullish about healthcare

First, lets take a step back and look at the broader technology industry. Most "techies" know the phrase coined by Marc Andreessen "Software is eating the world". Most will also know Moore's Law, a rule that can be interpreted as the price of compute power dropping by half every year. The chart below overlays the price of compute power with the growth in the value of technology companies over the last 25 years.

This is economics 101: as the price of something drops, mass adoption follows and significant markets are being created. Now let's plot the price of genome sequencing against the price of compute power.

A striking similarity of fundamental drivers - we believe this dynamic, also seen in other technologies with this profile, will underpin a similar growth in value in health technology companies over the next decade and beyond.

The first genome was sequenced in the year 2000, after >10 years and at a cost of $3bn - literally off the chart. That cost has recently come down to <$1,000, though the decrease hasn't been a straight line with periods of rapid deceleration ~15 years ago (driven by technology invented at Solexa, a British deep tech firm) followed by a period of slower decline recently. The prediction is that new technologies (such as that from Oxford Nanopore, another British deep tech firm) will bring the cost curve down further and further.

The decrease in the cost of genome sequencing has already had a profound impact by vastly enriching our knowledge on the genetic causes of diseases including cancer, which has led to the cell and gene therapy (CGT) revolution that is currently taking the biotech world by storm. We know from many investments in CGT companies, and the work we're doing at the UCL Technology Fund, that science is just scratching the surface and that there's so much more to come.

Pre-Covid: Slowly but steady

The previous chart picks out one area in healthcare (genomic medicine) where cost decreases and broad-based adoption are driving substantial change and progress. Similar dynamics are at play in other areas with the rise of mobile devices, cloud computing, AI and the internet of things all permeating different parts of healthcare. These technology innovations have happened at a time that has seen a few big secular shifts such as the "consumerisation" and personalisation of healthcare, economic stagnation and an ageing population; as well as significant advances in our understanding of biology and disease following the genomics revolution described above. The result has been a slow but steady increase in the adoption of digital technology in healthcare pre-Covid-19. The charts below show a few examples of what has happened over the last 5-10 years for four different healthcare stakeholders: patients, providers, regulators and pharma.

In certain areas of healthcare, considerable momentum was already starting to build with a shift to digital in the middle of the last decade. The most notable areas were chronic conditions such as diabetes and heart disease where companies like Livongo, Omada Health and Virta Health were starting to change entrenched practices and showing early signs of broad-based adoption pre-pandemic. However, the early successes were mostly confined to the USA whereas Europe continued to move very slowly.

A long way to go (and grow)

As venture capital investors, we take a long-term view. To start to understand where technology in healthcare is today and where it could go, it helps to look at other industries that have been disrupted by technology. The chart below compares the global size of the healthcare industry (in money spent per year) to the combined market cap of the largest digital health companies in 2019 (before Covid-19 became pandemic).

What the chart makes clear is that the value of the largest digital health companies in 2019 was roughly 3% of the annual spend on healthcare. Making the same comparison for other industries shows how small the digital health industry was in 2019.