Ancillary services refer to a wide variety of healthcare provision that supports the work of primary physicians. Typically, it is broken down into three categories: diagnostic services; therapeutic services and custodial services – usually, but not exclusively, provided in an outpatient setting. The breadth of the sector, therefore, covers everything from laboratory testing to physiotherapy and hospice care.
The diagnostic services space, in particular, was red hot throughout the pandemic, due to the sheer scale of covid testing that has taken place. The question, according to Tom Allen, managing director at Advent International, is working out where that high volume will normalise.
“Diagnostics have experienced a covid bump, certainly, and it is hard to gauge what the new normal will be. When we look at the sector, we target business-specific transformation opportunities that will benefit from thematics that will continue regardless of the pandemic: companies that focus on transitioning services into an outpatient setting, for example, businesses that help people self-manage conditions at home.”
While diagnostics services saw a covid surge, social distancing measures prevented all but the most urgent in-person therapeutic provision. This had a detrimental impact on some areas of ancillary care in the short term, but a shift from hospital-based to outpatient treatment will ultimately benefit the sector. “There is a huge amount of innovation and change taking place in the ancillary care space, not least in the area of digital and tele-care,” adds Kristin Pothier, global healthcare leader at KPMG. “That change has been accelerated by covid but now it is here to stay.”
While the covid pandemic thrust a spotlight on the world’s biotech capabilities, for companies developing innovative new drugs or devices for non-covid illnesses, there has been a significant negative effect, with trials delayed for up to a year. This has directly affected cash runways and the ability to deliver clinical results on time.
However, Antoine Papiernik, managing partner at Sofinnova Partners, says there have also been positives. “There is an increased understanding that innovation is what is needed to solve major health issues,” he explains. “In many ways, Moderna and BioNTech have surpassed some companies that were more secure, with platforms that turned out to be less adapted to tackling a new disease. Innovation and investing in healthcare innovation have become important and the perception of the risk involved has changed.”
Vincent Guillaumot, partner at healthcare specialist investor ArchiMed, agrees that covid has emphasised biotech’s status as a critical industry. “Making sure we can easily and flawlessly produce pure, high-quality materials for viral vaccines on a massive scale will be key to protecting the world from future pandemics,” he says.
Ling Yang, MD at Carlyle, believes that emerging markets continue to represent a major opportunity. “We believe that China biotech is at the beginning of a multi-decade boom, due to an under-penetration of biotech drugs in China and the government’s significant investment into R&D as it looks to close the innovation gap with global markets,” she says, citing Carlyle’s investments in biopharma company Salubris in 2020 and oncology biotech company Abbisko Therapeutics, in 2021.
C is for covid-19, but it could just as easily have been for competition. “We have seen a significant increase in competition for assets throughout the pandemic,” says Ben Long, partner at Inflexion Partners.
“Fortunately, the sector is huge, representing 14 or 15 percent of GDP, and private equity is currently just a small proportion of that, equating to 8 percent of transactions completed in Western Europe. But, particularly for high-profile businesses, often those that are already private equity-owned, the competition is really intense right now.”
Apposite Capital founding partner David Porter agrees: “Healthcare tends to fare better in a crisis than other sectors. The fundamental problems of age, obesity and dementia, for example, carry on irrespective of the economic climate, and in fact in some cases get worse.”
Of course, covid has not unilaterally led to an increase in demand for all areas of healthcare. “Cough and cold medications are still experiencing depressed volumes, elective surgery volumes are also down, which flows through to service and product providers,” says Advent managing director Tom Allen. “That means a huge amount of data analysis needs to go into due diligence if you are to accurately predict performance.”
Apax Partners healthcare partner Arthur Brothag adds: “There has been a rotation from investment in healthcare services into healthcare products, as patients have been unable to receive certain treatments. Prices have been driven up most in areas like pharmaceuticals.”
Covid has dramatically accelerated the digitisation of every aspect of our daily lives and healthcare is no exception.
“With social distancing measures in place throughout many areas of the world, the efficient management of patient flow via the use of digital solutions has become more important than ever,” says Jan Pomoell, co-head of Triton’s health team.
“Certain medical tests can now be carried out virtually and treatments can be put in place at an earlier stage, thus increasing quality of life whilst maximising cost efficiency,” Pomoell adds.
Vincent Guillaumot, partner at ArchiMed, says that the most promising areas of digitisation in healthcare include remote monitoring and testing; tracking the development of symptoms; evaluating the effectiveness of commercialised treatments and following and evaluating clinical trials. An ArchiMed portfolio company, Vita Health, for example, has used digitisation to create virtual reality tools to treat jab phobia, chatbots to improve triage of people in need of psychological support, as well as remote coaching for people with mental health issues.
“We’re going through a time of rapid change around what it means to be a technology-enabled or digitally native healthcare business – from the way companies use technology to deliver care to the use of data and predictive analytics,” says Karthic Jayaraman, partner at TPG Capital. “Looking ahead, it’s our view that value will accrue not in one platform or channel, but in the full network.”
With an ageing global population and universal pressure on public spending, the opportunity for private equity investment into care for the elderly has long been evident on both sides of the Atlantic.
Whether focused on stationary support to older people via care homes or ambulatory services that allow people to stay in their own homes, investors can benefit from growing demand and add value by enhancing the sophistication of offerings, building scale and expanding their suite of services.
In North America, Apax partner and co-head of the healthcare team Andy Cavanna sees eldercare migrating to lower-cost centres and into the home: “There’s a clear trend that people want to stay in their own homes.”
He sees three ways to grow the business, saying that the existing centres are underserving their local markets, there is an opportunity to open new sites and there are M&A possibilities.