After the Covid-19 pandemic reached Europe in early 2020, the German healthcare market went into a brief shock paralysis along with the entire country. Several ongoing or planned transactions in the healthcare sector were abruptly cancelled or postponed. After only two or three months, this changed again dramatically, as stakeholders quickly realised that answers to the pandemic could be found in healthcare – and for investors, in the healthcare market. A primary focus was on testing, and clinical labs were suddenly more on the radar screen than possibly ever before. This created a basis for an IPO of Synlab in April 2021 and, finally, the long-awaited sale of Amedes by Antin in July 2021.
Any company developing drugs or vaccines against Covid-19 received investors’ focus. This was globally true for Gilead, GSK, Merck&Co, Regeneron and other pharma companies.
In Germany, the Nasdaq IPO of CureVac in August 2020 attracted particular public attention. It succeeded the Nasdaq IPO of its competitor BioNTech in October 2019. Pre-Covid-19, the public had hardly noticed this IPO.
When CureVac prepared its IPO in spring 2020, both it and BioNTech appeared well positioned to be among the first companies to put an mRNA-based vaccine against Covid-19 on the market. While BioNTech achieved this, the CureVac product is not yet on the market, and the latest clinical trial results indicate an effectiveness of only 48%. This has obviously affected the market price of CureVac shares, although, in absolute numbers, not as badly as one might think. Thus, the current share price is approximately where it was upon its first listing a year ago, whereas the BioNTech shares issued around the IPO at about 14 USD increased to 447 USD on August 9, 2021.
The different developments of the CureVac and BioNTech stock prices demonstrate how difficult or even impossible it is to predict the future valuation of a new innovative drug and new technology producer.
Therefore, many financial investors focusing on healthcare assets usually do not look at developers of new innovative drugs. Over the last year, more than ever before, many investors focused on health service providers such as specialty labs and other outpatient physician services providers, including orthopaedic, dermatology, renal care, oncology, cardiology and other internal medicine clinics, each to be established in the legal form of a Medizinisches Versorgungszentrum (MVZ). In sectors which had already experienced several transactions pre-Covid-19, secondaries (diagnostic imaging and dental) or even tertiaries (Amedes) took place.
The mental health sector attracted particular attention from investors. This focus had started pre-Covid-19 (most notably, the acquisition of Oberberg by Trilantic). But financial investors’ interest grew because of a perceived increased need for mental health services during and after the various lockdowns that the country experienced.
Because of MVZ regulatory requirements, all investors that want to acquire outpatient clinics need a licensed hospital entity as an acquisition vehicle. Therefore, hospitals that many health economists would recommend to close, and which in pre-Covid-19 times would have been difficult to sell, were put on the market at staggering prices. Financial investors have not bought everything that was up for sale at challenging evaluations, however. An investor that intends to establish a high-quality outpatient clinic network needs their hospital to render quality services. The market has taken note, and prices for some vehicle hospitals recently seem to have somewhat declined.
Not surprisingly, the telemedicine and digital health sectors also received a boost during and after the various lockdowns. Both have long been on their way to becoming key markets, in particular as the German legislature has created the necessary regulatory framework. Legal obstacles to remote medical treatments have been abolished, and German Parliament passed a law in 2019 to provide for coverage of medical apps by public payers. To be reimbursed, medical apps must be prescribed by doctors, but the thresholds for such prescriptions are relatively low.
The pandemic has given telemedicine and use of medical apps a further boost. In the expanded telemedicine market, several digital health concepts have emerged. These include software applications that individuals can use in their everyday lives to prevent or treat illnesses. Such applications increasingly provide real medical advice and address, for example, obesity, depression, and neurological disorders and diseases. In the Covid-19 pandemic, these applications have gained considerable practical relevance.
So far, a strong start-up scene still characterises the German digital health industry, but that scene’s true potential still has room to further materialise, as parts of the medical profession have traditionally viewed the concept of digital medicine with scepticism. This has also changed under Covid-19. Therefore, the industry has increasingly become an attractive field for investors, who aim to set up integrated health solutions combining traditional healthcare in different sectors with telemedicine and medical apps.
One striking example of the development of an integrated digital health model was the acquisition of Teleclinic, a telemedicine provider established in 2015, by Zur Rose, the shareholder of the largest and best-known online pharmacy, DocMorris, in summer 2020. Both companies declared publicly that they intend to offer a combination of telemedicine services with the issuance of e-prescriptions and the provision of mail-order drug services.
Likewise, artificial intelligence (Al) and machine learning continue to grow and have been largely unaffected by the Covid-19 pandemic. Rapid developments in these fields will significantly benefit many medical areas, including drug development, diagnostics and personalised diagnostics, and personalised medicine, in the coming years. The development and production of medical AI is already one of the largest investment markets. This was exemplified, among other things, by Siemens Healthineers’ strategic acquisition of Varian Medical Systems, a Silicon Valley-based developer of hardware and software systems for radiation therapy.
Investments in this area are highly attractive to a wide variety of companies, such as providers of physician and hospital information systems and other information and communication technologies, manufacturers of hardware or software components for the telematics infrastructure, and service providers in the field of IT security. These companies’ business operations benefit from the ongoing digitalization of the healthcare market and from stricter regulatory requirements for all market players (for example, in data protection and cyber security). All these healthcare markets are complex and subject to special dynamics. It is therefore essential that investors study the markets carefully and keep their finger on the markets’ pulse. For the commercial evaluation of a market participant, and to be able to make a well-founded investment decision, investors need outstanding industry knowledge and regulatory expertise, probably even more than in other regulated industries. This has not changed under Covid-19.