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Partners for Prosperity, Inc.

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Investing in Health Care

Venture capital expenditures are up for biotech products, but not for health care as a whole.

| BY Kent McDill

The healthcare industry has increased in size to parallel the increase of aging adults as the back end of the Baby Boomer generation approaches 60.

Assured growth would almost certainly guarantee growing investment. By definition, the Affordable Care Act, better known as Obamacare, is designed to create more Americans with health insurance, which would mean more Americans seeking medical care, which is likely to increase the value of healthcare industry staples like medical device makers, hospital bed manufacturers, and hospitals themselves.

Hospitals often end up paying for the care of uninsured patients. With a greater percentage of Americans holding health care insurance, hospitals are more likely to increase their revenue.

The healthcare industry is growing in terms of employment figures as well. The U.S. Bureau of Labor Statistics says the industry will increase employment by 3.2 million jobs between 2008 and 2018. Home health care services and diagnostic laboratories are expected to be the sub-industries with the highest pace of job growth, reaching a 40 percent increase through 2018.

When the Labor Department released its 2013 report on Occupational Outlook, it examined 800 different specific occupations, and out of the 30 with the greatest expected growth, 17 are in the healthcare fields.

Yet, there are reports indicating that investment in health care has dropped in recent years. A Feb. 2013 report issued by PricewaterhouseCooper and the National Venture Capital Association, using data from Thomas Reuters, showed that venture capital funding for the life sciences, which includes the burgeoning field of biotechnology and medical devices, dropped 14 percent in 2012, and investment deals dropped 7 percent.

The number of Life Sciences companies receiving venture capital funding for the first time in 2012 was 135, the lowest number since 1995.

“Global uncertainty, capital intensity, regulatory risk, and more discriminating investors were all potential factors that weighed on sector performance for the year,” said Tracy T. Lefteroff, global managing partner of the venture capital practice at PwC US.

Such investment numbers argue against the success of the healthcare industry as an investment. In fact, venture capital investment in biotech companies rose by $4.5 billion from 2012 to 2013.

Health care stocks were the second-best sector in 2013, with an average performance increase of 38.7 percent over the calendar year. One month into 2014, health care was the No. 1 sector.

In a 2013 Spectrem’s Millionaire Corner study of Ultra High Net Worth investors with a net worth between $5 million and $25 million, health care was the No. 1 industry investors would look toward for future investment.

Asked the question “if you had money to invest, in which of the following types of companies or industries are you most like to invest?”, 51 percent said “health care” while 50 percent said “technology” and 41 percent said “pharmaceutical.

When the investors studied by Spectrem were segmented by occupation, 79 percent of senior corporate executives said they would invest in health care.

There are two kinds of investment in health care, and they provide entirely different interest among investors.

Established health care companies that have already had products or drugs approved are easy landing spots for investors. Prior successful interaction with the U.S. Food and Drug Administration is considered a plum factor in investment strategies.

A developmental company that has to concern itself with possible regulatory dismissal seems more like an all-or-nothing proposition.Investment in established healthcare providers and ancillary firms seems safe. Investing in startup medical care companies is obviously less secure.

However, a New York-based financial firm named Poliwogg wants to promote investing in health care by creating a system that allows investors to pick the businesses they invest in rather than putting money into a healthcare fund that uses the funds for a variety of companies.

Poliwogg has created a healthcare crowd-funding site known as CircleUp, in which healthcare startups have been vetted by Polliwog for investment, with companies looking for as little as $2 million to $10 million.

“Part of the idea here is that people want to invest in the things they care about, but they haven’t always had the opportunity to invest in them,’’ a Poliwogg official told MedCityNews. “We’re giving people the opportunity to put their money where their passion is.”

Healthcare investing is complicated by the complexity and diversity of the products and services provided in the market. But there are segments that are considered better investment concerns than others.

Becker’s Hospital Review is produced by Becker’s Healthcare, a leading source of business and legal information for healthcare industry leaders. According to the review, the top areas for private equity investment in health care for 2014 are:

Hospitals and health systems.

Pain Management Clinics.

Anesthesia.

Urgent Care.

 

 



About the Author


Kent McDill

kmcdill@spectrem.com

Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for www.nba.com. He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.

In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.

McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.

McDill is the father of four children, and an active fan of soccer, Jimmy  Buffett and all things Disney.

 


 

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