Tech Advancements in Dx/Tools Draw Powerful New Players

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This year has been a breakout for top tech firms making substantial investments in the next generation of medical diagnostics and tools companies (Dx/Tools). Dx/Tools companies are redefining innovation and investment trends by increasingly integrating tech advancements such as next-generation sequencing (NGS) and artificial intelligence (AI) into their technologies. Sensing enormous opportunities in healthcare, tech giants, with enormous cash reserves and computational resources, are stepping up their activity in this space. This is just the beginning, and we expect these giants to drive sector growth for the next decade.

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Look for this sector to change in the following ways: 

  • Large tech companies, including Alphabet (through Verily), Amazon, Apple, IBM and Samsung, will continue making significant venture investments.
  • Current tech and Dx/Tools giants will follow Big Pharma’s lead in fueling their R&D through venture investment and subsequent acquisition of early-stage companies.
  • This investment activity may lead to a land grab that could provide significant exit upsides and end the current Dx/Tools exit drought.

The racehorses have already left their gates, and the next steps for these tech companies will include more selectively defining their niches in the healthcare industry and then building both the infrastructure and partnerships necessary for them to eventually dominate their niches.

Amazon’s March 2017 investment in GRAIL signals further activity by this giant in the healthcare space. As NGS and AI lead to increased Dx/Tools investments, cloud computing will help process the resulting big genomic data sets. Look for Amazon Web Services to be continually used as the cloud computing backbone in big data approaches for therapeutics development and genomic diagnostics.

To date, tech investors have typically invested in Dx/Tools companies in generalist-dominated syndicates. These investors appear to be drawn to companies that are leveraging big data sets to create technologies for biopharma R&D and diagnostics. Signaling the beginning of the convergence of life science and technology investors, Amazon joined established healthcare investors ARCH Venture Partners and Johnson & Johnson in GRAIL’s Series B. Looking ahead, collaboration among tech and healthcare investors seems natural: It would create an enhanced team to take advantage of technical expertise and experience in healthcare market approval and adoption. 

Apple’s August 2016 acquisition of Gliimpse, a personal health data platform, complements its HealthKit and ResearchKit mobile developer environments. Apple’s huge iPhone user base advances these platforms, and adding biosensors into iPhones through internal R&D or external acquisitions would allow Apple to dominate the consumer preventive care market.

Exactly where Alphabet is headed in this dynamic industry is hard to predict. Google established Verily as its medical device subsidiary during its transition to Alphabet in 2015. In August 2017, Verily entered the biomarker diagnostic space by buying Senosis Health, which collects and monitors personal health stats through smartphones. Verily’s April 2017 debut of Study Watch, which passively tracks biosignals like heart rate and EKGs for medical research, provides more evidence of Verily’s expansion. Look for Alphabet to continue shifting to Dx/Tools through Verily by leveraging medical researchers’ need for big data analytics and research tools.

As we discuss in our new report, Technology Advances Redefine Promise of Dx/Tools, we believe there could be a dramatic shift in the Dx/Tools sector’s leaders. While today’s giants like Roche and Illumina should maintain their leadership position, expect Amazon, Apple and Alphabet to join their ranks. Through these innovators, consumers, companies and investors will all benefit from the realization of early disease detection and personalized medicine.

Ritish Patnaik, consultant to SVB, and Thomas Joyce, SVB Senior Associate, contributed to the research and writing of this article. 


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About the Author

Jonathan Norris is a managing director for business development in SVB's Healthcare practice. Norris oversees business development efforts for banking and lending opportunities as well as spearheading strategic relationships with many healthcare venture capital firms. He also helps SVB Capital through sourcing and advising on limited partnership allocations.

In addition, he speaks at major investor and industry conferences and authors widely cited analyses of healthcare venture capital trends. Norris has more than nineteen years of banking experience working with healthcare companies and venture capital firms.

Norris earned a bachelor's degree in business administration from the University of California, Riverside and a juris doctorate from Santa Clara University.