| NEW YORK, Sept 3
NEW YORK, Sept 3 Some of the best-known
technology investors are looking beyond their tried-and-true
Internet plays to bet on healthcare data as the next growth
Venture capital firms and portfolio managers of large mutual
funds are among those investing in companies that gather and
analyze healthcare data, all in hopes of tapping into the shift
to electronic record keeping and consumer acceptance of personal
health tracking devices. Unlike biotechnology firms, which are
often hit-or-miss based on the success of drugs under
development, investors say these health technology firms tend to
have a reliable path to profits by selling services and data to
insurance companies, doctors and hospitals.
Overall, venture capital funding for healthcare technology
firms is up 176 percent so far this year, at $2.3 billion,
versus the same period last year, according to Rock Health, a
San Francisco-based seed funding firm. Most of the funds have
gone to companies focused on payment management and data
In contrast, funding for biotechs, a sector whose rally this
year has prompted the Federal Reserve to warn about a potential
bubble, has increased just 28 percent this year through June 30,
compared with the year-ago period.
Andreessen Horowitz, Qualcomm Ventures and Google
Ventures are among the venture capital firms that have
invested in healthcare technology firms this year, according to
Rock Health, while Intel Corp, General Electric Co
and Medtronic Inc have acquired digital health
Mutual funds are moving in the same direction. Among all
growth funds, healthcare investments have increased 14 percent
over the last three years, to make up 16 percent of portfolios,
according to Lipper, a Thomson Reuters company. The average
actively managed technology mutual fund has doubled the portion
of its portfolio in healthcare companies over the last three
years, but to only 4 percent, Morningstar data show.
Fund managers are finding health technology a reason to like
even industry leaders such as Apple Inc. Over the last
year, Apple has hired several senior medical technology
executives who focus on sensor technology that can monitor
health, ranging from blood-sugar levels to sleep quality.
The company is expected to unveil an updated iPhone and a
so-called wearable device on September 9, each of which will
include health sensors that power its HealthKit operating system
to share data with health providers such as Mount Sinai and John
Hopkins and electronic health records company Allscripts
Healthcare Solutions Inc.
"The line between what is healthcare and what is technology
has become blurred," said Robert Stimpson, the lead portfolio
manager of the Black Oak Emerging Technology fund.
Apple makes up the second largest portion of his portfolio.
Healthcare technology can be just as risky as other areas in
the rapidly changing tech sector. Yet fund investors say that
aging populations in the United States and Europe, along with
the transition to digital health records mandated by the U.S.
Affordable Care Act, should provide a growth catalyst for the
Skip Aylesworth, manager of the Hennessy Technology fund
, now devotes a quarter of his portfolio to health
technology companies because he expects growth in U.S.
healthcare spending. He recently bet on drug distributor
McKesson Corp largely because of its division that
provides IT services to hospitals and physician offices, and has
higher profit margins than those of the entire company, he said.
Other well-known technology funds are taking large bets on
healthcare. The $3.7 billion Waddell and Reed Science and
Technology A Fund and the $5.6 billion Ivy Science and
Technology fund each have about 14 percent of their
portfolios in healthcare funds. Zachary Shafran, the lead
portfolio manager of both funds, holds companies such as health
insurer UnitedHealth Group Inc, device maker Boston
Scientific Corp and generic drug maker Teva
Pharmaceuticals Ltd along with Facebook Inc.
"Medical technology, biotechnology, medical records and
pharmaceuticals are among the greatest innovators and early
adopters of new science and technology, so we are paying
particularly close attention to companies in those areas,"
Shafran wrote in a recent note to investors.
Kevin Spain, a general partner at Emergence Capital
Partners, said he has invested about $40 million in health tech
startups, including Augemedix, which is developing applications
that would allow a doctor wearing Google Glass to access a
patient's health records on demand. He expects more startups to
focus on health technology in the future, largely because of the
potential to disrupt established companies.
"Health care is a massive market," he said.
(Reporting by David Randall; Editing by Linda Stern and Richard