Published on the 08/09/2022 | Written by Heather Wright
Thriving sector offers lessons in success…
Sophisticated solutions to nuanced problems are helping take New Zealand’s healthtech sector to every higher levels as the largest, and fastest-growing, secondary sector of the Tin200.
The 22 New Zealand healthtech companies in the 2021 Tin Report, which records the top 200 technology companies, generated revenue of $2.9 billion, up $738 million on last year.
“Most New Zealanders wouldn’t be aware of the economic impact it is having.”
Greg Shanahan, Tin managing director, told iStart the healthtech sector now accounts for nearly 21 percent of total Tin 200 revenue and is about $1 billion larger than the next closest sector, IT services, with revenue of $1.85 billion, closely followed by fintech at $1.80.
“It is really pulling away in terms of both scale and the contribution to total growth,” Shanahan says.
It’s a sector whose economic impact Shanahan believes most Kiwis aren’t aware of.
“Last year the healthtech sector grew by over 30 percent and created over 1,000 jobs – with an average salary of about $90,000, in Auckland alone,” he says.
While much of that revenue and growth comes courtesy of Fisher & Paykel Healthcare, with its $1.9 billion revenue in 2022, Shanahan says there are plenty of other strong contenders coming up through the ranks as well.
The newly released Healthtech Insights Report lists 168 companies across the sector.
“The heart of the ecosystem is really in Auckland and what is happening is you’re getting this pool of talent coming from larger companies into some of the smaller companies, bringing that expertise,” Shanahan says.
Among the up-and-comers are Formus labs, which has created the world’s first fully-automated 3D planner for joint replacement surgeries; Helico Bio, which aims to develop plant-based biopharmaceutical production; Exsurgo, whose Axon headset to harness brain data and help people manage chronic pain, has been trialed in the UK and Auckland; and Alimentry, which developed a wearable device to aid diagnosis of gastric disorders.
“There is quite a diverse range of companies coming through,” Shanahan says.
The sweet spot for the sector lies in devices, rather than pharmaceuticals or digital, though Douglas Pharmaceuticals is New Zealand’s second largest health tech company, with Orion Health, third, giving each of the three main categories a top three player.
Shanahan notes that the capital required for drug development is generally outside the scope of the appetite of most New Zealand investors, while the barriers to market entry for digital are lower, requiring companies to scale more quickly.
“With devices you’ve got more sensible competitive advantage for significant levels of investment and some business to business opportunity with investor money knowing there is going to be a return at the end of it once a technical problem has been solved,” he says.
And there’s another key factor to healthtech’s winning formula that Shanahan believes other parts of the technology market could learn from, and that’s those sophisticated solutions to nuanced problems.
“If you look at the successful companies, increasingly they’re going after large opportunities where they have a sustainable competitive advantage as opposed to relying on first mover advantage. And they can be profitable sooner rather than later.
“That has really been the hallmark of a lot of these companies where they have got sophisticated solutions to quite nuanced problems that other people haven’t solved, and then taken that successfully to market.”
The sector isn’t without its challenges and the old chestnut of the difficulty effectively engaging with the local healthcare sector, remains. There are plenty of companies with tales to tell of having to go off shore for their first sales before achieving any local success.
“Things are changing. There is some good collaboration happening. But we’ve got an overtaxed healthcare system with not a lot of bandwidth to engage with the private sector,” Shanahan says.
He’s hopeful the restructure of the New Zealand healthcare sector, with the end to district health boards and a new ‘whole of country’ view via Health New Zealand and associated entities, will bring some positive change, but notes too that it could also further preoccupy the system for some time.
A second historical barrier, of low appetite for healthcare investment, is, however, rapidly chaning.
While investors were traditionally reluctant to view healthcare as an investible opportunity given the lack of transparency on how long it would take to scale the business – with issues around how long it would take to get compliance and for hospitals to take on new technology – Shanahan says that has all changed, with Covid in particularly helping drive the change.
“With the success of some of these companies like F&P Healthcare [with revenue up 56 percent, or $797 million, last year] and Pacific Edge [up 101 pecent], BioTechnology and the growth of companies like Aroa Biosurgergy and Volpara, investors are making money out of healthtech.
“If you look at the wealth generated just by the gain to F&P Healthcare in the past five years, there is a lot more confidence and a lot more funding not just in New Zealand but overseas.
A growing number of Australian funds are also providing fertile grounds for Kiwi companies.
“We’re seeing new funds for life sciences coming almost every month or second month and that’s recognition that things are changing quite dramatically in the healthcare space and it’s becoming a core sector to invest in,” he says.
One big point of difference for the healthtech sector versus most other tech sectors, is the volume of offshore sales. Nearly 91 percent of healthtech revenues are from exports, primarily to North America, Europe and Asia, which accounts for a surprisingly large 19 percent.
“Healthtech is a sector of the future and it will continue to grow.”
