Private equity firms are increasingly looking at the potential of generative AI and large language models in improving medical diagnosis, drug research and development, while also finding uses for the tech in the administrative end of the sector.
PE Hub Europe spoke to two senior figures in the private equity industry about other possibilities and applications of AI in healthcare.
Opportunities ahead
BPOC, a Chicago-based healthcare private equity firm, has been implementing AI at several portfolio companies. “We have seen, for the revenue cycle example, the ability to deploy bots that are custom-built to speed up processing a healthcare claim, which provides immediate savings for some of our portfolio companies,” said Greg Moerschel, managing partner.
“There is also an opportunity in provider credentialing, a multi-step process that takes a lot of human capital,” he said.
The US healthcare system spends around $300 billion a year chasing down revenue, an inefficiency if compared to retail or financial services, said Moerschel.
“Given this, the sheer computing power AI can deliver in terms of speed, ability to gather information and consistency will be a game changer for the revenue cycle in healthcare and, in some cases, even deliver better outcomes in care delivery.”
London-based Stanley Capital is another private equity firm that is adopting the technology in its portfolio, said founding partner Simon Cottle, including in a software deal bolt-on that it is yet to announce.
The firm is also using generative AI and conversational AI in Qinecsa Solutions, a London-based pharmacovigilance software business. It acquired Qinecsa in 2022. “It is 40 percent SaaS now and may even be 50 percent by year-end,” Cotttle said.
Qinecsa uses AI to process adverse event data. “It is the data that gets recorded when a drug doesn’t do what it says on its label,” he said. “We then create a digital chain of safety evidence.”
Qinecsa added on Commonwealth Informatics in December.
Stanley Capital does not view companies developing AI outright as an investment opportunity, however. “We wouldn’t invest in a horizontal provider of generative AI as it is a non-buyout investment,” said Cottle.
Diagnostics is another big opportunity for gathering and accumulating knowledge on certain conditions via AI, and using it to predict outcomes and care pathways, said BPOC’s Moerschel. “In the bigger picture, we have a very homogeneous population from a health standpoint, but very heterogeneous ways to care for people. This is the AI opportunity.”
He believes that the computing capacity of AI will give more precision in diagnostics at a patient level. “Some of this is not new, and regulation will have to be re-calibrated to accommodate AI, but it is an obvious opportunity for the future.”
Pharmtech in good health
The growth in pharma software is in part because the sector does not really operate on a biannual or annual outlook, said Stanley’s Cottle. If looked at cycles of five to seven years, the sector outlook is very positive, he said.
The valuation picture is slightly mixed, however.
Moerschel said valuations in the buyout world are bifurcated in that the best companies are still trading at 2021 levels and everything else has seen valuations come down. “That’s a function of the cost of capital and the availability of capital really on the credit side.”
Some publicly listed companies such as Nasdaq-listed Certara have shaken off a drop in valuations suffered by peers over the last 12 months.
“You saw what was basically a share price evolution which saw it go or move down from around about 29 times EV/EBITDA to around about 19x EV/EBITDA,” said Cottle. “Today, it is now back at around 30x EV/EBITDA. Clearly this was different in the private markets where valuations didn’t really change.”
Certara is a US drug developer that uses computer-assisted simulation of biological systems, a technique known as biosimulation, to create its products.
Deal volume had a dramatic slowdown in the last six months, down significantly from the prior year. “We do anticipate that picking up in the second half and into 2024 given the amount of dry powder on the sidelines,” said Moerschel.
“Whilst not quite a golden era, we see high levels of software adoption and penetration by pharma for some time to come,” noted Cottle.
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