HealthTech: Trends and Challenges
In a recent internal webinar, DLA Piper and Global Data looked into the shifting landscape of HealthTech: the statistics, trends, observations and projections. This article introduces a series of articles which will look at the trends and legal issues in the industry, and take a deeper look at the following key sub-sectors:
- Software as a medical device (SaMD);
- Artificial intelligence / Machine Learning (AI/ML);
- Wearable Technology; and
- Big Data.
The HealthTech Market
HealthTech continues to show marked growth globally, as evidenced by increased digital health IPOs, venture funding, and consumer demand. In a recent Economist article quoting CB Insights, investments in digital health start-ups have nearly doubled from approximately $32 billion in 2020, to $57 billion in 2021. Out of GlobalData’s proprietary ranking of 10,000 top startups, 120 Healthtech startups globally are shortlisted, of which 50 startups are predicted to become future unicorns (valuation of over US$1bn). Out of CB Insights' Top 150 Digital Health Companies 2021, 17 are unicorns and as of 19 November 2021, those 150 companies had raised $9.2B in equity funding across 153 deals including 31 mega-round ($100M+) equity investments and three occasions on which $400M was raised in a late-stage equity deal. HealthTech companies continue to trade at healthy multiples.
A report by GlobalData shows that digitalization is driving the top deals. Increased availability of electronic health records, technological advances (which increase capability and/or decrease costs) and increased consumer acceptance of digital healthcare (particularly during the pandemic) have fuelled growth in this sector. Value-based care investment is viewed favourably in the era of sustainable business and the pandemic has highlighted the importance of business diversification, making the sector attractive to investors.
Patients are becoming consumers and looking to access different modes of healthcare, with a greater emphasis on personalised, predictive and preventative healthcare, as well as diagnosis and treatment with precision. So-called “P4 Medicine” (predictive, preventive, personalized, participative) represents the cornerstones of a model of clinical medicine, which offers concrete opportunities to modify the healthcare paradigm: the individual‘s participation becomes the key to put into practice the other three aspects of P4 with each patient. An active involvement of patients is necessary to guarantee effective self-management. It includes sharing decisions with patients for their clinical-therapeutical approach, the use of novel technologies to implement the patients participation in the disease management, to obtain significant and relevant improvement in patient reported outcomes, such as quality of life and disease control.
Health vs Tech Clash
From a regulatory perspective, healthcare and technology are at odds. The Theranos saga highlights the potential clash between Silicon Valley's "Fake it 'til you make it" disruptive attitude and the intense scrutiny required in the healthcare and life sciences sector.
The pharmaceutical and medical device industry is intensely regulated, but regulation of technology is notoriously lagging, as it struggles to stay ahead of the disruptive, fast paced, dynamic nature of the sector. As a result, the meeting of these sectors in HealthTech presents several legal challenges including lack of, and fragmentation of, regulation (particularly relating to evidencing claims, classification, certification and pre-market approval requirements); market definition and segmentation; protection, bias and accuracy of data; potential liability/responsibility; and complications around intellectual property protection. The particulars differ depending on the sub-sector, but some are shared across HealthTech generally. These are broadly addressed below and specifics relating to each sub-sector will be addressed in later articles in this series.
Legal issues in HealthTech
At DLA Piper, we define HealthTech as any tech-enabled healthcare product or service that:
- engages consumers or patients to optimise their health and wellness
- captures, stores or transmits health data; and/or
- supports life sciences and clinical operations/decision-making.
Tech-enabled healthcare products and services are software, data and physical solutions that are enabled by technological innovations outside of the healthcare sector – such as AI and machine learning - but that support new opportunities within the sector for data generation and analytics, digital diagnosis, treatment and management.
Marketing and targeting products towards "wellness" or "fitness" rather than a clinical purpose can reduce regulatory burden significantly. However, such products can be difficult to categorise (see the discussion on Fitbit or the Apple Watch) and some would argue should all be treated as medical devices, and therefore subject to the relevant regulations. The importance of this legal distinction will be expanded on later in this series, particularly in relation to wearables.
Fragmented and Outpaced Regulation
To avoid wasted or repeat sunk cost, businesses need to ensure they are compliant with the laws of all jurisdictions they intend to market in. This includes being cognisant of changes to applicable laws which may take effect between the point of conception and time of launch.
Laws regulating HealthTech differ depending on the type of product/service. Even within the EU, there is fragmentation as a result of differing product assessment, classification and approval systems and standards. Differences in IP and data protection laws as well as those relating to national security can also be relevant. Whilst initiatives are being launched and proposed to harmonise and coordinate these areas, they remain complex. Failure to comply can be incredibly costly.
There is much consultation around how AI/ML, software and Big Data should be governed as well as new laws that may be required on data protection and cyber resilience. Whilst there are laws in place in these areas, the nature of technology means these are often outpaced or do not adequately accommodate cutting-edge technology.
Data privacy, bias and accuracy
Countries are adopting data protection rules that make clearer to consumers, entrepreneurs and investors what data can be shared with whom and how. The EU General Data Protection Regulation (GDPR) has influenced data protection laws globally but these still differ in important aspects nationally, and non-compliance carries steep fines.
As HealthTech involves health data (which is special category data under the GDPR and must generally be treated more carefully) and data subjects (users of HealthTech) may well be vulnerable (whether due to ill health, age or other factors), regulation around data processing by/for HealthTech is particularly strict. More stringent measures will likely be required to protect users’ data privacy. In addition, users may be heavily reliant on the continuity of HealthTech products where they provide healthcare. Business continuity and interoperability therefore become more important. As data is increasingly stored on the cloud, methods of ensuring continuity such as SaaS (software as a service) escrow agreements might be relevant for instance.
The 'GIGO' principle: "garbage in, garbage out" is relevant to any HealthTech product reliant on data. To this end, data input must be as accurate, unbiased and representative as possible to ensure good output. As touched upon in a previous Cortex article, HealthTech products run the risk of amplifying health disparities because the data they use or are trained on, do not represent the medical diversity of the consumer or patient population.
There are elements of multiple different types of liability which come into play in HealthTech: product liability, liability and responsibility for the actions of software/algorithms/AI, as well as individual and corporate liability. Risk areas differ depending on the HealthTech sub-sector and will be explored further in this series particularly in relation to AI/ML and Telehealth.
Intellectual Property Protection
The patentability and extent of any patentability of software and methods of medical treatment or diagnosis differs between jurisdictions. As HealthTech concerns both of these aspects, it is a contentious and grey area in terms of patent protection. Whilst a drug may be patented (assuming it is inventive), the prescription of it by a clinician is not patentable. Similarly, a scalpel may be patented but its use to perform surgery may not.
Design rights, copyright, trade marks and protection as confidential information (trade secrets) also offer potential protection for HealthTech.
Knowing what can and can’t be protected using which IP rights and the costs and potential value in IP is a key challenge which must be considered early on in the design process. Companies operating in the HealthTech sector should be aware at every step of the value chain and product life cycle of how best to protect their IP in these grey areas both contractually and in terms of how any IP applications are framed.
Intellectual property ownership is key to determining value. Investors will want to know that the rights to the product have been protected, if possible via registration, to the greatest extent possible. To this extent, confidentiality and IP provisions need to be set out in all relevant contracts governing the entire value chain and all relevant parties. This includes, for instance:
- establishing the parties' relative IP ownership (over existing and/or future related IP developed under or as a result of any contractual/commercial relationship) particularly when contracting for the co-design and manufacture of new products;
- ensuring confidentiality prior to and during any trial or testing; and
- establishing what IP rights are to be licensed by which relevant party and how broad any such licence should be.
Where IP position is not properly considered and provided for in contractual arrangements, later assignment may be possible but invites contention, and funding opportunities may be lost in the meantime. Similarly, where confidentiality is not strictly maintained, opportunity to register for IP protection may be lost.
In the coming weeks, we will explore the above legal issues in more detail in relation to specific HealthTech sub-sectors. Given the novel, disruptive nature of this market, the legal issues range from the theoretical to practical. We will discuss those most relevant to companies operating in each field, highlighting how best companies can benefit and grow in this nascent market.
 CB Insights 'The Digital Health 150: The Top Digital Health Companies Of 2021', December 2021, available here. Further statistics and figure taken from RockHealth's report "2021 year-end digital health funding: Seismic shifts beneath the surface" available here.
 See for instance the EU's adoption of Regulation on Health Technology Assessment (HTA) or the UK's pilot Clinical Trials of Investigational Medicinal Products (CTIMPs) which hopes to align with European regulation.