Health tech sector grappling with low growth and limited investment
New Zealand’s health tech sector eked out growth of just 2.4% last year following a flurry of Covid-era spending, but has doubled in size in the last decade.
That’s the key finding from the Technology Investment Network’s third New Zealand Healthtech Report published in collaboration with Medtech-iQ and giving an up to date snapspot of an area of tech with high export growth potential.
Information based on 233 Kiwi health tech companies found that they had collectively generated $2.62 billion in 2023, making health tech the second-largest tech vertical behind fintech, which is dominated by Xero. Our biggest exporting health tech companies include Orion Health, Aroa Biosurgery, and AFT Pharmaceuticals.
Sluggish growth
The $61 million in revenue growth last year is well below the sector’s five-year compound annual growth rate (CAGR) of 7.8%. But TIN head of research Alex Dickson, said health tech firms were adapting to a “more stable demand environment”.
“The pandemic created a high tide of healthtech enthusiasm, fuelling investment, development, and uptake. That tide has now subsided, leaving a tougher landscape of catch-up regulation, integration challenges, and scarcer investment capital,” says Dickson.
Research and development spending remained stable last year at 12% of revenue according to TIN.
“This hints at a play for longer-term, more sustainable growth,” Dickson says.
But less sustainable is the relatively low level of investment going into the sector.
Low investment unsustainable
“A pain point is the level of investment reaching early-stage companies, which is peanuts compared to the likes of Ireland, Denmark, and the Netherlands,” says Dickson.
“Commercialisation of health products is incredibly capital- and time-intensive, even for the big guys, and $67m for an ecosystem of 200-odd companies is not sustainable.”
Dr Diana Siew, strategic partnership lead, Auckland Bioengineering Institute and chair, Medtech-iQ Aotearoa Stewardship Group, says health tech development is expensive and New Zealand companies are starved of the capital they need to develop technology that can make a difference to public health at home and abroad.
“However, there are some amazing success stories already. New healthtech solutions are emerging from digital twins, physics-based AI, wearable sesnsors, and biomaterials for regenerative medicine. Formus Labs raised significant amounts for their AI surgery planning tool, as did Kitea Health for their brain-implanted pressure sensor. Kitea's technology is a world first: the smallest ever brain implant,” she says.
Key insights from the TIN health tech report
The NZ healthtech sector had global revenue of $2.62B in 2023, up 2.4% or $61m on the year prior. Growth in 2023 was below the sector’s five-year compound annual growth rate (CAGR) of 7.8% but reflects a natural adjustment from Covid highs.
89% ($2.35B) of sector revenue came from offshore. Exporters continued to find value in North America and Australia, with total earnings of $993m (up 9%) and $205m (up 15%), respectively. This was balanced by negative growth across Europe (down 6%), Asia (down 9%) and New Zealand (down 2%).
Research and development expenditure was $306m, up $2m and steady at 12% of total revenue, despite total profits falling 16% to $506m overall.
Total employment stalled in 2022 and reversed in 2023, down 5%. Collectively, companies shed 543 workers, mainly offshore, for a reduced total of 10,134 global staff. Total spending on wages simultaneously rose, up 7% to $1.01B, lifting the average healthtech salary to $99,380.
Between 2021 and 2023, total investment was $220m from a reported 82 deals. By vertical, Biotech Therapeutic companies were in the lead, securing $56m from 17 deals, followed by Digital Health companies ($50m, 15 deals), and Medical Device companies ($49m, 21 deals). A total of $67m was raised in 2023.
Photo credit: Piron Guillaume/Unsplash
