3 ways to invest in Canadian telehealth growth

The COVID-19 pandemic has accelerated several trends, one of which is the transformation in the way Canadians interact with their doctors and other medical professionals.

As more people work from home and try to avoid public places, fewer are taking the time to visit their doctors in person. Doctors’ offices were closed in the spring, but have since reopened. Even so, many people are now sticking with visits by phone or video calls as a convenient and satisfying option for their basic health care needs.

“COVID-19 has broken down a lot of telehealth barriers,” says Cameron Burke, managing director, technology sector, at PwC Canada. “What people were predicting would happen over the next three to five years happened in a matter of six months.”

Virtual delivery of health care includes 24-hour access to doctors, nurses and pharmacies via a computer or smartphone app. Practitioners can diagnose and treat common ailments, refer patients elsewhere and connect with pharmacies via these means. Virtual health care also includes the behind the scenes record and booking management systems, which schedule appointments and bill for services.

Daniel Sacke, vice-president and wealth advisor with The Sacke Wealth Advisory Group at BMO Nesbitt Burns Inc. in Toronto, points to a recent report from research firm Global Market Insights Inc. that says the global market for telemedicine services is expected to surpass US$175-billion by 2026. He cites another statistic from Forrester Research that says virtual health care interactions will exceed a billion by the end of this year.

PwC Canada tracks digital health care startups in Canada and, in collaboration with CB Insights, recently highlighted the top 51 venture capital-backed companies. Mr. Burke says Canadian health care startups raised US$300-million this year thus far, roughly double the amount raised in all of 2019.

Although these companies are privately owned and out of reach for advisors and investors, there are a few opportunities in the space worth considering.

Telus Corp. (T-T) and Loblaw Cos. Ltd. (L-T) are large, deep-pocketed companies that are building on the expertise of their main businesses to branch out into telehealth.

Telus has been involved in the area since 2007 and generates $800-million in revenue from its health operations. That compares with total 2019 revenue of $14.7 billion for the company. Loblaw has made two investments since September that it hopes will play to the strengths of its Shoppers Drug Mart subsidiary. It does not break out the financials of these ventures.

Telus created Telus Health with the $763-million purchase of Emergis Inc., a Montreal-based e-commerce and technology company that was an early pioneer in electronic health records. Another large acquisition came in 2018, when Telus spent $100-million to acquire Toronto’s Medisys Health Group Inc., which ran 30 high-end health clinics across Canada.

Telus is cross-promoting its health care services to its 10 million wireless mobile customers, encouraging them to download its health care app Babylon, which is free and links patients to doctors who are available evenings and weekends. These doctors can prescribe drugs by phone or video and help with referrals. The software also helps doctors manage appointments and store patient records. In most provinces, government health care plans cover the costs.

Telus doesn’t reveal the profitability of its health care unit, although François Gratton, executive vice-president and group president at the telecommunications company and chair of Telus Health, discussed the operations in a second-quarter earnings call with analysts on July 31. Mr. Gratton acknowledged the pandemic had shut Telus Health clinics in the spring and it processed fewer claims, overall. On the plus side, the unit was facing ballooning demand helped by the Babylon app.

Loblaw has been busy this autumn building on its connected health care strategy. In September, it made a $75-million investment in Maple Corp., one of the promising startups on the PwC list. The investment follows a trial that began in March in which Shoppers Drug Mart tested a Maple app and related services. This included virtual consultations through the Shoppers website for medical issues such as skin problems, allergies and infections.

Earlier this month, Loblaw announced a partnership with League Ltd., a startup that has developed an app similar to Babylon. The PC Health app enables live chats with nurses, dietitians and others who can refer users to doctors, mental health support and vision care.

Loblaw’s 2019 annual report talks about its strategy, which includes Medeo, a technology that connects health care providers with patients online. Loblaw also has an electronic medical record platform called Accuro that’s available to more than 15,000 health care providers.

A third player, although much smaller, is Vancouver-based Well Health Technologies Corp. (WELL-T), which listed on the Toronto Stock Exchange in January.

Well Health operates clinics and, like its rivals, offers an app to book appointments and clinics manage records. It has its eyes on U.S. expansion and in September, made a US$14-million investment in Circle Medical Technologies Inc., a San Francisco-based telehealth company that gives it access to 35 U.S. states.

For investors looking outside Canada, Mr. Sacke says Teladoc Health Inc. (TDOC-N), which has a market capitalization of US$18.6-billion, is the biggest U.S.-based pure telehealth play.

As an example of interest in the sector, he cites the August launch of Global X Telemedicine & Digital Health ETF (EDOC-Q), which has already attracted US$381-million in assets.

“What we have seen so far is just table stakes,” he says. “The growth in telehealth is going to be exponential.”

This is an edited version of an that article appeared in the Globe Advisor section of the Globe & Mail’s Report on Business on Nov. 3, 2020.