Ironwood Capital Perspective: Investment Opportunities Amid the 'Consumerization' of Healthcare

The healthcare landscape is undergoing a significant transformation, driven by the rise of consumer-centric healthcare. A surge of interest in health and wellness post-pandemic, coinciding with the GLP-1 usage boom, has led to increased demand for complementary services within broader discretionary healthcare markets. At Ironwood, we believe the $350B ¹ consumer health and wellness market is primed for strong growth ahead with an anticipated 7% CAGR through 2032 ² . Ironwood has been an active investor within the healthcare and consumer sectors for two decades, completing investments in dental, nutritional, medical device, and fitness companies.

Today, more and more patients are becoming active participants in their care, stretching the application of healthcare beyond traditional, provider-led processes. With greater autonomy and personalization, "consumerized" healthcare has motivated more consumers to seek different avenues of healthcare to look better, feel better, and be healthier.

This has generated tremendous activity across the continuum of lifestyle/self-pay healthcare market. The convergence of aesthetics and health continues to drive the growth of products and services such as concierge medicine, medical aesthetics, fitness & active nutrition, and beauty & personal care .

Positive spillover impacts can be seen in the concierge medicine and medical aesthetics markets. Concierge medicine, or membership-based healthcare, highlights one way in which patients are developing greater autonomy in their healthcare decision-making. This model emphasizes personalized care, allowing for more focused and continuous care plans as patients pay annual subscription fees to ensure access to a physician. The modern patient's ability and interest in on-demand care enables opportunities for growth of concierge medicine within both primary and specialty care.

The consumer demand for medical aesthetics has demonstrated impressive resilience and growth for the past couple of decades. More specific or niche modalities for health care are popping up to appeal to consumer needs. Notably, we predict significant growth within cosmetic dentistry and dermatology. The cosmetic dentistry market in the U.S. was sized at $11.5B in 2022, and is expected to grow at a 14% CAGR from 2022 through 2030 ³ . Cosmetic dentistry is a thriving area of elective healthcare focused on enhancing the aesthetics of teeth and smiles. Think teeth straightening, teeth whitening, dental veneers, dental implants, and dental crowns. The rising popularity of minimally invasive products like clear teeth aligners as well as surgical implant procedures propagate the ongoing demand for cosmetic dentistry and a continued push for innovation in dental labs and offices.

Additionally, dermatology has an increasing cosmetic presence across its skin health offerings. In a quickly growing dermo-cosmetics and mesotherapy market (14% CAGR from 2022 through 2028 ⁴ ), consumers are flocking to dermatologists for elective services including Botox injections, dermal fillers, and chemical peels. Some physicians are even opening specialty clinics targeted towards specific skin conditions, such as acne and rosacea, to better accommodate and capitalize on the cosmetic-derma influx.

Similarly, the demand for GLP-1s is driven as much by people wanting to look and feel better as it is by strictly medical factors. Consumers seek out complementary post-weight loss aesthetic services that push them closer to their aesthetic health goals. This is evidenced by the expansion of the medical spa ("med spa") and wellness clinic ecosystem. High demand for redefining and rejuvenating services like skin tightening, injectables, and body contouring, positions med spas and wellness clinics strongly in the retail healthcare space ⁵ . An increasing number of people are incorporating med spa treatments into their lives, with an average of 73% of med spa patients being repeat patients ⁶ . With the industry continuing to expand, it's likely that the percentage of repeat med spa users will incrementally increase. Entrenched clinics or platforms are attractive investment opportunities given their lack of reimbursement risk and client/patient retention leading to re-occurring revenue models.

Furthermore, the "wellness wave" presents opportunities for sectors within the fitness industry, including gym operators and nutritional supplement packaging, distributor & manufacturer organizations (PDMs). GLP-1s aren't a one and done solution for individuals looking to lose weight. It requires consistent usage over a long-term horizon in order to achieve sustained weight loss and improvements in overall metabolic health. Therefore, it's crucial to use GLP-1's in conjunction with a healthy eating and exercise program/routine to achieve lasting results. Nutritional support programs and active lifestyle supplements, including proteins and multivitamins, are rapidly expanding markets fueled by a consumer paradigm shift towards self-betterment through nutrition, hormone balance, and lifestyle changes ⁷ . As investors, we recognize that consumers continue to seek holistic solutions that serve long-term goals, and the fitness and active nutrition industries present remarkable growth potential.

Beauty and Personal Care (BPC) is another segment of interest that has revamped its market position at the intersection of healthcare and cosmetics, offering products coined "cosmeceuticals". Consumers look to "cosmeceuticals" to not only enhance their appearance but also for health benefits like UV protection, skin repair, and anti-aging. The broader healthcare sector has seen successful investment activity building out Contract Development and Manufacturing Organizations (CDMOs) and Contract Manufacturing Organizations (CMOs), and there are attractive opportunities to invest and continue growing those markets (CDMO & CMO) servicing the BPC industry. Consumer appetite for BPC products exists across multiple price points, alongside a mounting consumer preference for natural and sustainably-harvested product formulations. This has greatly benefited the projected growth of BPC CDMOs/CMOs (6.5% CAGR from 2018 through 2030) and pushed such companies to gain specialized knowledge in sourcing, processing, and formulating natural ingredients, as well as investment in innovative technology, all to strengthen their differentiation and relationships with customers ⁸ . With few large consolidators and a great number of available assets, we believe the BPC CDMO/CMO market has a compelling investment thesis benefiting from BPC industry's tailwinds, innovative capabilities, and a lack of risk tied to a single brand or retailer.

All of these factors contribute to a consumer healthcare market that is attractively positioned for continued success due to fast growing markets, limited reimbursement risk, and sticky, diverse, and demanding consumers. The dynamism of the consumer health and wellness industry opens the door for middle-market brands, aggregators, and innovators, creating a compelling investment opportunity. We at Ironwood have extensive experience in the consumer healthcare sector with an active investment in Espire Dental, a DSO with cosmetic dentistry services, and previous investments in Elite One, a nutraceutical manufacturing company, and Healthtrax, a specialty gym chain. We are excited about the opportunities to come in the age of consumerized healthcare and are actively looking to invest further at this intersection.