If digital health investments are on a bubble, there is no evidence
Wednesday, April 18, 2018
Digital health funding for 2018 is on pace for a significant year, the oracle of such data, Rock Health, has pointed out. This comes after a stellar 2017, which the firm has named "the biggest year in venture funding."
The first quarter of 2018 found secure footing for digital health startups with the addition of $1.62 billion in funding, including three $100 million deals. This young year has 77 total digital health deals (by the firm's definition, which varies from the way other such firms process their data on deals).
Because of this plethora of activity, the first quarter of 2018 "supplants Q1 2016 venture funding — $1.41 billion — as the largest Q1 yet."
"As the digital health sector matures, investors have become more confident investing in large, late-stage rounds. Last year saw a record eight mega-deals completed, followed by three mega-deals already in 2018," Rock Health's quarterly report notes.
The megadeals of 2018 include:
- HeartFlow, which creates 3-D models of coronary arteries to help providers detect coronary artery disease, raised $240 million
- Helix, a consumer genetics marketplace spun out from Illumina, raised $200 million
- Collective Health closed $110 million to accelerate development of their health benefits solution for employers
Digital diagnosis of disease was the most-funded among digital health companies, bolstered by the HeartFlow megadeal. Monitoring of disease, the second most-funded value proposition, also had the most deals at 13. Consumer health information — technology used to help patients navigate the healthcare system and their own health — continues to be a top-funded value proposition as well, with Helix leading the way.
So far to this point in 2018, 182 disclosed investors have contributed to 77 deals, Rock Health says. Traditional VCs are the most prominent investors in the digital health space, accounting for 64 percent of all investor transactions in deals with at least one disclosed investor. Corporations making investments are the next most active type of investor, accounting for 17 percent of investor transactions. Private equity firms account for 5 percent of investor transactions.
Providers (hospitals, health systems and physician practices) account for 24 percent of all corporate investor transactions in deals with a disclosed corporate investor. Likewise, biopharma companies accounted for 13 percent of corporate investor transactions, followed by payers at 12 percent.
Providers also are heavily involved with investment possibly in part because there are "just more startups selling to providers than any other customer." Sixty percent of digital health startups funded in 2017 were selling to providers, compared to 20 percent selling to payers and 15 percent selling to biopharma.
"In other words, the business value provided by startups most aligns with hospitals and health systems, and so is likely to be of most interest to provider investors," Rock Health noted.
Regarding mergers and acquisitions, Q1 of 2018 was a roller coaster with 37 digital health companies acquired, "which puts the sector on-track to beat last year's 119 acquisitions and 2016's 146 acquisitions."
Roche acquired Flatiron Health for $1.9 billion, just over five years after its founding in 2012. Additionally, Ability Network, a SaaS-based company simplifying administrative tasks in healthcare, was acquired by healthcare data analytics company Inovalon for $1.2 billion in cash and restricted stock.
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