The consensus of opinion is that digital health is at a “tipping point” after the pandemic kick-started investment in a sector that had already seen growth and innovation for several years. The Sidebar takes a closer look.
New heights have been reached this year, with the three months to September 2020 proving to be the most-funded quarter on record for the “health innovation” sector, according to the latest figures from investment firm StartUp Health.
Its latest quarterly report on the sector shows more than $6.6 billion in funding, bringing the year-to-date total to around $16 billion.
This outstripped the previous quarterly record set in Q1 this year, and the total raised so far means that 2020 is already a record-breaker in terms of funding levels.
Startup Health CEO Steven Krein described the year as a “tipping point” for digital health, noting that the mega-merger of Teladoc and Livongo has created a new benchmark for digital health innovation.
Economic uncertainty has been a hallmark of 2020, as whole countries were effectively put in quarantine to slow and reduce the coronavirus’s global spread.
Consequently, investors poured into digital health, which was one of the areas that saw an increase in demand as hospitals and clinics worldwide sought ways to maintain services yet reduce risky face-to-face contact with patients.
But this investment has been sustained ever since, which is “suggestive of a new normal” according to Healthtransformer, which analyzed the study’s findings.
StartUp Health has published its quarterly reports for around a decade, allowing for some interesting historical comparisons.
In 2010 the firm only counted about a billion dollars in health innovation funding across 139 deals. Fast-forward to 2020,and investment in the sector could reach $20 billion at the current pace, with the year’s deal tally potentially hitting 800.
Digital health IPOs in 2020
Another feature of 2020 has been digital health IPOs, which have come thick and fast because of the migration of capital into the broader life sciences sector.
But Startup Health’s Krein said the wave of IPOs in the sector indicated the new-found confidence from investors in digital health in particular.
They are placing much higher valuations on these deals because they perceive innovative health companies have strong growth potential, according to Krein’s analysis in Healthtransformer.
The largest IPO in the sector stood at around $1.14 billion, and, as Krein pointed out, public markets are often the most significant indicators of growth opportunities.
Diversifying digital health
There is a diverse mix in terms of which businesses are getting investment, ranging from home fitness, cancer detection, value-based primary care, and AI drug discovery.
Aside from the larger deals highlighted in the report, there are a plethora of smaller transactions that show that startups are getting backing as well.
There were 95 deals – about 50% for the quarter – that were under $10 million per round, excluding convertible note transactions.
Geographically, the investment pattern has followed the pandemic’s course – at the start of the year, there was almost no investment in China as large parts of the country ground to a halt because of COVID-19 lockdowns.
Beijing and Hangzhou are now back in the top 10 with a combined $551 million raised across six deals.
London, Toronto, and Tel Aviv were the most active cities, and Israel continued to attract investment with three cities – Tel Aviv, Jerusalem, and Haifa – making the top ten list.
Unity Stoakes, StartUp Health’s president, co-founder, and managing partner, pointed to the large-scale mergers that could go on to create partnerships in a maturing market.
Teladoc’s merger with Livongo dominated the headlines and created a large new player in the remote care market valued at around $37 billion.
According to Stoakes, these more extensive mergers indicate a new trend, where established healthcare firms merge with cutting-edge firms to serve consumers better.
Prices are likely to be driven up by competition for the latest health technology, which is being allowed to develop in the benign market conditions.
But Stoakes argues that this trend will continue once the pandemic has subsided and will continue into next year.
“We see a great health platform race accelerating as legacy healthcare companies compete (and merge) with newer health platforms and a scramble to get closer to the consumer. It’s still wide open and very early, but the smart ones are moving fast to acquire new health innovation,” Stoakes said.
But the message from Hancock is that there is much more to come from the sector as it builds on the successes of 2020.
The collaborative spirit seen this year lays the groundwork to tackle some of the most challenging health challenges in the future.
“We’re at an inflection point and we’re just getting started, even though there’s been so much accomplished in digital health,” Hancock said.