2017 broke all funding records for digital health, as highlighted in a panel moderated by Amy Belt Raimundo, managing director of Kaiser Permanente Ventures and co-founder of MedtechWomen, at the Digital Medicine & Medtech Showcase in San Francisco. The financing trends prove the point that “health is the new wealth,” as noted by Ardy Arianpour, co-founder and CEO at SĒQSTER, and investors have noticed.
“This will be a golden age for digital medicine, in which the leading companies will create a lot of value,” predicts Andy Lam, co-founder and partner, Uprising Ventures. Learnings from pioneering companies are being implemented and the patient population is now accustomed to using mobile devices. The technology front also has matured to the point that the value of AI can be proven.
Deal sizes grew
“The average deal size in 2017 grew to USD 5.8 billion, up about USD 1 billion from 2016, while the number of transactions grew only slightly, to 345,” Megan Zweig, director, research, Rock Health, reports. The USD 100 million-plus megadeals, like Outcome Health’s USD 500 million transaction and Peloton’s USD 325 million deal, raised the average but, because these companies were founded about a decade ago, the natural process of maturation would logically dictate larger rounds, she says.
The lion’s share of deals centered on consumer health, with 41 deals and USD 1.6 billion invested. That was followed by clinical decision support with 19 deals and USD 811 million, and fitness and wellness, with 32 deals and USD 752 million. “There were a lot of business-to-business-to-consumer deals,” she points out.
“Exit activity has slowed significantly,” Zweig continues. “There were no IPOs for digital health companies, and acquisitions declined from 146 in prior years to 119 in 2017.” Notably, 2017 was the first year in which more than half the investors were repeat investors. That means, however, that the remaining half is exploring this market for the first time. They will be shy.
What’s attractive today?
“Digital innovation is, as a blanket statement, about ways to capture and analyze data so it becomes actionable,” says Pavel Khrimian, associate director, partnering and strategy, head, digital health business development, MedImmune. “The days of 25-year development timelines are coming to an end. It’s no longer acceptable to have 80 percent of our industry’s trials finish on time and another 80 percent fail to retain patients. We need to run trials more efficiently.” That requires connecting devices and developing predictive capabilities. It also suggests a new approach to healthcare in which patients can be monitored at home rather than in the hospital.
Investors today are focused around harnessing digital solutions to enhance quality, affordability, and accessibility to solve problems. The latter two are particularly amenable to digital solutions, providing the ability to collect and access healthcare services and patients’ data in real time, 24/7.
As Uprising Ventures’ Lam says, “The table stakes are to do interesting things with data. As investors, we’re looking beyond that for paradigm-shifting innovation.”
Klaus Stoeckemann, managing partner and co-founder, Peppermint Venture Partners GmbH, is more specific. “We’re stepping away from the hardware end.”
Lessons learned
Many of the lessons learned in the early days of the industry are no longer relevant given mature technology and newer, innovative solutions. What remains constant is that “digital companies must solve an unmet need or optimize an inefficient process,” Stoeckemann says.
“Even if you are achieving reimbursement, that doesn’t mean that you’ll see a market uptick,” he continues. Therefore, “before we push for reimbursement, we focus on product design and interact with customers early. That seems obvious, but too often it’s not.”
MedImmune, as a user of digital solutions, is concentrating on patient engagement. “Patient adherence and retention are big issues,” Khrimian acknowledges. They can be addressed with digital solutions that provide continuous feedback to the customer, but companies also need a way to pull that feedback into their own systems to allow course corrections in real time, he says.
Given that, MedImmune is building patient communities months in advance and designing trial protocols to cater to those patients. “We’re using machine learning and visualization to see things as they are changing. That’s a game-changer from the pharmaceutical perspective, and some of our pilot projects and investments are focused on that in 2018.” He says MedImmune is a customer of digital solutions. “Therefore, engage with us sooner in your product development cycle rather than later.”
The anticipated golden age for digital health developers notwithstanding, the issue of critical mass remains. “Hundreds of studies have been performed by one company. All the others, combined, have conducted fewer than 10,” Lam points out. Therefore, investors are proceeding cautiously. Developers, perhaps, should, too. It’s a new world, and the old ways of thinking about it may not apply.
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