Digital health investments taper off in third quarter

Digital health has been a hot sector for investors over the last several years, but the hot streak for the space may be cooling down at the end of 2019, as evidenced by the latest figures by Rock Health.

Digital health venture funding by the end of 2019 is likely to exceed 2017 levels but fall short of the $8.3 billion invested in 2018. Funding for 2019 is projected to hit $7.3 billion. Despite the slowdown, the investment interest remains at near-record levels, according to Rock Health, a venture fund dedicated to digital health.

Not only are venture capital firms looking to get into the digital health space, but healthcare organizations are launching their own funds to invest. Earlier this summer, UnityPoint, a hospital network based in the Midwest, launched a $100 million fund targeting the digital health space. In 2018, Cigna launched its own venture capital fund with $250 million.

Value up, volume down

Like 2018, larger deals are still driving investments trends in the space, with the average deal size coming in at $20.9 million. While that’s slightly lower than the $21.7 million average deal size in 2018, it’s still 32% higher than the 2017 average.

As deal values remain high, volume is expected to take a dip in 2019––between 5% and 10% lower than in 2018. According to Rock Health, the potential dip in deal count for year-end if the first year-over-year decline since tracking began in 2011.

Some newer areas within digital health saw more interest in 2019, including behavioral health and women’s health, which is still on the rise. There were 16 behavioral health deals in the third quarter of 2019––compared to just one in 2012––that raised $416 million. While that represents only 8% of all digital health deals in the three-month period, the number of deals is significant and the size of the deals is up 73% from 2018, to an average of $26 million.

Among women’s health deals, funding increased 812% from 2014 to 2018. The third quarter of 2019 saw 10 women’s health companies raise $177 million. Some of these companies had a focus on access to medical providers and home delivery of birth control, online prescription services for birth control and contraceptives, and telehealth during pregnancy.

“With women as the primary healthcare decision makers and healthcare workers, we are relieved women’s health is emerging as a significant investment sector,” the Rock Health report reads.

High-value deals

Even though 2019 is expected to end with fewer deals than 2018, there have already been nine mega-deals, or those worth more than $100 million, including two in the third quarter. By comparison, there were 11 mega-deals reported in 2018.

With the presence of Amazon, through its acquisition of PillPack, the online pharmacy space has garnered some recent traction. In September, an online pharmacy with same-day delivery in New York City raised $200 million in funding to expand. The other mega-deal of the quarter was a total of $126 million raised across two equal funding rounds by Beta Bionics, a company that developed an automated bionic pancreas.

Outside of venture capital, more digital health companies went public in 2019, including:

  • Livongo, a platform focused on managing chronic conditions
  • Health Catalyst, a data and analytics technology and services company
  • Change Healthcare, a solutions company for revenue cycle management, payment management and HIE
  • Phreesia, patient intake apps company
  • Peloton, on-demand fitness class provider

Market performance of the IPOs has so far been “mixed,” according to Rock Health, though stock price declines were on par with other tech companies going public this year.