DIGITAL HEALTH FUNDING, REMOTE MONITORING AND VIRTUAL TRIALS FROM MEDTECH INSIGHT Rock Health Reports Record Digital Health Funding Of $5.4Bn In H1 2020, Sees Potential For Record-Year Funding

Rock Health Reports Record Digital Health Funding Of $5.4Bn In H1 2020, Sees Potential For Record-Year Funding

BY MARION WEBB

Executive Summary

Digital health funding is on track for the largest funding year ever amid the COVID-driven demand for telehealth and remote monitoring of patients. However, a large second wave of the pandemic could reverse that trend.

US digital health companies raised $5.4bn in venture capital funding in the first six months of 2020, driven by skyrocketing demand for on-demand health care services and disease monitoring. As a result, digital health is on track for the largest funding year ever.

Digital health funding in the first half of this year exceeded first half figures for the last nine years and was $1.2bn higher than the first half of 2019, according to venture capital Rock Health’s midyear report. (Also see “BIO Digital: Investment Panel Sees Continued Rising Adoption Of Telehealth, Remote Monitoring” - Medtech Insight, 11 Jun, 2020.)

Digital companies are now on track for seeing the largest funding year ever. (Also see “VC Deals Analysis, H1 2020: Medtech Funding Stays Apace, Cardiovascular Is King” - Medtech Insight, 1 Jul, 2020.)

This, according to Rock Health, is surprising to investors and companies alike given that after raising $3bn in the first quarter, venture funding hit the brakes in April when COVID-19 started spreading globally. However, in May and June, investment saw an uptick again, which Rock Health attributes in part to loosened digital health government regulations, a COVID-driven surge in demand for digital health solutions and reduced volatility in the public markets.

“The reversal [updtick in May and June] was significant,” according to Rock Health researchers Nina Chiu, Alex Kramer and Aditya Shah. The researchers noted that overall digital health funding in the second quarter was $2.4bn, or 33% higher than the $1.8bn quarterly average for the prior three years. An average deal size in the first half of 2020 was $25.1m, well above the previous record of $21.5m set in 2018.

Mega Deals

Eleven $100m-plus mega deals led the way for digital health funding in the first half with five deals occurring in May and June.

Among the leaders was Amwell, which raised $194m in May to meet the rising need for telehealth services during the COVID-19 pandemic.

Corporate venture capital funds also stepped up their investments during the digital health rebound in May and June, completing 76 transactions in the first half of 2020 with 28 transactions being done in May.

Rock Health noted that corporate venture capitalists – rather than waiting for the return of normalcy – may view this crisis as an opportunity to accelerate bets on digital health companies that will help them navigate the post-COVID world. During the first half of 2020, health systems accounted for 34% of all corporate venture digital health transactions, making them the largest single source of corporate venture participation.

M&A, IPOs

Mergers and acquisitions remain the most common source for liquidity for digital health investors, the researchers wrote.

Notably, 52% of the acquirers were digital health companies this year, as many companies are looking externally to buy more capabilities and talent.

Among the notable deals during the first half of this year were Teladoc, which bought InTouch Health for $600m in stock and cash in January to expand its provider-facing capabilities for its telemedicine platform.

United Health Group’s Optum is in late-stage talks to buy AbleTo for $470m to expand its virtual behavioral health capabilities. Health Catalyst bought Able Health for $27m in February to enhance its quality and regulatory measures capabilities amid Able Health’s SaaS application, which automates measures reporting.

After a grim outlook for initial public offerings at the end of the first quarter of 2020, a surging stock market and skyrocketing adoption of telehealth may have paved the way for several companies to go public.

Amwell raised $194m in a series C round in May after raising $365.4m in a series B round in 2018 and $81m in 2014, putting it in a good position to go public this fall. Its competitor Teladoc reported 41% year-over-year revenue growth and a 92% increase in new users on its first-quarter earnings call, bolstering its rising stock price.

Amwell, which raised $1.1bn in the first half of 2020, ranks among the companies that led the trend for on-demand health services followed by monitoring of disease firms, which raised $831m in total – putting both categories on pace to exceed the 2019’s totals by 100%.

Telemedicine companies – which Rock Health defines as companies that leverage synchronous or asynchronous virtual care technology – raised $926m in the first half of this year. A survey of more than 1,000 seniors on Medicare Advantage, conducted between 16-18 May by the advocacy group Better Medicare Alliance, also showed that 91% of beneficiaries that used telehealth services reported “high favorability for telehealth.”

The pandemic has also led to an uptick in funding for companies that offer tech-enabled solutions for behavioral health to help people deal with rising COVID-related issues such as anxiety and depression.

In the first half of this year, digital behavioral health companies have received $588m in funding. Most of the funding in this segment during the first half of 2020 went to companies that provide solutions to help providers remotely treat acute or chronic conditions or digital therapeutics that themselves are treatment. One example is Headspace. But despite the uptick in digital health funding in the first half, Rock Health researchers cautioned that the uncertainty of the ongoing pandemic makes it difficult to make predictions about the financial markets for the remainder of the year.

“A potential second wave of the virus could quickly reverse the second-quarter public market rebound in private digital health investment. While the pandemic appears to have stoked investors’ appetite for digital health companies, in particular, their focus could shift in a longer-term economic downturn,” the researchers wrote.

Rock Health expects that macroeconomics turbulence will continue to drive enterprise buyer, consumer and investor interest in digitizing health care in a way to offset the negative effects of a recession as they did in the first half of 2020. Also, not all digital health companies will fare the same.

“Start-ups who sell to providers and employers may face stiffer headwinds than those of other categories,” Rock Health said.

For more information on funding and M&A activity, visit Medtech Insight’s VC deal tracker and M&A tracker.