Digital health investment reaches second-highest level in 2019

The US digital health sector enjoyed its second-highest year of investment in 2019, just slightly down on an all-time record in 2018.

A total of $7.5bn (£5.7bn) was invested into a diverse range of start-ups attempting to digitise and disrupt the colossal $3.8 trillion (£2.9 trillion) US healthcare system, and overhaul a healthcare system that continues to provide some of the best care on the planet, yet is one of the poorest in equity among Organisation for Economic Co-operation and Development (OECD) members.

According to new data from Rock Health, the 2019 figure was slightly down on the $8.1bn (£6.2bn) that was invested in 2018.

The UK’s Babylon Health was the biggest recipients of investment in 2019, with over $500m (£380m) of private investment received, followed by Ginkgo Bioworks, a bioengeineering firm that designs microbes, which received $300m (£228m). Digital pharmacy start-up Capsule raised $200m (£152m).

Geoffrey Starr, partner with digital health VC specialists, Cooley, told delegates at the CES Digital Health Summit in Las Vegas on 7 January that the market for digital health investments had grown phenomenally.

“There are now 18 digital health unicorns [start-ups worth more than a billion dollars] in US, and greatly increased IPO [initial public offering] and M&A [mergers and acquisitions],” said Starr.

One third of all US healthcare investment is now in digital health technology,” he added. “In 2012, only a handful of companies raised $50m or more. By 2019 that had exploded, and many have been acquired, or had liquidity events.”

“We’re also seeing bigger average deal sizes, $20m or so, we’re seeing very large funding rounds and investors going bigger at all stages to scale quickly.”

After a period in which notably few digital health firms made it to IPOs, there were nine digital health IPOs in 2019, enabling the companies to access capital markets and providing some investors with exits.

The nine IPOs were:

• Change healthcare – an enterprise transaction specialist
• Phreesia – patient intake self-service platform
• Livongo – digital health management
• 10x genomics – gene sequencing biotech research specialist
• Freenome – AI genetics cancer detection start-up
• Peleton – social fitness exercise bike firm
• Healthcatalyst – data analytics technology provider
• Progyny – fertility benefits specialist
• Smile – mail order orthodontic aligners

Starr highlighted some of the digital health IPOs of the past year that Cooley has been involved with and picked out trends to watch.

Progyny, a fertility benefits solution and platform achieved a $167m (£127m) IPO in October 2019, and Starr said that he expected strong investor interest to continue in women’s health companies.

He added that he believed “the women’s health sector is just starting to get started”.

Digital therapeutics is set to remain another key area predicted. And at $408.5m (£310.7m), the biggest IPO of 2019 was Livongo, a digital therapeutics specialist offering clinically validated apps for managing long-term conditions.

A possible trend to watch, Starr said, was Express Scripts’ launch of the first digital health formulary to embed digital therapeutics and apps into clinicians workflow and help assist consumers navigate the complex landscape. Livongo is one of the apps on the new digital formulary.

And the IPO pipeline has continued into 2020. One Medical, a chain of primary care clinics based on a ‘technology-powered model’ and has raised money from Google parent Alphabet, has just filed to go public on the Nasdaq, an American stock exchange.

“We’ve seen increased exit activity, including over 100 M&A transactions. The biggest of these was Google acquiring Fitbit for $2bn,” said Starr.

Starr predicted that the surge of digital health investment would continue into 2020.

“Expect funds will continue to flow with a strong focus on the consumer,” he said.

“Expect to see continued flow in data-driven diagnostics, personalised, prevention tools and virtual assistance.”

He added: “The other big thing I think we are going to see is more and more people affected by digital health technologies as these companies scale up and hit the mainstream”

Digital Health Start-ups will be a key part of programme at Digital Health Rewired 2020, 3-4 March, including the eagerly anticipated return of the Rewired Pitchfest when 16 of the best start-ups will battle it out in quick fire heats to be named Pitchfest winner.