There has never been a better time to raise money in digital health than in Q3 2018. The pace of fundraising by individual startups suggests it’s an entrepreneurs’ market in which founders are raising larger and more frequent rounds, while the crop of maturing companies in digital health continues to grow.
Taken together, these factors have combined to yield the largest quarter ever in digital health venture funding, with $3.3B invested in Q3 2018 alone. The quarter’s funding surge pushed 2018 YTD (Year-to-date) funding to a total of $6.8B, already exceeding last year’s annual funding total by more than a billion dollars. The sheer amount of dollars and deals is notable – but numbers alone don’t tell the full story of the progress made in digital health thus far in 2018. Larger deals – rather than number of deals – account for this bump.
- More and more startups continue to crack the regulatory code, with 31 FDA approvals in digital health so far this year.
- The majority of investors backing digital health companies this year (59%) are repeat investors in digital health
- More deals are being done than ever before, a sign that more investors are spending more time on digital health
Investors are supporting the shift to healthcare at home
Across the first three quarters of 2018, companies offering on-demand healthcare services as a primary value proposition attracted the most funding. The largest Q3 round in this category went to American Well ($291M), one of the ten mega-deals so far this year. This category contains diverse services offered in or near real-time through various channels. Examples include: Doctor on Demand, a platform enabling patients to video chat with licensed physicians; Honor, an online senior in-home care agency platform; NowRx, an on-demand prescription delivery service; and Nurx, teleprescriptions and home delivery for birth control and PrEP for HIV prevention.
The top six most-funded value propositions support a shift in the care paradigm, enabling patients to manage their health at-home. While there is still consumer demand for in-person provider relationships, there is an increasing focus on companies that connect patients (and patient data) with providers and care in more continuous, accessible, convenient ways.
Big tech’s continued push into healthcare
In the first half of the year, Amazon doubled down on its PBM* strategy and acquired PillPack, sending shockwaves across the pharmacy space. Then, just a few weeks ago, Apple announced its Apple Watch Series 4, which has fall detection and an FDA-cleared sensor capable of taking ECG readings and testing for atrial fibrillation. But Apple isn’t the only company exploring elderly monitoring – Google is considering how its Nest product could offer home monitoring for the aging population (and Nest’s own digital health ambitions were revealed by the news that Nest, not Google, acquired smartphone-based health monitoring developer Senosis). Amazon’s Alexa could have similar applications.
It’s unclear exactly how big tech’s strategies will impact startups operating in these market segments. After the Apple announcement, AliveCor’s CEO noted Apple is doing “the thing we’ve been doing for seven years,” referring to its products for detecting atrial fibrillation, one of which received FDA clearance in 2014.
While companies may point to proprietary algorithms, competitive pricing, and other features as a means to stay differentiated, big tech entering into the remote monitoring and home care spaces could be a big competitive disruptor. Conversely, the attention big tech brings to digital health is likely to stoke demand and educate consumers, expanding the market for all players.
* PBM – in the United States, a pharmacy benefit manager (PBM) is a third-party administrator (TPA) of prescription drug programs for commercial health plans, self-insured employer plans, Medicare Part D plans, the Federal Employees Health Benefits Program (FEHBP), and state government employee plans (Wikipedia).
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