By Meg Bryant July 17, 2020
Digital health bucked uncertainties around the COVID-19 pandemic, reeling in $6.3 billion in funding in the first half of 2020, according to a new report from Mercom Capital Group. The record-setting, global haul was 24% higher than last year’s first-half raise of $5.1 billion.
The biggest winner was telehealth, capturing $1.7 billion as the coronavirus fueled demand for virtual care. Analytics came in next, with $826 million in funding, followed by mHealth apps and clinical decision support, with $794 million and $545 million, respectively. Rounding out the top-funded categories were health care booking ($326 million), wearable sensors ($321 million) and wellness ($284 million).
Venture funding was distributed across 19 countries in Q2. U.S. companies grabbed the largest part of the purse in both periods, securing $2.2 billion in 105 deals in the second quarter.
“Seen as a solution to many of the health challenges resulting from the COVID-19 pandemic, several digital health technologies and services have gone mainstream,” said Raj Prabhu, Mercom’s CEO. “Investors have noticed the potential, and telehealth has been the biggest beneficiary.”
The six-month span also saw more investors betting on digital health – 921 vs. 821 in the same period in 2019. More than half (488) participated in second-quarter deals, led by Optum Ventures, the venture arm of Unitedhealth Group.
Still, the sector was not immune to COVID-19 jitters. The second quarter raised $2.8 billion across 161 deals vs. $3.6 billion in 142 deals the prior quarter, a 24% drop. Funding also lagged 11% behind the $3.1 billion invested in 169 deals in the second quarter of 2019.
Digital health has been generating buzz for years now, but the coronavirus has spurred increased interest in solutions such as remote patient monitoring and mHealth apps, aided by more favorable regulatory and reimbursement policies. In April, for example, CMS announced more than 30 telehealth policy changes, including elimination of the “originating site” rule, aimed at increasing access to care during the pandemic. Some lawmakers have called for the changes to be made permanent.
The top five digital health venture capital deals in the first half of the year were led by home workouts and fitness company Classpass, with $285 million, and pharmacy delivery service Alto Pharmacy, which raised $250 million. Telehealth company Amwell (formerly American Well) was third, with $194 million, secured in a series C round that closed in May. Also in the top five were Swedish video consultation startup Kry, with $155 million, and precision oncology company Concerto HealthAI, with $150 million.
Those deals are part of a wave of digital health funding over the past decade that has tallied more than $50 billion in 5,055 deals, according to Mercom.
“We were expecting telehealth to do well but were quite surprised how well the rest of the digital health technologies have held up considering the weak economic conditions due to COVID,” Prabhu told BioWorld. “Telehealth is now a real solution for patients amid COVID and has gone mainstream with regulatory support.”
The report includes global deals of all sizes for both practice- and consumer-focused technologies. Telehealth companies raised $930 million in 35 deals in the first quarter of 2020, and $962 million across 50 deals in Q2 – a 42% increase over the 2019 second quarter. “This is the largest amount of funding raised by telehealth companies since we began tracking data in 2010,” the reports says.
Since the beginning of the pandemic, telehealth adoption in the U.S. has jumped from 11% last year to 46% today, according to a McKinsey & Company survey. And there’s ample room for additional growth. The management consulting firm predicts up to $250 billion in health care spending could be digitized – an amount equal to about 20% of all Medicare, Medicaid and commercial office practice and home health spend.
In addition to Amwell, top deals in the telehealth category included Mindstrong, a digital mental health consultation platform, which scooped up $100 million in a series C round. Investors included General Catalyst, Arch Venture Partners and Optum Ventures, among others.
There was less M&A in the first half of this year – 83 vs. 91 in 2019. Mobile apps led M&A activity with 10 transactions, followed by data analytics and practice management solutions (10 each) and telemedicine companies (8). Of the 42 M&A transactions in the second quarter, 15 were practice-focused companies comprised of health information management, revenue cycle management and service providers. Consumer-focused companies – mobile health, telehealth and personal health – accounted for 27 deals.
Among the top transactions were Invitae’s acquisition of Archerdx for $1.4 billion last month and Teladoc’s January purchase of Intouch Health for $600 million. That deal closed July 1.