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Digital Health Investments on Track to Surpass 2017

July 6, 2018
by Heather Landi
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Digital health venture funding in the first half of 2018 totaled $3.4 billion, and if funding continues at this pace, 2018 will surpass 2017 for both dollars raised and number of investments, according to Rock Health’s mid-year report.

From January 1 through June 30, 2018, 193 digital health deals closed. According to San Francisco-based Rock Health, investors are betting on more companies with larger deals rather than concentrating capital in fewer startups. Consequently, the average deal size significantly increased to a record $17.9 million in the first half of 2018.

At the current pace, Rock Health estimates that digital health funding could top $6.9 billion by the end of 2018, with an estimated 386 deals, far outpacing 2017’s $5.6 billion in total investments.

By mid-year 2017, there had been 188 digital health deals totaling $3.5 billion, a record-setting first half. Digital health funding in 2017 closed out with 352 deals, according to Rock Health's 2017 year-end report.

“On the heels of last year’s record funding for digital health startups, venture dollars continue to flow into the sector at unprecedented levels. The continued upward trajectory of the first half of 2018 is not a fluke. Rather, two forces are at work: First, this sustained growth is indicative of the maturation one would expect from a stable, emerging investment sector. Digital health is increasingly defined by stalwart, repeat investors and a cohort of emerging, dominant companies backed by larger, later-stage funding rounds. Second, venture investors (across all sectors, including digital health) are deploying capital at the fastest pace since 2006,” the report authors wrote.

Rock Health notes that as the digital health space matures, more later stage companies are raising sizable rounds. In the first half of this year, four companies raised mega deals over $100 million. Collectively, these deals represent about one-fifth of total funding so far in 2018, and were all raised by companies in the Bay Area, the report states.

Among the mega deals were HeartFlow raising $240 million in series E funding; Helix raising $200 million in a series B funding round; Collective Health raised $110 million in series D funding and Livongo raised $105 million.

Rock Health notes that across almost every stage, the average deal size has increased since last year. Additionally, the percentage of seed stage deals contracted from 23 percent in 2017 to 21 percent in H1 2018, while the number of B rounds grew.

In its analysis of the market, Rock Health investors also note that digital health companies are increasingly hitting validation milestones and are being rewarded by investors for it. The report cites examples such as Virta, which released one-year results from its clinical trial, raised $45 million in Series B funding, and Propeller Health raised $20 million in the second quarter to expand its longstanding commitment to clinical research.

“More companies are pursuing validation at an earlier stage and investors have elevated their expectations, creating a competitive environment based not on hype, but on proven outcomes,” the report authors note.

The digital health space also is attracting repeat investors. Since 2016, there have been more repeat investors than new investors in digital health, and the spread between the two is growing, according to the report.

Sixty-two percent of investors in H1 2018 had already participated in at least one digital health deal since 2011; last year, repeat investors represented 51 percent of total investors.

Overall, M&A activity during H1 2018 is on-pace with 2017 with 60 disclosed digital health acquisitions. The sector is still down from the height of 2015, but Rock Health investors note that this isn’t unique to digital health.

An IPO drought has persisted since 2016 when iRhythm Technologies went public on October 20, the report states.” The drought, however, is not due to a shortage of highly-capitalized companies. Historically, digital health companies have averaged $136M in funding from venture capitalists before going public—and there are currently 13 private digital health companies that have raised over $200M since 2011 that are still active today. But with greater access to capital, companies are staying private longer (for a median of 8.2 years, across all sectors),” the authors wrote.

Examining other trends, the report notes that with national attention turning to mental health issues, technology-driven behavioral health solutions have received more funding than ever. Behavioral health startups received more funding this half than in any prior six-month period, with a cumulative $273 million for 15 unique companies (nearly double the $137 million closed in H1 2016, the previous record half for funding of behavioral health companies). Of these 15 companies, more than half have a virtual or on-demand component.

“We expect the momentum of the first half of the year to carry throughout 2018. Venture investment is on pace for another record-breaking year in terms of total funding, number of deals, and average deal size. With a robust and well-capitalized startup pipeline, and new enterprise entrants with big ambitions to grow their healthcare capabilities, we anticipate more exits in the near future,” the report authors wrote.

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Town Hall Ventures Close First Fund at $115 Million

September 20, 2018
by David Raths, Contributing Editor
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Adds Landmark Health, Bright Health, Strive Health to Portfolio

Town Hall Ventures, an investment firm built to address the healthcare challenges of the most vulnerable Americans, has closed its first fund at $115 million.

The founding partners — Trevor Price, Andy Slavitt, and David Whelan — announced the firm’s formation on May 7, 2018, at the HLTH Conference in Las Vegas. Their goal is to help build companies to improve care in Medicare, Medicaid, and risk-based care, and in addressing complex conditions and social determinants of health.

The fund and its limited partners represent multiple large nonprofit health systems and payors, along with entrepreneurs, executives and investors. 

Town Hall also disclosed investments in three companies:

• Landmark Health LLC, which provides home-based care to high-acuity Medicare, Medicaid, and Dual Eligible populations who are frail and chronically ill. Landmark’s new CEO, Nick Loporcaro, was recruited by Trevor Price and Oxeon Partners, and the company is backed by General Atlantic and Francisco Partners.

• Bright Health Inc., a technology-enabled health insurance plan that is built in partnership with leading health systems. Bright’s CEO is Bob Sheehy, former CEO of UnitedHealthcare, and the company is backed by NEA, Bessemer Ventures, and Flare Capital Partners.

• Strive Health LLC, a leading provider of chronic kidney disease solutions, focused on transforming healthcare and patients’ lives through early engagement, comprehensive coordinated care, and expanded treatment options. The company's co-founder and CEO is Chris Riopelle. The concept for the business was developed with the co-founders inside the Oxeon Venture Studio and backed by lead investor NEA.

Existing investments include:

• Cityblock Health Inc., which provides primary care, behavioral health, and human services to address unmet health and social needs in urban populations.

• Somatus Inc., which provides treatment and new models of care for patients with chronic kidney disease and end-stage renal disease.

• Welbe Health LLC, a provider of integrated medical and social services to frail seniors who qualify for PACE. 

• Aetion, Inc., a provider of real-world analytics and evidence to help biopharma companies and payors better understand how drugs work in the real world to enable value-based care.

Town Hall also announced that Ann Hickey has joined the firm as a vice president. She previously worked at Audax Group, Oak Hill Capital Partners, Castlight Health, and, most recently, Archimedes Health Investors.

Town Hall is led by Andy Slavitt, former Administrator of the Centers for Medicaid and Medicare Services (CMS) and Group Executive Vice President of Optum; Trevor Price, Founder and CEO of Oxeon Holdings – the parent company to Oxeon Partners, a retained executive search firm – and Oxeon Ventures, an investment firm and venture studio; and David Whelan, Managing General Partner of predecessor firm Oxeon Ventures and former General Partner and CFO of investment firm Accretive LLC.

 

 

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At Partners HealthCare, Bringing Digital Transformation to Clinical Care

September 18, 2018
by Rajiv Leventhal, Managing Editor
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Last spring, Partners HealthCare, founded by Brigham and Women’s Hospital (BWH) and Massachusetts General Hospital, and California-based software company Persistent Systems, announced a strategic collaboration to develop a new industry-wide open-source platform with the goal of bringing digital transformation to clinical care.

Indeed, with the digital platform, Partners’ leaders hope to enable greater exchange of information across healthcare providers everywhere, and make available open source applications to any health system. At the time of the 2017 announcement, officials said that the co-developed digital platform will be based on Substitutable Medical Applications & Reusable Technologies (SMART), an open, standards-based technology platform along with Fast Healthcare Interoperability Resources (FHIR). “The platform will enable provider systems across the country to rapidly and cost effectively deploy industry-leading best practices in clinical care across their ecosystems,” according to the announcement.

Healthcare Informatics Managing Editor Rajiv Leventhal recently spoke with Sandy Aronson, executive director of information technology at Partners Healthcare, about this collaboration, its specific goals and outlook, and how things have come along so far. Below are excerpts of that discussion.

What would you say is the greatest significance behind this collaboration?

I have been at Partners for about 15 years, and the first 13 of those years were primarily focused on the clinical use of genetics and genomics. In that space, we created a suite of applications that was architected differently than health IT applications are typically architected. These were applications that helped with the generation of interpreted reports for genetics and genomics sequencing test results. So, where normally in health IT applications you create a transaction system and then try to bolt a knowledge base on top of it to the extent you can, we decided to architect this in the opposite way.

We built a knowledge base that deeply modeled the tests that a laboratory offers, the genes that are covered by that test, variants known to exist in these genes, variants that are learned over time, and the state of knowledge linking those variances to clinically relevant facts—so disease states, drug response, drug efficacy, etc. So we built this deep knowledge base and built a transaction system on top of it, and made a rule that you can’t report out test results unless you keep the knowledge base up-to-date and consistent with your test results. And that enables you to automate the generation of reports.

But as a result, we wound up with this continually-updated knowledge base, so based on that we created what would now be a SMART on FHIR app that plugs into the EHR [electronic health record] and provides clinicians with alerts if something new and potentially clinically relevant is learned about a variant previously identified in one of their patients. So it created this notion of a knowledge base alert being interjected into clinical care.

We studied this and found that clinicians liked it, but the rate at which this learned was dependent on the number of transactions that flow through the system, because that’s how geneticists would gather the data that would enable them to improve their assessment of variants. So we registered this as a medical device, distributed it outside of Partners, and networked the different instances together, so it could learn not just based on our volume, but other folks’ volume as well. Ultimately, we sold that to Sunquest [Information Systems]. The thing we feel was most important was creating this infrastructure that facilitated new clinical processes and captured, shared, and federated data in a way that enabled learning to care.

After having done that, we took a step back and said OK, what should we do next? The infrastructure we built was very specific to issues where genetics and genomics are the major components to deciding what to do for a patient. So we wanted to look at all of the things that made that infrastructure hard to do, and build a platform to make it easier to build things like GeneInsight [an IT platform company owned and developed by Partners], and then distribute that platform, so that in addition to building examples of a similar infrastructure, others can build those examples, too. We wanted that platform to make it easier to distribute apps that are created by different folks in different organizations, ultimately with the goal of networking those apps together.

We are at a unique point in time where you have these new data types coming online that can be helpful to the care delivery process, you have algorithmic-based medicine starting to come into use, both machine learning-based and not, and you have people looking at transformative ideas on how to alter clinical processes where in order to incorporate these new data types and incorporate algorithmic-based approaches to care, you need new kinds of IT support in order to enable these transitions to occur. And that creates an opportunity, not only related to the specific transitions, but also to start collecting data for specific clinical problems in a much finer-grained way that lays the groundwork for these networks that can build the data that’s required to underlie continuous learning processes.

All of this is happening in a time with incredible cost pressure in healthcare, which does constrain internal investment but also makes organizations far less resistant to change. The goal here is to fundamentally enable clinicals to evolve their practices, their care, new data, ideas, and techniques in ways they haven’t done in the past.

Sandy Aronson

And how are you working with Persistent Systems on this, specifically?

We are building this platform together. The platform is called HIP, or health innovation platform, and the platform itself will be open-source, and it sits on top of the current clinical IT ecosystem. You interface it to underlying systems, and then it handles things like some aspects of security, authentication, and HIPAA, but also access to data as well as incorporating shared algorithms.

The goal is having different places hook up the platform, and once it is hooked up, it should create a uniform surface on top of the platform so that apps built on top of the platform become more shareable and distributable. We are now focused on both building the platform and building certain apps. And the apps get interjected to the EHR as SMART on FHIR apps.

Can you give some examples and details of the apps that are being built?

One example is that we have been working with BWH’s cardiology [department] on this program that they have, where if you look at heart failure, which affects about 2 percent of the population and has a very high mortality rate with a great deal of costs associated with it, there are guidelines that have been shown to really be helpful, yet very few people are treated in a way that actually adheres to guidelines. And that’s because the process of getting them to guideline-based care involves this drug selection and titration process that requires a lot of interaction, some of which can make patients unconformable.

But as it turns out, you can instantiate a process where you use patient navigators to take patients through this drug selection and titration process, interacting with them far more frequently than a cardiologist would ever be able to, to get them to guidelines. It’s a data-intensive process. So we are providing support for that program through the HIP platform today and we are really focused on deepening that support.

What are your goals in the next 12 to 24 months regarding this partnership? What would you like to see happen?

The ideal world is that our group and Persistent Systems will continue to add more capabilities to the platform, and that the platform is reducing costs. So many clinicians have ideas on how to fundamentally improve care but they can’t put those ideas into use without these kinds of IT interventions.

One thing I hope is that this will continuously reduce the cost of building those interventions and as a result, our team, and others, too, will develop more of these apps. We hope to see some cross-institutional adoption of apps built here and elsewhere, that the sharing will begin at the app level and ideally, in two years or so, we will be having real conversations about how we can get the networking between apps really going.


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Cigna to Invest $250M in Venture Fund with Eyes on Healthcare Startups

September 17, 2018
by Rajiv Leventhal, Managing Editor
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Cigna, the Connecticut-based health services company, has announced the launch of Cigna Ventures, a corporate venture fund focused on investing in promising healthcare startups and growth-stage companies.

Cigna has specially committed $250 million of capital to Cigna Ventures to invest in transformative and innovative healthcare companies “that are unlocking new growth possibilities in healthcare and will bring improved care quality, affordability, choice, and greater simplicity to customers and clients,” officials said in a press release.

Cigna Ventures is particularly focused on companies across three strategic areas: insights and analytics; digital health and retail; and care delivery/management. Officials say the venture fund was created to help Cigna identify, assess and sponsor early-stage innovation ideas that warrant deeper exploration through focused pilot and test-and-learn activities with the goal of realizing meaningful business value.

“Cigna’s commitment to improving the health, well-being and sense of security of the people we serve is at the front and center of everything we do,” Tom Richards, senior vice president and global lead, strategy and business development at Cigna, said in a statement. “The venture fund will enable us to drive innovation beyond our existing core business operations, and incubate new ideas, opportunities and relationships that have the potential for long-term business growth and to help our customers.”

As an article in Bloomberg noted, “Health insurers have been starting venture-capital arms to find new ideas to improve their businesses and generate financial returns. UnitedHealth Group Inc., the biggest health insurer, said in November that its Optum unit was creating a venture arm with $250 million in funds. Humana Inc., Kaiser Permanente, and a group of Blue Cross and Blue Shield insurers all have venture units.”

According to officials, the venture fund builds on Cigna's existing venture activity, including collaboration with five venture capital partners and an equal number of existing direct investments. These include leading the C1 round of financing with Omada Health, investments in Prognos, Contessa Health, MDLIVE and Cricket Health.

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