Following the biggest year for digital health funding, the digital health space is starting off 2018 with a bang, reports San Francisco-based Rock Health in its Q1 2018 analysis. In the first quarter of 2018, $1.62 billion was invested across 77 digital health deals, with three $100-million-deals.
The funding level in the first quarter of 2018 supplants Q1 2016 venture funding, which saw $1.41 million invested, as the largest first quarter yet. According to Rock Health's report, 2017 was the biggest year for digital health funding, and funding continues to climb.
Compared to last year, the commotion from policy debates has largely settled and a path to regulatory clarity has emerged, the report notes.
“As the digital health sector matures, investors have become more confident investing in large, late-stage rounds,” Rock Health states in its analysis. Last year saw a record eight mega-deals ($100M+) completed, followed by three mega-deals already in 2018: HeartFlow, which creates 3D models of coronary arteries to help providers non-invasively detect coronary artery disease, raised a $240M Series E round; Helix, a consumer genetics marketplace spun out from Illumina, raised $200M; and Rock Health portfolio company Collective Health closed $110M to accelerate development of their health benefits solution for employers, Rock Health reports.
The top 10 deals of Q1 2018 represent over 55 percent of total funding—but only 13 percent of deals—in the quarter. The average annual deal size has ticked up over the years, and this quarter was no exception: the average deal size is up to $21 million relative to $16.4 million last year, according to the report.
For the first time, (digital) Diagnosis of Disease was the most-funded value proposition among digital health companies, with five deals totaling $279 million. Monitoring of Disease, the second most-funded value proposition, also had the most deals, 13, with a total of $270 million in funding. Consumer Health Information—technology used to help patients navigate the healthcare system and their own health—continues to be a top-funded value proposition as well, with Helix leading the way. In that segment, there were 10 deals totaling $267 million in funding.
The Research and Development Catalyst proposition has seen 12 deals so far in 2018, with $216 million in funding. On-Demand Healthcare Services had 11 deals in the first quarter of 2018 with $169 million in funding. And, Health Benefits Administration had $166 million in funding with six deals.
“We are in the early days of 2018 and a few large deals could dramatically swing these categories one way or another. Even so, we continue to see digital health startups both tackling the clinical aspects of care (Diagnosis of Disease, Monitoring of Disease) and reducing friction between patients and the healthcare system (Health Benefits Administration, On-Demand Healthcare Services),” the Rock Health report states.
The report notes that Helix’s $200M mega-deal, along with 23andMe’s $250M round in Q3 2017, demonstrates a growing interest in the genomics space. In fact, digital health companies leveraging genomics and sequencing raised 17 percent of the total funding from this quarter, the report notes. Last year, genomics companies accounted for 11 percent of total digital health funding. “With new CMS reimbursement coverage, consumer testing amassing large volumes of data, and better technical infrastructure for precision medicine initiatives (from Oracle and Google), we seem to be hitting an inflection point for genomics,” the report states.
Compared to last year’s volatile policy debates, investors and entrepreneurs are likely heartened by the progress made this year on the regulatory front, the report notes. As part of the $400M FDA budget boost, Commissioner Scott Gottlieb has laid out plans for a new Center of Excellence on Digital Health—aiming to establish a new regulatory paradigm which expands its current pre-certification pilot into a program that streamlines review of digital health technologies for companies that earn a pre-certification based on their demonstrated ability to manage the quality and reliability of their software.
To this point, Rock Health notes there has been an uptick in activity among the nine companies participating in the pre-cert program. For instance, Pear Therapeutics recently partnered with Novartis to develop and pursue FDA approval for digital prescription therapeutics for schizophrenia and multiple sclerosis. “Additionally, Fitbit is planning to seek FDA clearance for its sleep apnea and atrial fibrillation detection tools—a sign of the company venturing more seriously into chronic disease use cases. Apple Health Records launched out of beta allowing patients using certain providers, like Johns Hopkins and Cedars-Sinai, to store and share their medical records on the iPhone. And Samsung’s new smartphones will have a built-in optical sensor to measure blood pressure and stress levels as part of a health study with UCSF,” the report states.
With regard to mergers and acquisitions, Q1 of 2018 was a roller coaster for digital health M&A, the report notes, with 37 digital health companies acquired this quarter. That puts the sector on-track to beat last year’s 119 acquisitions and 2016’s 146 acquisitions.
Big acquisition deals so far in 2018 include Allscripts’ $100 million acquisition of Practice Fusion and Roche’s purchase of Flatiron Health for $1.9 billion. Additionally, Ability Network, a SaaS-based company simplifying administrative tasks in healthcare, was acquired by healthcare data analytics company Inovalon for $1.2 billion.
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