- A record year of $8.1 billion into U.S.-based digital health companies in 2018 may represent the peak of the investment cycle, Rock Health Director of Research Megan Zweig said Wednesday at a HIMSS panel.
- The remarks come the same week the digital health venture fund released research indicating consumers are using digital health tools at a higher rate than ever before. In a survey, the firm found that 89% of respondents have used a digital health tool, up 19% since 2015.
- Despite confidence the record amount of investment does not represent an investment bubble, future investment growth will likely not replicate the gains seen in the sector over the past few years, Zweig warned.
The digital health industry has seen consistent growth over the past decade, leading some to question whether the space is entering an investment bubble. Zweig had a more nuanced view.
"You see this really dramatic upswing, and that has been true since 2011." Zweig said at a the panel Wednesday.
Last year's $8.1 billion came in $1 billion more than 2017. Zweig noted the uptick in new investments occurred despite an absence of initial public offerings in the space for more than two years.
In addition, Rock Health's survey notes that wearable devices are used less among respondents seeking to be physically active or to lose weight. And 39% of users stopped using a wearable device during 2018 compared to 27% ceasing use in 2017.
"When that is happening, you start questioning if the investment being pumped into the sector is equal to the value that ultimately is being created," Zweig said.
But without telltale signs like overvaluation of companies, new investors flooding the space and business plans that burn through cash, Zweig doesn't believe digital health is in a new investment bubble.
Other opportunities, such as using wearables to manage chronic conditions, may be an answer to the lessened interest in using wearables to achieve fitness goals. There was a 10% jump in survey respondents who said a top reason for wearable use was to manage a diagnosis between 2017 and 2018.
"Digital therapeutic companies … raised really big rounds last year, but you are also seeing them having intentional validation pathways," Zweig said. "They are wanting their own studies and working in concert with FDA to make sure these solutions are properly vetted. You start to see them figure out how to price a product, how to get adoption by physicians to potentially prescribe them and how to get consumers to consistently adopt them."
One risk for lessened digital health interest is the potential for the macro-economy and the specter of a potential market contraction to spook venture investors.
"I do think we're kind of at peak investment cycle, I don't expect to see the same growth trajectory we've seen over the past couple of years. I could see it potentially still increasing but with a slower growth rate," Zweig said.