Last year broke records for digital health funding, M&A
- Digital health funding and M&A had an explosive year in 2018, according to a new report from research firm Mercom Capital Group. Global venture capital and private equity funding for digital health companies totaled nearly $9.5 billion through 698 deals, a 32% increase from the $7.2 billion raised through 778 deals in 2017. Most funding occurred in the U.S., where nearly $7 billion was raised in 420 deals.
- Consumer-focused companies garnered the most venture money last year, with 447 deals accounting for 55% of the total raised. Companies focused on practice management accounted for the other 45% with $4.3 billion raised in 251 deals.
- Meanwhile, corporate funding (venture capital, debt and public market funding) jumped from $8.2 billion in 2017 to $13 billion in 2018. Debt and public market financing more than tripled with more than $3.5 billion raised in 21 deals in 2018 compared to $1.1 billion raised in 34 deals the year prior. Additionally, two IPOs accounted for $1.23 billion in 2018, while no digital health companies went public in 2017.
Digital health investment, particularly venture funding, is not likely to slow down any time soon, especially considering the market invasion by tech leviathans Amazon, Google, Apple and Microsoft. Just this month, Google-housed Alphabet's life sciences arm Verily raised $1 billion in a funding round led by Silver Lake, a Silicon Valley private equity firm that invests exclusively in established tech companies.
Venture funding for digital health in the U.S. saw a $2 million boost this past year, jumping from $4.9 billion in 2017 to $7 billion in 2018, according to Mercom. Silicon Valley and Route 128 were responsible for most of that funding, with companies based in California raising $2.9 billion in 134 deals and companies based in Massachusetts raising $1.1 billion in 43 deals. New York, however, accounted for the second-highest number of deals in 2018 at 60, worth a collective $840 million.
According to Mercom, most venture money went to companies focused on data analytics, followed by wearables, mHealth apps, practice management solutions and mobile wireless companies, respectively.
Digital health companies have not been exempt from the whirlwind of M&A activity that continues to sweep across the industry, led by providers, payers and PBMs. Mercom called 2018 a "record year" for digital health M&A activity with an all-time high of 223 transactions, compared to 203 transactions the year prior.
The $5.5 billion acquisition of athenahealth by Veritas Capital and its Elliott subsidiary led the group, followed by Platinum Equity's $2.1 billion acquisition of diabetes-focused tech company Lifescan, Vista Equity Partners' $1.9 billion acquisition of fitness tech company Mindbody and Roche's acquisition of cancer research firm Flatiron Health.
Rock Health, which earlier this month released a similar study of digital health funding, forecasts more M&A activity in digital health over the next few years, spurred by talent acquisitions, fire sales and consolidation led by larger digital health companies looking to expand their portfolios.
Despite digital health's consistent growth in value, the market is not without scrutiny. As detailed in a recent Health Affairs study of the 20 top-funded digital health companies in the United States, there is little evidence that digital health tools have had an impact on patients with high-burden health conditions such as heart disease, diabetes and depression. And, while data analytics companies tend to gobble up the most venture funding, only a few have published studies focused on outcomes and impact on access and cost.
- Mercom Capital Group Digital Health Funding and M&A 2018 Annual Report
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