We don’t normally deal with announcements and news related to investment at The Medical Futurist (TMF) and The Medical Futurist Institute. Although we receive many press releases from venture capital and incubator firms every week, they are not shared on our channels. We don’t ignore all developments, even though our focus is on technology and trends.
We keep in touch with many founders of digital health startups, analyze the technologies they use, and share relevant news to investors in an objective manner. The Medical Futurist team advocates for digital health adoption. We need to make good investments in digital health companies. This will create a positive healthcare landscape that is better equipped to deal with crises such as COVID-19.
We realized that the rise in investments after and despite the pandemic was a sign that we need to revisit this topic. We decided to update our ebook, “The Medical Futurist’s Guide To Investing in Digital Health.”
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This guide serves as an overview for anyone interested in investing in digital healthcare. It discusses the reasons to invest in this sector; analyses 24 technological trends that we consider most promising; examines famous and infamous examples of companies who have succeeded or failed in the industry; and offers lessons for investors.
This guide was also compiled from insights received from digital health startups and incubators. For a deeper look at the most promising trends in digital healthcare for investors, and how we evaluate companies and technologies at TMF, grab a LeanPub copy.
We also share 5 lessons we learned about investing in digital health through the course of our e-book. Anyone interested in digital health, including the effects of the pandemic and companies that disappoint investors, can gain additional insight by studying investments in this field.
1. Record year after record-setting year after a record-setting year
Digital health investments had been steadily growing year after year before the pandemic. With investments of $5.7 billion, 2017 was the first year to set a new record. However, 2018 broke that record by 42% as investors invested $8.1 billion in this field. With $7.4 billion, 2019 saw a decline in funding for digital health.
One might have expected that the global economic slowdown, the pandemic, and lockdowns would hit hard in 2020. Contrary to popular belief, investments didn’t falter. The total amount of investments reached $14.9 billion by 2020. The potential for 2021 to surpass all expectations is even more.
The total investment in 2021 by US-based digital healthcare startups was $29.1B, spread across 729 deals. The total investment almost doubled 2020’s record $14.9B. These numbers were driven by larger deals in 2021 than ever before. Rock Health reported that the average deal size for 2021 was $39.9million, an increase of $30 million from a year ago.
While interest is not disappearing, there are still challenges in 2022
The Q1 2022 report stated that “Supply chain, energy disruptions, market corrections and the Russian invasion in Ukraine are new variables into public and venture financing equations – changing the calculus for investors and startups who extrapolated sector activity in 2021”
Q1 2022 U.S. Digital Health Funding closed at $6.0 billion in 183 deals with an average deal size $32.8 million. This is slightly lower than the Q4 number of last year, which is to be expected as the last quarter is always very strong. However, it is also somewhat lower than the Q1 2021 figures ($6.7 billion).
According to Steve Tolle (general partner at HLM Venture Partners), “The market has become frothy” which means that valuations are not sustainable. He also said that it is too early to tell if the bubble burst.
Tolle stated that “the frothiness” will decrease a bit. “We are beginning to see that the average deal size has fallen,” Tolle said.
The traditional industry of health is not sustainable.
An important point seems to be agreed upon by analysts. The industry’s overall size ($4.3 trillion by 2021) is rising. This growth, and even more important, its share of GDP, seems unsustainable. It is expected to reach $12 trillion by 2040, which will be 26% of GDP. Digital health holds the greatest promise.
The health care sector is catching up to other consumer-focused areas like retail, banking, consumer finance, and retail, although it may take a while longer. However, efficiency has been improved significantly in the past. Analysts predict similar declines in many health-related sectors, including those that border them, such as fitness, nutrition, prevention and mental health, among others.
Healthcare is a slow-moving industry, but it is urgently in need of reform. This could be a chance for health tech companies to address specific areas of the value chain.
What niches can health tech address? Many! Deloitte’s report mentions logistics, appointments, virtual care and the development of at home testing kits. As a result, funding has increased significantly for all of these areas.
2. Digital health is mature enough now
The digital health market was not mature enough prior to the 2010s. Startups were still trying to find their feet and the solutions were not yet perfected, which led to a poor perception and slow adoption rates. It might have been too soon to invest in this sector.
The landscape has changed dramatically and it is now the right time to invest in digital healthcare. The technologies that digital health startups use have been refined. Digital health adoption requires cultural change. Countries like Germany and Denmark have developed national digital health strategies.
A number of digital health solutions that deliver tangible and measurable results have been on the market in recent years. One of the latest examples is the teletherapy program for OCD (obsessive-compulsive disorder) patients, which was found to reduce symptoms by 43.4% with patients maintaining the results for up to a year later.
These approaches help policymakers, patients, and doctors to be prepared for digital health solutions.
Global Digital Health is expected to grow 6.5% annually between 2021-2027, from $220 billion in 2021. As everyone will be wanting a piece, the right time to invest now is. Venture capital firms and investors should be aware of this fact before it is too late.
3. For years, bad investment stories can destroy a field.
Investors are quick to get on board the hype train by digital health companies that claim to have the best technology with incredible potential. These companies go bankrupt within years, and investors should be cautious about investing in this sector. There are many examples of this infamy.
Theranos, with its promise of a one-drop blood test, is the poster child for such examples. After raising $400 million from investors, the startup was later valued at $10 Billion. It even received FDA approval by navigating regulatory loopholes. It was all a fraud on many accounts, from fake demonstrations to the use of unreliable technology. This puts at risk investments in blood testing, as many other companies are working to provide solutions using proven tech.
Proteus is another example. Proteus, a digital pill pioneer, was the first to be approved by FDA. It even had a valuation of $1.5 billion in 2019. The company filed for bankruptcy in 2020. Although some research supported its tech for improving adherence, poor management led to the company’s eventual collapse. Under pressure from investors, they couldn’t meet certain milestones by the deadlines. The exorbitant $1,650 monthly price of the generic drug, while it costs less than $20 per month, made them difficult to adopt. Other companies such as etectRx or SIGUEMED, which are working on similar solutions, will have a harder time attracting investors.
4. The focus is shifting away from health IT investments to digital health
We have already mentioned that digital health investments in 2020 were made to target companies that offer remote healthcare and on-demand services. The focus seems to have shifted slightly as the pandemic ended or we became used to COVID being there, and lockdowns were lifted.
We see three areas that investors are particularly interested in at the moment:
- Technologies and solutions that target niche areas or medical specialties, such as diabetes care, OCD teletherapy solution, or smart glasses specially developed for visually impaired patients (as opposed a general telehealth application, for example).
- Technologies that provide valuable data to users and physicians, such as skin-checking apps or smartphone-connected ECG sensor data for cardiologists, are useful.
- Technologies and solutions that aim to improve the quality patient-doctor relationship, such as voice to text solutions
This is a sign of a shift in investments from IT to digital health.
The “Gary rule”, which helps to distinguish between them, is helpful. Gary, an IT specialist, is the only person who can fix IT problems in health such as outdated antivirus software and malfunctioning electronic health records. If there’s an issue Gary cannot solve, it will require input from other stakeholders. For example, Gary can’t analyze patient data from wearables to address the technological issues.
These solutions, which offer democratized access to healthcare, are becoming increasingly attractive to investors and consumers. McKinsey reported that telehealth enabled medical professionals to see 50-125 times as many patients during the COVID-19 crisis than they did before.
Companies that offer on-demand care, such as AliveCor (the company behind the portable ECGs), are following this trend. In 2019, the company raised $5.78million in new funds. In 2020, they launched KardiaCare. This digital subscription service allows users to receive remote personalised insights from cardiologists as well as handy summaries. Their latest device is literally the same size as a credit card and fits easily into anyone’s wallet.
5. Startups that succeed meet real-life clinical or patient needs
You’ll often see silly products at tech shows like CES, such as a blockchain toothbrush or a watch that gives you electro-shocks. You’ll also see startups such as Magic Leap, which promise partnerships but fail to deliver. CliniCloud is another example of a startup that has a great team and excellent tech, but eventually closes shop. These examples show that startups must be able to solve real clinical problems in order to succeed in digital health.
Technology must be integrated into healthcare practice in order to succeed. MySugr, for example, helps diabetics to see their condition as a “monster” that they can control through their app. It motivates patients by providing them with personalized insights, and scoring systems, and motivating them to “tame” the monster. This helps keep their glucose levels at a desirable level. Roche, a pharmaceutical giant, saw the potential of mySugr’s gamified approach to diabetes management and purchased the startup in 2017. Roche bought mySugr in 2017 and paired it with its Accu-Chek Guide glucose monitor to create the mySugr bundle. This will help diabetics manage their condition better.
We encourage you to download the 2022 edition of our LeanPub e-book Invest in Digital Health. This update will provide more information about the most promising trends in digital healthcare. Further details on our assessment of these technologies and relevant companies will be provided. We hope that you find it useful.
The Medical Futurist published the article 5 Things We Learned About Digital Health Investments: A New E-book.
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By: Pranavsingh Dhunnoo
Title: 5 Things We Learnt About Investments In Digital Health: New E-book
Sourced From: medicalfuturist.com/5-things-we-learnt-about-investments-in-digital-health-new-e-book
Published Date: Thu, 02 Jun 2022 08:00:00 +0000
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