Investment activity has been buoyant in the healthcare space, propelled by the spread of disruptive technologies and new care models that have impacted organisational operations and business strategies across the industry.
Following a strong 2020, when the healthcare sector attracted a record $16.8bn in venture capital, the first half of 2021 was even more remarkable. The industry raised $21.8bn in the first six months of the year, surpassing the total funding collected in the entirety of 2020 by 30%, according to a report from Silicon Valley Bank. This intense activity was driven by a surge in digital health deals, including several large rounds hitting valuations above $1bn.
In addition to its anticyclical nature, which has become particularly valuable during the pandemic, the digital health segment has lured investors with its enticing pledge to alleviate operational and infrastructural costs that traditionally burden healthcare systems, whilst delivering better care to everyone, regardless of their social status or geographical location.
“The digital health market has been flooded with capital and has currently become one of the most attractive technology sectors in which to invest,” said Priyanka Mitra, principal at M12, Microsoft’s venture fund. “There is huge room for innovation and growth across the healthcare industry, which is still constrained by old legacy systems and pain points that need to be disrupted. This can be a great opportunity for startups able to bring a jolt of energy to the system by innovating and iterating upon existing healthcare infrastructure and clinical workflow.”
About $15bn of venture capital was invested in the digital health space in H1 2021, a 138% increase compared to the $6.3bn raised in the first half of 2020, according to data from Mercom Capital.
Deal volume has also been robust in the first half of the year, which recorded 372 deals with an average size of $39.6m, including 48 mega deals accounting for 59% of total funding, as reported by Rock Health.
Corporate venture investors have strongly contributed to boosting the digital health sector’s growth, by deploying $7.8bn in capital in 2020 and more than $7.9bn in the first semester of 2021. CVCs have been exceptionally active on the M&A side as well, completing 26 exits in H1 2021, worth an aggregate $5.6bn.
The key factor behind this upward trend has been the shift towards a patient-centric approach, enabled by the adoption of innovative care delivery models, remote monitoring, and diagnostics technologies that have disrupted the traditional provision of healthcare services.
Despite some of these technologies being available for years, their widespread adoption has only started under the pressure of an unexpected and overwhelming force: Covid-19. The pandemic has acted as a catalyst for the rapid deployment of digital health products and has played a considerable part in helping patients and practitioners overcome their resistance towards virtual care models.
In April 2020, overall telehealth and outpatient care utilisation was 78 times higher than in February 2020, and despite a reduction in the coming months, this figure has remained strong and has stabilised in 2021 at levels 38 times higher than before the pandemic, according to data published by McKinsey.
“The pandemic has been a powerful force in driving faster adoption of digital healthcare solutions,” said Donald Lacey, chief investment officer at Ping An Voyager Partners. “It is clear that traditional healthcare delivery models in the developed world are often unsustainable in their home markets and inappropriate for adoption in new markets. As this has become more and more apparent, there has simultaneously been an explosion of new technologies that hold the promise of delivering diagnoses and treatment at a distance, in a more personalised way, and at lower cost. These two drivers are behind much of investors’ enthusiasm for digital health.”
The new post-Covid reality, where digital health management platforms and virtual care services are redesigning doctor-patient relationships, requires providers to embrace innovation and become part of a more integrated, smart health ecosystem.
“The radical change in consumer mindset and attitude towards health, that gradually emerged in the last few decades, has rapidly accelerated during the pandemic,” said Rebecca Woodcock, principal at Yamaha Motor Ventures. “Consumers have developed a more informed, intimate, and sophisticated relationship with their health and wellbeing, and digital health has been a great response to their emerging needs. This has happened with health and fitness wearables and apps, which have become part of our daily routine, and more recently with remote monitoring and telemedicine, which can provide a more comfortable way of administering therapeutics, supporting the healing process of a patient, and managing chronic disorders.”
Telehealth has shown its potential not only with its synchronous services, such as live videoconferencing and real-time monitoring, which can reduce patients’ stress and bring healthcare to peripherical areas underserved by the system, but also through asynchronous solutions, including the digital collection and transmission of patients’ records and medical history.
This space has offered attractive opportunities to both corporate and venture investors, which have poured capital into the segment, targeting telemedicine companies around the world.
Hinge Health, an IP Group-backed platform dedicated to people living with chronic musculoskeletal conditions, secured $300m in series D funding in January 2021, reaching a valuation of $3bn. The company provides access to physical therapists, physicians, and technologies such as wearable sensors to guide exercise therapy aimed at improving back and joint pain.
for musculoskeletal conditions
Later in the year, Vida Health collected $110m in a series D round featuring enterprise software provider Workday and insurance firms Axa, Centene and GuideWell Mutual. The company’s digital platform allows patients to remotely access doctor consultations and video meetings to treat chronic illnesses including diabetes, hypertension, depression, and anxiety.
Another telehealth company that has attracted a hefty amount of funds this year is TytoCare, which is backed by Ping An Voyager Partners. The company received $100m in a round led by Insight Partners with participation from Qualcomm’s corporate venturing arm.
medical exams
“TytoCare solves the ‘last mile’ problem in telehealth, namely, collecting accurate data on patients at a distance and then using that data to deliver more accurate diagnoses,” said Ping An Voyager’s Lacey. “The company has developed an easy to use, handheld medical device that measures most of what a doctor would check for in a physical examination, and then transmits that data through the cloud to your chosen telehealth provider. That data builds up over time, so your telehealth provider can generate a baseline against which to judge your condition in future consultations. The device already has FDA and CE approval, and we are working with TytoCare on CFDA approval now.”
Delivering digital care to vulnerable populations
The uncertainty, grief and isolation caused by the Covid outbreak have had a profound impact on people’s mental health and have further exacerbated the conditions of patients with behavioural health disorders, including alcohol and drug misuse, insomnia, and anxiety.
During the pandemic, mental health services were disrupted in 93% of countries worldwide, a devastating impact on an already egregiously underfunded segment of the healthcare industry, as underlined by a WHO survey. Even prior to the outbreak, most countries allocated less than 2% of their national health budgets to mental health. Following the spread of the virus, the struggle of healthcare providers to support the mental health needs of local populations has become untenable.
This challenging environment has put mental health under the spotlight, fuelling the development of new technologies and attracting private funding at a pace never seen before. In 2020, US mental health startups received more than $1.4bn in venture capital, a 32% increase on the previous year, according to data from PitchBook. The positive momentum has continued to build up this year, transforming the mental health space into a popular and promising investment opportunity.
The segment has recorded one of the largest deals inked so far in the health-tech space: Noom, the developer of a digital platform that encourages healthy behaviour and provides guidance from virtual coaches, raised $540m in series F funding in May 2021. The round, which featured corporate investors Novo and Samsung, valued the business at $3.7bn.
A month later, psychiatric and behavioural therapy provider Cerebral collected $127m in a series B round led by diversified conglomerate Access Industries, valuing the mental health-dedicated telemedicine company at $1.2bn.
“In the US alone around 50 million people suffer from mental health issues, and that number has only been growing during the pandemic,” said M12’s Mitra. “Our mental healthcare system is in need of rapid and extensive improvement. Some significant results can be achieved with new applications and platforms able to reach a broader pool of patients, providing their employees or communities at large with digital mental health resources and supplying greater access to basic behavioural healthcare and specialised care for more complex mental health needs.”
The scarcity of mental health services has had a disproportionate impact on vulnerable populations that healthcare providers often struggle to reach and support. In the US, Medicaid recipients have been strongly affected by a deterioration in their quality of life during the pandemic, resulting in a spike of demand for psychological, behavioural and substance abuse treatments.
The need for improvement has unlocked attractive opportunities for investors willing to finance the development of services aimed at improving care delivery for populations at risk.
Upward Health, a medical group that specialises in high-need populations, received a significant equity investment earlier this year, led by Heritage Group and backed by Blue Venture Fund, Noro-Moseley Partners and Windham Ventures.
for individuals with complex needs
“Upward Health is a terrific example of a company that provides physical and behavioural health services for individuals with complex needs, leveraging unique community-based clinical and social support in a unique home and virtual delivery model,” said John Banta, president and managing director of the Blue Venture Fund, which is sponsored by the Blue Cross Blue Shield Association. “Upward Health partners with health plans and has consistently driven improved outcomes with high member satisfaction.”
Companies like Upward Health are trying to address the inequity and disadvantage caused by social determinants of health, economic and social conditions that affect health-promoting behaviour and health equity among the population, thus impacting health outcomes.
Prompt interventions to mitigate the devasting effects that poor nutrition, homelessness, indigence, and isolation have on people’s wellbeing have proven to be essential in order to defuse high-risk situations and make a tangible difference to the lives of patients.
To achieve these results, several digital health companies are developing tools that improve our knowledge and understanding of social determinants and their distribution among the population, with the objective of optimising intervention plans and achieving a more effective deployment of healthcare services.
“The events of the last year and a half have made clear – despite longstanding dialogue around social determinants of health – that access, cost and the resultant quality of health outcomes remain very inconsistent,” said Banta. “As a result, BlueCross BlueShield Plans have expanded the commitment to reducing inequity in healthcare, first by understanding the data around social factors, and then by developing targeted resources with which to support vulnerable populations.”
By leveraging predictive data and analytics tools, providers can paint a far more complete picture of each patient’s circumstances, identify gaps in resources and management and ultimately facilitate the adoption of value-based care models, that prioritise quality and outcomes over services rendered and have a strong focus on preventative medical care.
Data empowerment
Data analysis has been essential in the fight against the spread of the pandemic, allowing scientists and institutions to monitor infections, track patients, predict surges and contain outbreaks. AI and machine learning technologies have also been applied to big datasets of compounds, proteins and peptides to discover vaccine candidates and therapeutics for the prevention and treatment of Covid-19.
Moreover, the potential of data analytics has opened a wide avenue of ground-breaking possibilities within diagnostics, prevention and early intervention, able to truly revolutionise our relationship with health and optimise care delivery.
“Data analysis has the incredible potential to drive every business forward, regardless of their specific scope and application, especially across the healthcare space where every advancement is highly reliant upon data availability and quality,” said Yamaha’s Woodcock. “This is why it has become essential to develop new ways of gathering, storing and processing data that guarantee its accuracy, consistency, and cleanliness.”
The data segment has recorded one of the largest M&A deals inked this year, a $7bn merger between medical data company Datavant, which is backed by corporates Roivant Sciences, Johnson & Johnson and Cigna, and healthcare data software provider Ciox Health, which is sponsored by Merck & Co’s Global Health Innovation Fund.
The combined entity will focus on improving access and the exchange of health data among thousands of organisations in the healthcare ecosystem, for use cases ranging from better clinical care and value-based payments to health analytics and medical research.
In addition to some large sales, the data space has also recently seen several hefty rounds, including a $132m series E injection in K Health, a data-driven digital care platform backed by health insurer Anthem and mass media group Comcast. The round, which valued the company at $1.4bn, was co-led by venture capital firm GGV Capital and investment firm Valor Equity Partners and featured care consortium Kaiser Permanente’s pension fund and family offices including LTS Investments.
helps board-certified doctors provide a diagnosis
“K Health has built an AI-powered technology able to develop accurate symptom checking, identify a potential issue and deliver early intervention with board-certified physicians,” said Eric Steager, vice-president of corporate venture capital at Anthem. “Its platform is based on billions of clinical data insights and can identify almost all primary care conditions, as well as anxiety and depression, while also offering treatment plans and prescriptions.”
Another business operating in the data-driven diagnostics segment that has received funding this year is C. Light, a neurotech company backed by venture capital funds and corporate investors, including Yamaha Motor Ventures.
The company uses retinal imaging data to measure small, involuntary eye movements called microsaccades, a type of fixational eye motion that can predict the progression of neurodegenerative diseases including Alzheimer’s.
“C. Light’s non-invasive technology enables clinicians to study and measure eye motion on the cellular scale, meaning eye motion as small as 1 micron, to monitor neurodegenerative disease progression and therapeutic efficacy,” said Yamaha’s Woodcock.
predict the progression of neurodegenerative diseases
Advancements in data technologies used for diagnostic purposes are particularly significant for healthcare providers operating in emerging economies, where there is a scarcity of healthcare professionals relative to the local population. In China, for example, there are fewer than 2 doctors per 1,000 people and many hospitals need to handle over 10,000 patients per day.
In these environments, companies that are developing advanced AI tools and algorithms to process medical images at high speed and with a higher degree of accuracy can be instrumental in avoiding the collapse of the local healthcare system and improving patients’ outcomes.
One such example is Airdoc, a Chinese company backed by Pin An Voyager Partners, which has developed an AI-driven system that analyses photographic images of the retina to diagnose a series of chronic conditions.
“Airdoc has developed an extremely sophisticated set of algorithms that interpret retinal photographs to instantly diagnose dozens of different medical conditions, including optic nerve disease, macular degeneration, diabetes, hypertension, and arteriosclerosis,” said Ping An Voyager’s Lacey. “It has been settled science for decades that many health conditions can be diagnosed on the basis of a retinal photograph, but you usually do not have an appropriately trained physician in an optician’s office who can deliver those diagnoses, particularly in rural areas around the world. In areas where there is a lack of trained healthcare staff, a diagnostics tool like Airdoc’s, which does not require technical knowledge or special training, can make a huge difference and greatly improve lives.”
Data overload
By leveraging all the technologies currently in use, healthcare providers have been able to collect more data than ever, from patients records, digital platforms, wearables, apps, mobile biometric sensors, as well as more sophisticated procedures such as genomic testing.
However, dealing with huge amounts of big data is very complex and can present major challenges for healthcare systems. Supercomputers and quantum algorithms are often required in order to extract meaningful information in a reduced timeframe.
Furthermore, the infrastructure in use would need to be upgraded and optimised to support extensive interoperability, which comprises the integration of proprietary, heterogeneous platforms. Achieving full interoperability would help healthcare providers become agile and able to respond to the evolving capabilities of digital health technologies, thus exchanging and utilising data to their full potential.
“The development of quantum computing has potential to massively improve data processing and analysis, by optimising searches across new and extensive datasets, finding and uncovering patterns and facilitating integration,” said Anthem’s Steager. “However, the lack of proper clinical and institutional interoperability remains a great limitation to data analysis. There are strong efforts, many of which Anthem is participating in, to establish data exchange and management standards, and this work is aiming to achieve measurable and satisfying results by translating that information into interoperable data that can meaningfully impact our healthcare system.”
Companies working in this field have developed promising technologies to accelerate interoperability between healthcare providers and have attracted large rounds at high valuations.
Innovaccer, a producer of data management software aimed at improving healthcare data interoperability, received $105m in series D funding this year at a valuation of $1.3bn, from a pool of investors including Microsoft’s M12. The company has developed a platform that uses artificial intelligence and analytics to connect healthcare data across a myriad of systems and centralise patient records for providers, payers, and healthcare organisations.
data across different systems
“Innovaccer has already helped healthcare organisations unify patient records for more than 25 million people around the globe and generated over $600m in savings for the healthcare ecosystem at large,” said M12’s Mitra. “Its technology has concretely improved interoperability for healthcare providers and has contributed to the transition to value-based care by creating 360-degree patient profiles that encompass a risk score and gather comprehensive data to fully understand their clinical history and what their risks are for the future.”
In addition to interoperability challenges, the use of data is also constrained by risks related to privacy and confidentiality. One possible solution to this hurdle lies in the use of synthetic data, which are artificially generated through complex algorithms and contain no customer information, whilst preserving all the insights and patterns of authentic data.
“Synthetic data represents a promising technology for addressing one of the main challenges faced by healthcare providers: managing and sharing information while protecting individual privacy and confidentiality,” said Jon Wolkin, investment director at Telus Ventures. “In addition, this technology can be effective in avoiding algorithmic biases, achieving better performance in diagnosis, increasing diversity in datasets and optimising the robustness of trained AI models.”
Among the companies that are developing synthetic data technologies for healthcare providers there is MDClone, a data platform that has received funding from various investors in the last few years.
“MDClone is a very interesting company which has developed a technology that enables healthcare organisations to store, process, access and protect their patients’ data,” said Wolkin. “Furthermore, its platform can improve interoperability between medical departments, different healthcare providers and biotech companies as well as optimise local and global sharing of datasets.”
The future is now
The blossoming of health data technologies has been a significant enabler of the development of precision medicine, an approach to medical care tailored to genes and proteins specific to each individual. Machine learning applied to large multidimensional datasets can capture variability based on every patient’s unique physiology, drug response and genetic profile, with the aim of optimising prediction risk, diagnosis, treatment, and prognosis of many diseases.
“Personalised medicine is an amazing tool for healthcare providers and bears an incredible potential,” said Telus Ventures’ Wolkin. “By using genome sequencing, proteomics, and pharmacogenomics, it can provide better diagnoses with earlier intervention, tailored and more effective drug development as well as customised treatments and highly-targeted therapeutics. These technologies will be able to transform the whole experience of every personal health journey, making it more seamless and improving health outcomes.”
The global precision medicine market is expected to reach almost $106bn by 2026, according to UnivDatos. Dealflow across the sector has been robust, with several large rounds including a $201m series C for Intervenn Biosciences, which was co-led by SoftBank and Heritage Provider Network. Intervenn has developed an artificial intelligence-equipped platform able to identify biomarkers that can be utilised for cancer diagnosis and recurrence detection, as well as predictive tests for therapy selection and treatment.
On the exit side, one of the largest deals inked this year was the sale of Vividion Therapeutics, a developer of precision small-molecule therapies targeting cancer and immune system disorders. The company, which was backed by Alexandria Venture Investments, Celgene and SoftBank, has been acquired by Bayer for $1.5bn upfront and an additional $500m in milestone payments.
Healthcare providers have also benefitted from technological advancements achieved through augmented reality (AR), which has been used by surgeons in the operating theatre to assist with the visualisation of a patient’s unique anatomy of blood vessels, tissues, organs, and bones.
Last year, surgeons at the Rush University Medical Centre in Chicago, had 3D spinal anatomic and 2D CT scan images directly projected onto their retina and superimposed over the surgical field while conducting the first AR minimally invasive spine surgery ever performed.
AR applied to healthcare represents a growing market, which is projected to rise at a CAGR of 26% in the next six years, according to Research Dive. The main corporate players in this segment include Google, Microsoft, Philips Healthcare and Siemens Healthineers.
Moreover, robot-assisted surgery (RAS) technologies have been flourishing in the last few years, enabling surgeons to carry out complex procedures with greater precision in numerous fields including gynaecology, urology, orthopaedics, and neurology.
According to a report published by Research and Markets, the global surgical robotics market is expected to reach $17bn by 2031, while attracting an increasing number of venture capital and corporate investors.
specialised in keyhole surgery
CMR Surgical, the developer of Versius, a surgical robotics system specialising in keyhole surgery, raised $600m in a series D round last June, which was co-led by SoftBank’s Vision Fund 2 and Ally Bridge and backed by Tencent and General Electric’s GE Healthcare.
Notable deals also included a $100m series C round for US-based surgical software provider Caresyntax, which featured corporates Intel, Optum, Relyens and Rezayat Group, and a series B round of about $92.6m for Chinese surgical robot developer Edge Medical Robotics, provided by Kangji Medical and other investors.
Despite their incredible contributions to healthcare development and the recent increase in funding, many of the most advanced digital and high-tech applications come with complex challenges for healthcare providers and health plan sponsors. Their successful, widespread adoption will require more clarity in regulatory, policy and legal structures as well as further changes in practice patterns, organisational models, and management strategies.
“Digital health technologies have pushed the boundaries, prompting healthcare payers and providers to respond to new challenges, and consumers to aspire to a higher quality of care delivery,” said Anthem’s Steager. “Implementing these changes will require a shift in mindset and a new approach from all players involved, based on the fundamental concept that the consumer is at the centre of the equation and the system is tailored around them.”
