You may have heard about the boom in digital healthcare investment. But why does everybody seem to be talking about it? The answer is simple: according to Rock Health, digital health investment smashed records in 2014, with more than $4bn in funding, double of the total reach in 2013, which in turn was 119% higher than in 2011.
What exactly is digital health? It is a growing business that comprises the use of electronics and computer technologies to help address health and wellness-related problems faced by patients and medical practitioners. Among other technological elements, digital health includes microprocessors, hardware sensors and software sensing technologies, wireless devices, social networking, genomics and much more. New technologies developed using these elements include tools as variable as remote patient monitoring systems and software for the analysis of big data.
One of the main reasons why digital health is becoming such a hot trend is because healthcare is a recession-proof industry. According to the American Bureau of Labour Statistics, around 8 million jobs were lost in the US during the 2008-09 financial crisis. However, in the same period, jobs in the healthcare industry grew by 7%. As a consequence, digital health has become a hot trend not only for investors but also among tech circles. Programmers that used to dedicate their time to develop social networks, games or photo-sharing apps are becoming more and more interested in health and wellbeing improvement.
The deals made on these new healthcare technologies in 2014 were dominated by some well-recognised venture capital firms like Venrock, Sequoia, Khosla Ventures and Kleiner Perkins Caufield and Byers. Large corporations including Apple, Google, General Electric, Mayo Clinic and IBM are also becoming big players. Since 2010, corporate investors have participated in more than 200 deals accounting for more than $2.2bn. During the past year, Qualcomm Ventures was the most active corporate investor in digital health with 12 deals. Additional investing comes from angel investors, accelerators and incubators, and crowdfunding.
Jointly, digital health investors seem more attracted to big data and analytics, which in 2014 accounted for $1.5bn invested and 90 deals, followed by population health, with $1.14bn. In these categories, Ambient Clinical Analytics, an analytics software for operating and emergency rooms backed by Mayo Clinic, Social & Capital Partnership and Rock Health, and Trinity Pharma Solutions, a mobile analytics and cloud data management for life sciences funded by Health Enterprise Partners and Milestone Venture Partners, are just a small sample.
Even though digital health investment has evolved quickly and it is continuing to grow, the investment pattern is starting to stabilise and show maturity. In previous years, seed and early startups have received big attention, but this trend has changed, and now investors prefer less risky medium or late-stage technologies. According to Startup Health, in 2014 just 25% of deals went to seed-stage technologies – the lowest percentage since 2010.
Additionally, a new tendency has been registered: fewer deals with higher investments. In this sense, even if investments in 2014 doubled those in 2013, the number of companies receiving funding dropped considerably from 590 to 459, showing that investors placed their bets on fewer companies.
Also interesting is that investment in pharma and biotech is declining, even in the case of medical devices. For instance, the US accounted for more than half the world’s medical research investing in 2007, with $131bn dedicated to this area. However, funding dropped to $119bn in 2012, due mainly to a lack of investors.
From a practical point of view, investing in digital healthcare might be less risky than traditional healthcare, since the path from seed stage to exit is generally shorter, requires a lower development investment, and normally regulatory matters that hinder the commercialisation of the final product are less restrictive. In this sense, the average time for a startup to overcome the concept design and pre-clinical development stages can take between one and four years, and to obtain US Food and Drug Administration (FDA) clearance an additional period of up to nine months for medical devices and two to six years for other medical products.
From this it is possible to conclude that regulatory approval processes tend to be less restrictive for medical devices, and that the probability of obtaining FDA clearance is higher for them than for other pharma and biotech products. On the other hand, the standard time required for prototype creation, pilot design, trials and iteration for the development of a digital health product ranges between nine and 39 months, and up to three months extra to obtain FDA approval.
As in many other sectors, the healthcare system is experiencing a technology-based transformation, opening a colossal range of new business opportunities for those who are willing to take the risk.
Digital health will be a major theme at the Global Corporate Venturing Symposium on June 2-3, with speakers from Qualcomm Ventures, Merck Global Health Innovation Fund, Novartis and many more. Visit: gcvsymposium.com