During the global pandemic, digital health has certainly turned the heads of provider organizations, but the investment numbers are, in and providers weren’t the only ones to take notice.
Six months into 2020, investors have poured a record-shattering $5.4 billion into the digital health industry, according to the latest Rock Health Report. [Last week MobiHealthNews published its biannual funding roundup and reported $5.3 billion. The difference is due to the scope of companies reported]
Researchers noted that they expected a major slowdown in response to the coronavirus pandemic, which happened initially, but at the tail end of Q2 there was a major upswing.
“Digital health funding had a wild ride through the first half of 2020. After coming out of the gates quickly with a record $3B in funding in Q1, digital health investment – and overall venture funding – hit the brakes in April as COVID-19 spread rapidly around the globe,” authors of the report wrote. “But investors came roaring back into digital health in May as several regulatory and reimbursement barriers to digital health adoption were brushed aside in a rush to keep healthcare systems operational in the midst of the pandemic.”
The size of the deal is also on the rise. Rock Health reports that the average size of the 2020 venture deal was $25.1 million. This was the highest average in Rock Health’s history. However, it is important to note that the report is a mid-year average, and there is more to come in the latter half of the year. To date, there have been 11 deals that have raked in more than $100 million – including ClassPass, Amwell and Cedars.
“Average deal size in the first half of 2020 for digital health startups was 29% higher than in 2019 overall. This sign of a maturing market is something we’ve commented on prior to the pandemic,” authors of the report wrote. “We observed an acceleration of this trend during H1 with larger funding rounds in established, late-stage digital health companies fueled by investors pursuing certainty in an uncertain environment – likely a sign of the proverbial flight to quality.”
Telemedicine was one of the big winners of 2020, as providers scramble to treat patients remotely, with that piece of the industry raising $926 million. The report indicates that several barriers to virtual healthcare have been removed – noting that CMS has expanded reimbursement for telemedicine services and that HHS waived HIPAA penalties if the interaction was done in good faith.
“Collectively, these changes make it easier for digital health companies to scale and meet the surging demand for virtual care solutions. While some of these changes may not be permanent, it’s tough to close the barn door after the cat is out of the bag –consumers and providers have experienced the value and convenience of virtual care.”
The last big takeaway was that the digital behavioral-health industry continues to boom. So far there have been 11 digital behavioral-health venture deals in this half of the year, which comes in at $588 million. The report notes that the global pandemic has increased levels of anxiety and isolation, creating a demand for such products.
Going forward, Rock Health researchers say that macroeconomics will have a major impact in the second half of the year. The report also goes on to say that companies selling to providers and employers many have a harder time than others.
WHY IT MATTERS
As the pandemic rages on in the U.S., and the unemployment rate continues to remain over 10%, there are still a lot of economic unknowns for the future. However, this hasn’t brought the digital health industry to a standstill. If anything, the numbers tell a very different story.
However, researchers comment that, while the numbers appear to be on the rise, this could change.
“Financial market uncertainty is hard to overstate, with even near-term economic forecasts having been thrown into a jumble. In just one example, the consensus estimate for U.S. monthly unemployment, a bellwether for investors and policy makers alike had the largest margin of error ever – over 30 times the second-largest estimate error (318,000 jobs, set in February 2003). Added to this uncertainty, a potential second wave of the virus could quickly reverse the Q2 public market rebound and growth in private digital health investment. While the pandemic appears to have stoked investors’ appetite for digital health companies in particular, their focus could shift in a longer term economic downturn.”
THE LARGER TREND
Rock Health has been reporting digital health trends for going on ten years now. During that period the investments have continued to climb. The year 2018 saw an all-time high for yearly investments at $8.2 billion. Last year the total funding came in at $7.4 billion.
While the year-to-year deal size varies on the whole, the numbers are on an upward trend – from $12 million in 2011 to $19.5 million last year.
This article has been updated to reflect the correct amount MobiHealthNews reported.