Mercom Capital Group’s latest numbers also suggest that upcoming IPOs could cast a long shadow on the direction of digital health investing.
The first half of 2019 has been bigger for digital health than any year opening before it, according to a new funding report from Mercom Capital Group.
While these conclusions were similar to those of MobiHealthNews and Rock Health, both released earlier this month, Mercom’s count pegged 2019’s to-date funding a bit higher at $5.1 billion raised through 318 deals (2018 saw $4.9 billion from 383 deals). The second quarter alone comprised $3.1 billion of this total for H1 2019 ($2 billion from 149 deals in 2018). According to the report, digital health companies have brought in more than $40 billion from VCs since 2010, with US companies claiming around three-quarters of that total.
Analytics startups were the recipient of much of this support, having raised $1.1 billion within the first half of the year, followed by telemedicine companies with $896 million and mobile health apps at $627 million. Wellness and healthcare booking startups collected $341 million and $336 million respectively, while clinical decision support, wearable sensors and mobile wireless startups were each responsible for less than $300 million.
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Mercom tracked 91 total M&A deals during the front end of 2019, compared to 116 in 2018’s first half. Dassault Systèmes’ acquisition of Medidata for $5.8 billion was the highest profile deal of the half, although tech juggernauts (Apple, Google, Best Buy), pharmas (Merck) and payers (UnitedHealth Group) alike took part the action.
WHY IT MATTERS
Mercom’s counts offer an outline of what kinds of digital health companies investors are most interested in, and which major companies are looking to acquire new tech and talent. But on the macro scale, it’s another indication that while the market isn’t quite slowing down, the anticipation of upcoming IPOs could act as a crossroads for investors and entrepreneurs alike.
“Funding activity was robust in Digital Health in the first half of 2019, while M&A activity was weak. Weak M&A activity has not affected investment activity over past years,” Raj Prabhu, CEO of Cercom Capital Group, said in a statement. “We are in an ‘invest first and ask questions later’ environment where investors are more worried about missing out in this hot space. After a long hiatus, we are seeing several digital health companies entering the IPO market in the US. Successful IPOs could open the floodgates, whereas if IPOs fizzle out, it could shut the IPO exit path for many digital health companies.”
THE LARGER TREND
Mercom’s analysts were signaling similar year-over-year funding increases at this time last year, with telemedicine firms attracting the vast majority of investor interest. By 2018’s end, however, Rock Health and others had predicted that a lack of exits would pump the brakes on 2019’s investments.
“With the surge in funding, and absence of an equally robust exit market, there is more scrutiny on digital health than ever before, begging the question: will value creation track with recent investment trends?” Rock Health wrote at the time. “With today’s high but as-yet-unrealized expectations, we aren’t surprised to see the b-word increasingly pop up in conversations.”
In the months since, many investors have pushed back against the notion that digital health’s potential is being overblown.
“I don’t think it’s going to be a bubble in the same way you saw the dotcom bubble,” Wainright Fishburn, Jr., founding partner of Cooley LLP’s San Diego office and global chair of the firm’s digital health group, said at BIO in Philadelphia last month. “We’ve [seen] a lot of money go in, we’ve seen a lot of exits, and there’s a lot of duplication in sectors, but I think it’s just a natural tapering off. … This is a sector that is still very hungry for solutions and there’s so much money flowing through.”
Date: July 22, 2019
Source: MobiHealthNews
