Digital Health Ecosystem In The US - Q2 2018


(The prior article in this series is the Digital Health Ecosystem in the United States — Q4 2017.)

2018 has started off as another stellar year for the digital health industry in USA. The rising volume of venture capital funding and increasing deal size coupled with an increasing number of repeat investors signal strong maturity and stability in the industry. Further, enterprise players are making significant strategic moves which will have major implications for the future of startups in the digital health space.

Digital Health in USA: Strong Traction Continues

Digital healthcare is booming in USA and a number of factors support this growing penetration of digital health in our day to day lives — Ageing population, rising prevalence of chronic diseases, regulatory changes and shift towards value based care.

Leading enterprise players in the healthcare space continue to make interesting strategic moves in the healthcare space and the future prospects for startups seems to be more tied to such large players- be it in the form of investor, acquirer or strategic partner. Google is making strong waves by pioneering its work in the AI space, Amazon just acquired Pillpack to enter the prescription drug domain and Microsoft is penetrating deeply in the healthcare industry. The much awaited joint venture between Amazon-Berkshire Hathaway-JP Morgan will be spearheaded by world renowned Dr. Atul Gawande. His leadership in this venture is expected to disrupt the entire digital healthcare space.

As the world moves towards preventive healthcare from a fee based model to value based care, the disruption in pharma industry is also bound to happen. Digital therapeutics, clinical trials and medication adherence are the key areas of interests for pharma companies in 2018.

Hospitals are also becoming serious about digital technologies and setting up centers for innovation as well as integrating technological innovations in their care system.

Artificial intelligence has been the buzzword in healthcare and has seen increasing volume of activity from startups as well as enterprise players. American Medical Association is also taking up AI seriously and has recently outlined new set of recommendations on augmented intelligence.

The rising trend of preventing healthcare has paved way for symptom checkers and chatbots. AI powered Chatbots, upgraded symptom checkers are allowing people to to bring healthcare at home, even before a telemedicine consultation. Companies like Buoy Health and WebMD are making inroads into the symptom checker field with innovative and upgraded offerings.

Telemedicine has also been making giant strides in 2018 after new federal ruling and increasing adoption among newer generations. Recent studies have also validated the efficacy of telemedicine as compared to regular doctor visits, which has further propelled the growth of this sector.

There has been an increasing number of activity in the mental health space with behavioral health companies raising more funding than ever. A total of $273 million across 15 companies was raised in first half of 2018.

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Digital Health Ecosystem Becoming More Mature & Stable

The positive trend related steady flow of funding in the digital health sector observed in 2017 continues in 2018 as well. This sustained growth in funding clearly points to the rising level of maturity that one expects in an emerging investment sector. It is noteworthy that investors are deploying capital at the fastest pace since 2006. Further, the deal sizes are also becoming large as later stage companies are doing sizable rounds. A total of $3.4 billion were invested in the first half of 2018 across 193 deals.

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The growing maturity of the industry, as evident from the rising deal volume and deal size, is also due to the fact that startups are increasingly hitting key milestones and validating their product, thereby attracting more money from investors. Investors have become more cautious and looking for proven outcomes and not hype, especially after the recent debacle of companies like Theranos.

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It is also heartening to see that there are now more repeat investors in the digital health space as compared to first time investors. 62% of investors in first half of 2018 were repeat investors which clearly depicts strong, longer term commitment towards digital health industry by investors.

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Investors, Advocacy Groups, Accelerators & Incubators

United States has one of the strongest startup ecosystems in the world as it is home to Silicon Valley- the hub of innovation. The startup ecosystem in United States ranges from the world’s largest VCs to global leaders in the healthcare and technology space to some of the best healthcare research institutions. In addition, there are numerous organizations advocating the cause of propelling digital healthcare.

Digital Health VCs

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The list of most active VCs in this space in the last 5 years include names like Khosla Ventures, GE Ventures, KPCB, Sequoia, etc. Leading healthcare corporations such as Mayo Clinic, Sanofi, J&J, Cleveland Clinic, etc. have also been very active in promoting startups in the digital healthcare space.

Advocacy Groups

There are many advocacy groups in USA that are driving the awareness and adoption of digital health technologies among the industry players.

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Accelerators and Incubators

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Research Institutions

United States has not only got one of the biggest startup ecosystem support in terms of VCs, accelerators and incubators, but has also access to one of the best research support. Some of the top names working towards accelerating digital health R&D include:

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Mergers & Acquisitions: Consolidation Continues

Some of the recent acquisitions such as DaVita’s acquisition by Optum and Humana’s acquisition of Kindred Healthcare show that vertical integration is on the rise. Further, the positive ruling for AT&T and Time Warner merger has also raised hopes for mega mergers in the healthcare industry.

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Going Forward: Will the optimism and hype turn into reality?

2017 was a record breaking year for digital health and 2018’s first half is no exception. The sector is moving strongly towards maturity. However, the key questions remains to be answered that whether or not such high profile, well capitalized digital health startups will be able to achieve scalable and profitable business models and provide exits to their investors? The answer remains to be seen, but one thing is for sure — Digital Health is definitely moving towards the right path and aims to truly transform the way we perceive healthcare.

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Market Map

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