As the world continues to change and adapt to the current COVID-19 pandemic, the digital health sector has experienced tremendous growth and momentum only picked up in 2021.
According to the first half report on digital health financing and mergers and acquisitions 2021 released by Mercom Capital, the first half of 2021 ended with $ 14.7 billion invested in 372 digital health deals in the United States. , for an average size of $ 39.6 million. Fifty-nine percent of that funding came from 48 “mega-deals” involving more than $ 100 million each, including one of the largest investment rounds in digital health history: the 540 round. million dollars from Noom’s F Series. In total, 359 startups were funded.
Telemedicine and mental health
After about a year and a half of the COVID-19 pandemic, it’s no surprise that telemedicine led the fundraising activity, accounting for nearly 30% of funds raised in the first half of 2021 (around $ 4.2 billion ). For context, the next best-funded digital health categories in the first half of 2012 were wellness with $ 1.7 billion, mobile health applications with $ 1.6 billion, analytics with 1.5 billion dollars. billion dollars and clinical decision support with 1.1 billion dollars.
At the same time, however, the use of telemedicine has declined nationwide, according to FAIR Health’s monthly regional telehealth tracker. The decline in telehealth use appears to be due to a return to in-person visits to hospitals and other health facilities.
However, this did not stop investors. According to Fierce Healthcare, telehealth companies raised funds on 105 agreements, a 147% year-over-year increase from $ 1.7 billion raised in 79 agreements.
While telehealth use overall has seen a reduction, virtual visits for mental health issues, the number one diagnosis in telehealth, have continued to increase nationally and in every region. According to Fierce Healthcare, mental health claims as a percentage of overall telehealth claim lines have continued to increase. Likewise, psychotherapeutic / psychiatric codes have increased nationally as a percentage of telehealth procedure codes, while assessment and management (E&M) codes have decreased.
Unsurprisingly, for digital health startups receiving funding in the first half of 2021, the most funded clinical indication was mental health. Ranked by funding amount, the next five best funded clinical indications were cardiovascular disease, diabetes, primary care, substance use disorders and oncology.
In June, startup Lyra Health, a provider of employee mental health benefits, raised $ 200 million in new funding to bring its valuation to $ 4.6 billion.
Lyra Health provides evidence-based care to support people in many aspects of mental health. Lyra Health’s Mixed Care Therapy combines video counseling sessions, one-on-one messaging, and provider-prescribed digital activities to support individuals in their daily lives. The treatment model, based on the principles of cognitive behavioral therapy, provides ongoing support between sessions.
Lyra Health also announced an expanded global strategy, to deliver care to people in more than 180 countries with the support of more than 85,000 mental health providers. According to Fierce Healthcare, Lyra Health’s new global digital mental health platform would provide members around the world with one place to access all of Lyra Health’s care options and services, such as preventative care, health coaching mental health, therapy and medication. Lyra Health plans to make the unified platform available in 2022.
“One in five people struggle with mental health issues such as anxiety, depression or substance use disorders,” said David Ebersman, CEO and co-founder of Lyra Health in a statement . “Delivering mental health care to diverse employee populations around the world is one of the most pressing and complex issues for employers today, and this new funding will help Lyra accelerate our plans to provide complete global solutions. “
Direct to consumption models
Venture fund Rock Health credits the COVID-19 pandemic with changing consumer health behavior as people have become more comfortable with using different health and wellness products -be virtual in their own home. Some of the largest direct-to-consumer digital health offerings in the first half of 2021, including Noom ($ 540 million), Ro ($ 500 million) and Capsule ($ 300 million), demonstrate strong investor confidence in this business model.
Noom, which has seen one of the biggest rounds of investments in digital health history, is a weight loss app. “Most people want to eat healthier, exercise more, be less stressed and sleep better, but changing these behaviors is not easy,” Saeju Jeong, co-founder and CEO of Noom said in a statement. press dated May 25, 2001, announcing Noom’s $ 540 million Series F funding. “This strategic roundtable reflects our investors’ confidence in the immense opportunity we have to build a business by helping as many people as possible live healthier lives through behavior change.”
Capsule’s goal is to create a ‘one-stop-shop’ for digital healthcare where consumers can access Capsule’s digital pharmacy as well as an organized set of products and services, such as telemedicine or support. in mental health, all from one app, according to company executives speaking to Fierce Healthcare.
Rock Health postulates that the main advantages of the direct-to-consumer approach are that “it allows companies to go upstream in consumer acquisition (marketing to individuals before entering the health system), to meet consumers wherever they are (outside of a clinical setting), identify people’s most pressing needs… and tailor service for specific use cases, rather than the aggregate needs of corporate clients. However, with a limited total addressable market (when comparing consumer healthcare spending against corporate healthcare spending) and high customer acquisition costs, Rock Health notes that such business models are not always conducive. reaching the scale and pervasive impact that healthcare innovation can deliver. In addition, these models often place the entire burden of paying for health care on consumers.
IPOs; Mergers and Acquisitions
Besides funding, the digital health industry also saw 12 initial public offerings in the first half of 2021. This is the highest number of IPOs in any first half since 2010, and it there was no IPO in the first half of 2020.
This year also saw a record number of mergers and acquisitions with 136 digital health deals, up from 83 in the same period last year. In the second quarter of 2021, there were 73 M&A transactions compared to 63 (14 disclosed) in the first quarter of 2021. By comparison, there were 42 M&A transactions in the second quarter of 2020. The companies Practice-oriented activities dominated M&A activity in the second quarter of 2021, with 43 of 73 M&A activity. transactions. Consumer-focused companies recorded 30 of 73 M&A deals in the second quarter of 2021.
Notable M&A deals in 2021 so far include: Microsoft’s $ 19.7 billion acquisition of Nuance, Datavant’s $ 7 billion acquisition of Ciox Health, and Preventice Solutions acquisition by Boston Scientific for $ 925 million.
Future opportunities and challenges
As investors accelerate the pace and volume of funding, Rock Health suspects digital health founders are more likely to find themselves navigating an extremely rich investment landscape. Fifty companies have raised several rounds in the last 12 months (end of the first half of 2020 to the end of the first half of 2021), i.e. double the 25 companies that have done so in the previous 12 months (end of the first half of 2010 at the end of the first half of 2020). Rock Health also advises founders to maintain a healthy sense of appraisal and investment cycles, and to create a circle of trusted operating and funding partners to inform decisions.
Additionally, Rock Health noticed that more than a quarter of all digital health companies funded in the first half of 2021 were startups catering only to consumers. This was the highest percentage in Rock Health’s ten-year tracking history, almost twice the mid-decade benchmark and five percentage points higher than in 2020.
The huge momentum of 2021 also introduces new risks for investors and entrepreneurs. Rock Health notes that “the speed and amount of investment will test the market’s current and future ability to design and deliver digital health solutions and then scale them to sustainable businesses.”
Finally, the immense digital health activity in recent years may also lead to further consolidation through merger and acquisition transactions. According to Rock Health, digital health companies remain the biggest buyers of other digital health companies, another indication that market consolidation is driving at least some of the recent fundraising activity.
Copyright © 2021, Sheppard Mullin Richter & Hampton LLP.Revue nationale de droit, volume XI, number 273