Last year was remarkable for the growth of digital healthcare with record numbers of funding rounds, M&A activity and mega-size deals.
The US is considered the hotbed for innovation and the digital healthcare space is no exception. With one of the largest innovation and startup ecosystems led by Silicon Valley, the country has been a pioneer in the advancement and adoption of digital healthcare technologies. Last year was remarkable for the growth of digital healthcare with record numbers of funding rounds, M&A activity and mega-size deals.
According to the federal agency Centres for Medicare & Medicaid Services, US healthcare spending increased 4.3% in 2016, reaching $3.3 trillion or $10,348 per person. Healthcare spending accounted for 17.9% of total national GDP. This reflects the size of the healthcare market in the US and potential for digital healthcare to grow.
According to a study by professional organisation the American Medical Association in 2016, most physicians in the US believe that digital health has a strong potential for improving patient care. Physicians are optimistic that digital health tools will go a long way in improving efficiency, patient safety and diagnostic ability. The study also found the key drivers for adoption of digital health tools in the near future.
The penetration of digital health solutions among consumers is also increasing. US consumers were increasingly willing to pay for e-health services in 2017. The digital healthcare market in the US will continue to lead the industry with target revenue poised to exceed $152bn by 2024.
The digital healthcare sector in the US has evolved from simple wellness devices and applications to solutions that can make healthcare more efficient and effective. Consumer companies, like Apple and Samsung, are beginning to collaborate with pharmaceutical firms, payers and providers to penetrate the healthcare space. Digital health interventions to improve patient outcomes and empower patients to deal with acute healthcare problems is a rising theme. Insurance firms are increasingly optimistic about digital health interventions, and the corporate venturing arms of payers, like Humana and Kaiser Permanente, are actively investing in this area.
Investor optimism in the digital healthcare space has already made 2017 a record funding year. Consumer engagement tools, big data and analytics continued to be at the forefront of the investor’s radar, followed by electronic health records and digital therapies. The rapid penetration of wearable devices and increasing use of the internet of things will propel strong growth in big data and analytics-focused digital health solutions.
Research firm CB Insights predicts that some of the top emerging areas that could disrupt the digital healthcare space could be blockchain-enabled hospitals, trans-dermal drug delivery, monitoring devices and intelligent drug design.
In the first half of 2017 alone, the number of $100m-plus deals in the industry reached record heights. The industry is becoming more mature and experiencing consolidation in certain areas.
Digital health has been a hot investment theme for institutional investors and the investment arms of healthcare firms in recent years. In the first half of last year, 331 distinct investors participated in funding rounds involving digital health firms, of which 138, or 42%, of investors are new entrants to the space.
The list of most active VCs in the past five years includes names like GE Ventures, the corporate venturing unit of conglomerate General Electric, Khosla Ventures, Kleiner Perkins Caufield & Byers and Sequoia. Leading healthcare corporations such as Mayo Clinic, Sanofi, Johnson and Johnson and Cleveland Clinic, among others, have also been active in promoting startups.
Most active VCs in digital health (2012–16)
Khosla Ventures: 33
GE Ventures: 28
Andreessen Horowitz: 24
Venrock: 19
Qualcomm Ventures: 13
Sequoia Capital:13
Kleiner Perkins Caufield & Byers: 13
New Enterprise Associates:13
Norwest Venture Partners: 11
Founders Fund: 10
Aberdare Ventures: 10
Many advocacy groups in the US drive the awareness and adoption of digital health technologies among industry players.
The most active acquirers in the digital health space are diversified, ranging from e-health record players like Allscripts and Telus to technology giants like IBM and apparel companies such as Under Armour. An increasing number of healthcare players across pharmaceuticals, insurance, medical devices as well as the corporate investment arms of consumer companies like Apple are set to continue making strategic acquisitions in the digital healthcare space.
As digital health continues to spread among consumers due to the increased use of electronic health records, smartphones and wearables, a growing number of healthcare providers and payers will continue to make strategic investments in the space. M&A activity will rise, new investors will continue to back startups and new solutions to existing healthcare challenges will arise. The US is poised to continue its dominance in digital healthcare.
This is an edited version of an article that first appeared on LinkedIn
