Digital Health Funding Drops Off & IPOs Heat Up in Q1
U.S. companies raised more than $8 billion for digital health last year. But investors injected just $986 million into 61 digital health deals in the first quarter of 2019 — about half of the money raised in Q1 2018, according to a funding report from Rock Health.
“Coming off a record-smashing year for digital health funding in 2018, we see funding leveling off in the first quarter of 2019,” Rock Health researchers Sean Day and Megan Zweig wrote. “Meanwhile, after a two-and-a-half-year drought, the digital health IPO market is heating up.”
Quarterly funding has averaged $1.4 billion over the past two years, meaning the money invested in Q1 2019 dropped well below that trend.
The quarter was also slow for digital health mergers and acquisitions, with 21 startup acquisitions. That number fell 32 percent below the average of 31 acquisitions per quarter from 2016 through 2018.
But acquisitions within digital health continued, with 13 startups acquired by other digital health companies. Behavioral health companies seemed to be favorable. For instance, AbleTo acquired Joyable, which provides coach-supported programs for patients to overcome anxiety and depression. Livingo, meanwhile, bought MyStrength, a company that offers evidence-based and clinically reviewed tools to foster treatments such as cognitive behavioral therapy.
Corporate venture capital investors have consistently participated in about one-third of digital health deals over the past five years. In Q1 2019, corporations remained interested in digital health investments as a way to leverage external innovation for growth and profitability.
Health systems have been active corporate investors, with Kaiser Permanente, Mayo Clinic and Ascension each making more than 10 investments since 2014. Those health systems belong to a group of 11 corporate venture arms whose digital health investments broke double digits over that time frame.
The last initial public offering (IPO) of a U.S. digital health company came in 2016. In Q1, four companies — Livongo, Peloton, Change Healthcare and Health Catalyst — made plans to go public in 2019. Goldman Sachs and JP Morgan are leading all four IPOs.
Three of the four companies are on average 10 years old and have each raised an average of $505 million funds.
“While IPOs are critical milestones for early-stage venture investors, we’re watching closely to see how these IPOs enable companies to deliver for the patients, customers, and future public market investors they serve,” Day and Zweig wrote.