Trepidation. That one word describes the uncertain economic climate that gripped corporate and investment decision-makers. If we are to believe the headlines, wallets have tightened – almost closed – and investment in life science and digital health, as a result, has declined. That go-to conclusion takes a simple approach to a complex investment strategy for the digital health sector that has shown great resilience year-after-after.
The digital health sector has grown significantly during the past decade, primarily mobilized to address unmet health-system and care needs. From $2 billion invested in 2011, that figure morphed 28-fold to $56 billion in 2021. In the shadow of the COVID pandemic, unprecedented investment poured into digital health during this two-year window, accelerating the adoption of AI, remote patient monitoring, telehealth, digital therapeutics, wearables, VR and more.
Galen Growth and FINN Partners have collaborated – for a second time – to offer the entrepreneurial invention and investment industry a wealth of data that can guide financing life-sustain – perhaps saving – enterprises. With this detailed report, data is shared not as “one-off” ideas but as puzzle pieces assembled to provide actional insight into a dynamic and evolving digital innovation sector that offers the transformative power to find effective detours around health ecosystem fragmentation.
The Damocles Sword of Access and Outcomes
The two companies avoided hype and biases to create this analysis enabling investors or potential business partners to weigh subjective decisions alongside objective facts in recognizing that the fragmented health ecosystem centers around preserving the system itself are vital to helping product innovators and patients navigate the healthcare labyrinth. That economic return on investment is weighted along with patient experience and outcomes. This is the Damocles sword that inventors and investors must always consider – reimbursement that ensures access to care and meaningful and measurable outcomes.
While digital health venture capital fell short of the exorbitant funding of 2021, it closed ahead of 2020 levels. A closer look at the year-on-year development of funding value by funding stages shows that funding in 2022 nearly maintained the level of 2021 for the Early Stage and Series A funding rounds. However, it lagged behind the 2021 values across late-stage enterprise funding.
Investors learned and began to put their due diligence into action – targeting their energies toward specific geographies, sectors and needs (e.g., clinical trials). They looked for therapeutic categories receptive to digital health innovation. Within the disease-specific investments, oncology saw the highest participation of investors (9%), followed by mental health (7%) and women’s health (7%). C-Suite leaders and their funders will do well to study the report data and to determine next steps.
Just Facts – 250+ Million Data Points Analyzed
While other studies highlight “media grabbers” and numbers disconnected from insight into where the money is going — from the investment stage to disease states— The Global State of Digital Health connected more than 250 million critical analytic dots. This report will guide C-Suite leaders, business development and therapeutic area heads, private equity funds, and financial analysts to make savvy decisions that drive return on investment—whether the goals be financial or patient care.
After an extraordinary two-year pandemic funding spree, there are apparent shifts in how investors place their economic bets. In this year of geopolitical turmoil and uncertain financial performance, digital health remains vital to the future of the health economy and in addressing public health press points. However, the development stages in which funds are directed, therapeutic categories selected, provider systems that demand transformation, and the regions where innovators establish headquarters are now investment factors.
“2022 has been a year of recalibration that required all stakeholders to take a careful look at fundamentals. The operating assumption for companies across all stages should be that it will take them more time and money to reach the next major inflection point and raise their next round of capital. Extending runways is only one part of the solution. In the current environment, they must keep in mind that for their customers, it’s not just about clinical value but also about health economics. Those start-ups that can demonstrate to payers and providers their ability to help them achieve cost reduction or even generate revenue stand the best chance to differentiate themselves from the pack and weather the storm.”
Roy Wiesner, Managing Director, aMoon
Bottomline, funding levels exceed the pre-pandemic values. Digital health ventures are busy – submitting more than double the number of regulatory filings in 2021 than before the COVID era. There is a dramatic increase in partnering activity over 2021. If dollars and Euros are the only indicators of energy and commitment, it is easy to see why hand-wringing news stories prevail. Look at all the metrics that determine a vibrant sector.
In combining investment, regulatory filings for new product introductions, and partnerships, it is apparent that 2022 has been a formative period. Investors and innovators are putting in place the processes and systems – the people and science – that drive adoption and market traction. Investors are no longer looking at the sector as monolithic.
Putting the Right People and Processes on the Innovation Bus
If 2021 was the year of exuberance, 2022 was, as Jim Collins, author of the classic business bestseller “Good to Great,” dedicated to putting the right people – leaders and digital health sectors – on the bus. For example, medical diagnostics ventures had an exceptional year by representing 12 percent of regulatory filings of Digital Health ventures across the globe, taking the top spot for ventures with significant Clinical Evidence (Evidence Signal >40), and capturing the highest investment volume share (17%), with the total cluster funding value falling short of 2021 by 16 percent.
As the report suggests, 2022 is a turning point for digital health – a shift from Digital Health 1.0 to the 2.0 era, with Digital Health evolving into a more mature ecosystem. The recent data reaffirm that perspective and a fast-paced realignment occurring within the sector.
Looking at the past year, it is evident that investor mindsets matured in 2022, and lessons learned were applied. Obstacles – from regulatory hurdles to payer pushback – made incubators, accelerators and private equity groups much more selective in their investment and partnership decisions. They looked beyond “invention” to innovation – where the market seeks to embrace a new product and rally to Foreword its access within the health ecosystem.
The 2022 “Global State of Digital Health Report” does far more than examine monies invested in the broad digital health category — it offers a guide for decision-makers on how multiple data points translate into market shifts and how to pinpoint trends that provide predictive insight and best practices in investment strategies, across regions, Digital Health categories, therapeutic areas and technologies.
Decisions will be made based on this collaborative effort. This report offers a new perspective – the data this report provides – finding the balance between hype and hope to offer balanced optimism is a guide.
