Digital health, a category that was virtually nonexistent five years ago, has exploded in recent years and shows the potential to remake the way healthcare is delivered worldwide. Rock Health, the digital health incubator, tallies digital health investments and reports that the sector took in just over $4 billion in 2014. That's more than double the 2013 total of approximately $2 billion that represented a 30% increase over 2012.
So what is all of this exponential growth buying? My firm, Fenwick & West, does a monthly analysis of the largest private investments in the digital health sector. While wearable fitness trackers and calorie counting apps have caught the imagination of the public, they account for a relatively small portion of the dollars invested in the space.
In 2013 and years prior, most of the capital was going to more conventional healthcare IT (HCIT) infrastructure companies, including electronic medical record (EMR) vendors and big data/population health plays. This is not surprising since the HCIT subsector is capital intensive and was spurred by the Affordable Care Act (ACA) that, among other things, calls for greater interoperability among providers.
In contrast, last year, while there was still plenty of money going to healthcare infrastructure providers, half of the top ten investments went to diagnostic or therapeutic companies. In 2013 there were only two diagnostic or therapeutic companies among the top ten investees.
The other big difference we saw in 2014 related to the size of the investment rounds.
In 2013 the largest investments ranged in size from $35 million on the low end to $85 million on the high end. In 2014 the largest investment was a $550 million recapitalisation, and there were ten investments of $100 million or more.
2014 also saw three venture-backed digital health companies go public. Castlight Health raised $177.6 million in the first digital health IPO of the year. It was quickly followed by Everyday Health that raised $100.1 million. Finally, HealthEquity raised $127.5 million.
As Xconomy noted in summing up the state of the digital health sector in 2014 at Fenwick’s digital health summit, ‘more dollars, fewer bracelets.’
So what do we expect to see in the next five years?
Healthcare was slow to digitise and there are still a lot of investments required before the sector will enjoy the kind of productivity improvements other sectors of the economy reaped long ago. So HCIT investments are not going to go away.
We expect that there will be less interest in mobile health apps and wearables that aren’t designed to connect to a patient’s EMR or provide some other sort of clinical support. But there is still great potential for wearables that enable patients to participate proactively in their care.
A recent survey of healthcare leaders by The Economist found that 80% of respondents said that currently the main role for mobile health apps is to provide patients with education or information. However, when asked what role mHealth will play in five years, half said that digital health tools would allow patients to participate proactively in their care.
Technologies that allow remote patient monitoring combined with telemedicine have enormous potential to improve healthcare in remote populations or developing economies with little healthcare infrastructure. Pilot projects in the rural United States and far-flung regions of China and Africa have produced dramatic results by monitoring patients with chronic conditions, mapping the progress of infectious diseases or identifying and treating health problems before they become acute.
Like mobile phones, digital health tools are gaining traction more rapidly in the developing world than they have in markets burdened by legacy systems. We are seeing more private investment going into companies targeting non-US markets. For example, one of the largest digital health investments of 2014 went to a Chinese company that operates mobile apps that connect patients and doctors.
Digital health tools also play a critical role in the evolution of personalised or precision medicine that President Obama highlighted in his recent State of the Union address. Targeted drugs that are specific to a patient’s genome require sophisticated diagnostic tools and big data platforms to match patients with the right treatment.
Finally, there is still a lot of potential for pharmaceutical companies in the digital health space. Pharmas have developed hundreds of apps to help patients track symptoms or comply with their drug regime. But the real payoff for the pharmaceutical industry will come when digital health can be used to aid in the design and execution of clinical trials in the early stages of drug development.
Ultimately, we will shift from a healthcare system that treats diseases to one that will prevent them. Patients will be fulltime partners with their doctors and other caregivers. Medical care will not be the passive and episodic activity that it is now, but an ongoing interactive partnership.
