The number of digital health M&A deals in the first half of 2017 are down compared with the same period with the previous year and digital health initial public offerings IPOs are nonexistent for the year so far compared with 14 for the biotech sector, Rock Health noted in its half year digital health report. But investment and deal flow the transactions we are seeing reflect some longstanding trends reaching maturity.
The digital health investment landscape would seem to be unfazed by the indecision and debate surrounding the GOP’s efforts to repeal and replace the Affordable Care Act.
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In a phone interview with Bill Evans, Rock Health managing director, he observed that the issues at the center of healthcare reform that’s fueled digital health investment are historically bipartisan.
“Value-based care, data interoperability and transparency in healthcare are important, transformational issues and important for innovation.”
There was a total of 188 digital health deals amounting to $3.5 billion in the first half of the year, a record according to Rock Health. Healthcare consumer engagement accounted for 17 deals amounting to $321 million. Consumer health information deals amounted to $721 million but much of that came from Outcome Health’s $500 million Series A round. Big data analytics companies raised $240 million in 16 deals, such as Nuna Health.
Rock Health counted fewer deals than say, StartUp Health’s assessment of 306 deals for the first half of the year because it uses different criteria. Although the company includes diagnostic and device companies in its count, they have to have a significant software portion to what they do, Evans said. Kinsa, for example, developed a smart thermometer but the lifeblood of the company is the data the devices generate.
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There were 331 digital health investors by Rock Health’s reckoning, and a bit more than one-third of them were new to digital health. Kleiner Perkins Caulfield and Byers took part in six deals including Nuna $90 million round, followed by GE Ventures with five, and Flare Capital and Mayo Clinic with four each.
Rock Health counted 58 M&A deals for the first half of the year. Although there was a total of 109 last year, the report notes that the digital health investor’s projections expected more by this time. Enterprise software deals accounted for the most deal flow with payer administration as the leading subsector followed by healthcare consumer engagement, analytics and big data, enterprise wellness, and life sciences tools.
Teladoc’s $440 million acquisition of telehealth second opinion service Best Doctors in June reflects the global aspirations (and receptiveness of) American digital health companies. Although not technically in the first half, Roche’s acquisition of mySugr showed that pharma companies not only value digital health tools to supplement products with services for their customer base but are also willing to pay for them.
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