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5 trends in digital health dealflow in H1, amidst an unusual investment landscape

A StartUp Health report highlighted some interesting digital health investment trends that punctuated the first half of 2015 such as the dominance of deals in patient experience tech.

The first half of 2015 has been defined by pretty robust digital health dealflow.It didn’t even bother to slow down for the holiday weekend. If anything, activity picked up.

Despite the four-day work week, the end of one fiscal year and the start of the next one saw the first IPO for a mobile telemedicine company along with a flurry of fundraises for startups such as senior care finder HomeHero, a big data tool for preclinical drug development — Mousera, and a consumer support platform for the insurance market, Zipari, just to name a few.

There were also plenty of milestones to consider, such as HealthTap successfully adding Quest Diagnostics as a lab test partner as part of a trend of telehealth companies seeking more ways to be less reliant on hospitals. Proteus Digital Health gained approval from the FDA to use its swallowable sensor to measure medication adherence and Theranos got FDA approval for a test for the Herpes simplex 1 virus. Even on what was supposed to be a federal holiday, Aetna’s deal to buy Humana hit the wires.I

t seems like a good opportunity to highlight some trends and observations.

Many investors funded more companies in first half than 2014 A StartUp Health report highlighted the most active digital health investors in the first six months of the year. Eight out of 13 invested in more companies at the half-year mark than they did in the 2014 calendar year. It shows a diverse group of investors demonstrating a commitment to allocating funds to more companies in health tech. Excel Venture Management and Fidelity Biosciences particularly stand out for the jump in their investments from 1 last year to four so far this year.

Unusual investment climate In an interview with Brian Murphy, general partner with NewSpring Capital, he observed what sets the current investment climate apart from other times is that valuations are up so it is a good time for exits, but the debt market is also stable. It’s also a good time to invest. Weird. “Usually these things are mutually exclusive, but not in this market,” Murphy said.

Multi stage investing dominates Venrock, GE and Khosla Ventures participated in the most deals but that seems only fitting since they invest in both early and later stages. Khosla invested in companies such as Catalia Health, which is developing a series of table top-sized robots to serve as wellness coaches for people with diabetes as well as exercise social network SmartSpot. Among GE Ventures investments in the first half was Evidation Health, a company designed to assess digital health technology. It’s the kind of business that’s needed at a time when providers and payers have an appetite for digital health technology, but need to see clinical validation.

Series A investments accounted for the most deals, according to StartUp Health, but the number of early stage (50 percent) and mid t0 late stage deals (40 percent) were fairly even.

Patient experience sector attracts most deal flow Although big data led digital health deals in the first quarter, companies that want to change and improve the patient experience accounted for 46 deals, roughly double the deals of most other categories. They also raised $400 million. PillPack, which produces pre-packaged pills to make taking multiple meds easier, raised $50 million to help it add a bricks and mortar pharmacy business to its mail order model. Ayogo‘s gaming platform focusing on chronic conditions raised $2.5 million from investors that included Excel Venture Management. Telemedicine companies also saw plenty of activity as they seek to invest in more specialized services through acquisitions or collaborations.

Most interesting M&A deals Wellness companies had the most deals in the first half. But there were a few deals that attracted a lot of interest. IBM’s acquisition of Explorys gave its new Watson Health brand access to clinical data from health systems and purchasing Phytel gives it population health technology. Under Armour’s $475 million deal to acquire My Fitness Pal illustrated the level of interest in digital health by companies outside of the technology spectrum. It also underscored the convergence we have seen with different parts of the healthcare landscape.

Fitbit’s monster IPO also punctuated the first half of the year, raising $1.9 billion. It will be interesting how the company uses this deal to benefit product development.

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