Digital health funding experienced a major slowdown last year following a blazing hot 2021 — startups in the sector raised $25.9 billion in 2022, which is 57% less than 2021’s record high of $59.7 billion. This year, venture capital investments in the digital health world have continued to cool off — with the third quarter of 2023 having the sector’s second-lowest quarterly funding total since the fourth quarter of 2019, according to a report that Rock Health released this week.
In this year’s third quarter, U.S. digital health startups brought in $2.5 billion across 119 deals. This brings the sector’s total funding amount for 2023 to $8.6 billion raised across 365 deals. While the digital health world is clearly experiencing a significant decline in funding dollars and deal volume compared to 2021, quarterly trends seem to be stabilizing — the sector may be settling into its new normal, the report noted. For instance, the third quarter of 2023 was the fourth of the five past quarters to post a funding total in the $2 billion range, signaling normalization within digital health investment trends.
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
During this year’s third quarter, digital health investors moved their focus away from pandemic-era categories like on-demand telehealth and pharmaceutical R&D catalysts, the report pointed out. Investors shifted their attention toward startups creating products for disease treatment, the improvement of nonclinical workflows and the enablement of value-based care.
Disease treatment startups have raked in $1.64 billion during the first three quarters of 2023. Some of the third quarter’s notable funding rounds in this category include the $31 million round raised by gastrointestinal health company Vivante Health and $20 million round raised by Equip, which provides virtual eating disorder treatment programs.
As for startups selling nonclinical workflow solutions, they raised $1.59 billion during the first three quarters of this year. Companies in this category are addressing a range of nonclinical tasks. For example, Collectly received $29 million to simplify providers’ revenue cycle management, Synapse Health raised $25 million to help providers manage their durable medical equipment, and Keona Health snagged $7 million to improve patient scheduling and communication.
In alignment with recent years, mental health has remained the most funded clinical indication among digital health startups in 2023 — companies in this space have raised nearly $1 billion during the first three quarters of this year. Nephrology is another clinical indication garnering investment dollars this year, with $700 million raised in the first three quarters. Investments made in both these specialties are increasingly focused on companies that enable value-based care contracts or take on risk themselves, the report pointed out
A Personalized Approach to Medication Nonadherence
At the Abarca Forward conference earlier this year, George Van Antwerp, managing director at Deloitte, discussed how social determinants of health and a personalized member experience can improve medication adherence and health outcomes.
For instance, Healthmap Solutions, which provides payers and at-risk providers with value-based care solutions for chronic kidney disease, raised $100 million in August. That same month, Better Life Partners, which delivers value-based mental health care, raised $26.5 million.
As more health systems adopt value-based care models and related policy initiatives pick up steam, value-based care enablement will become a key element of digital health startups’ commercial roadmaps, the report noted. It also said that this will be especially true for high-cost therapeutic areas such as mental health, kidney care, cardiovascular care and oncology.
Picture: Feodora Chiosea, Getty Images
