Funding will shift overseas, corporate activity and partnerships will increase, and more trends looking forward to the rest of 2016.
(Digital health includes companies that use software or data to improve efficiency and outcomes in healthcare; it includes health wearables, EHR companies, healthcare software, digital therapeutics, etc.)
1. There will be a marked increase in digital health funding outside of the US
Digital health companies face heavy regulatory issues in the US, but those same obstacles are less of an issue in many other parts of the world. Especially in developing countries like India and China — which have incredibly high patient-to-doctor ratios — the need for digital health solutions is more acute. We’ve already seen some notable funding deals such as
Practo ($90M Series C) and
Guahao ($394M Series D), but we should expect to see an increase in 2016 especially in telemedicine and medical back-office tools (scheduling, revenue cycle management, etc.)
2. Tech giants will form more healthcare partnerships (pharmaceuticals, medical device makers, etc.)
We’re already seeing more involvement of large tech companies in healthcare, including IBM (partnership with CVS), Google (partnership with Novartis) and Apple (integration with Epic). The tech giants can apply their resources in terms of computing power, artificial intelligence, and cloud software expertise as more healthcare data is created and needs to be processed (examples include wearable data processing, computer simulations for clinical trials, and medical journal synthesis). The tech giant’s partners in the healthcare space will bring their scientific expertise and knowledge of the complex regulatory and commercial landscape. Additionally, tech hardware giants (especially in the chips and semiconductor industries) such as Qualcomm may find opportunities in powering a new wave of medical devices.
3. The hype around consumer wearables will cool, but condition-specific and enterprise health wearables will thrive
Wearable startup funding has
already cooled in 2015. The direct-to-consumer wearables market has been plagued with low adoption and high abandonment (with the possible exception of Fitbit), but a large opportunity exists in the healthcare space for condition-specific and enterprise wearables aimed at physicians and other medical professionals. Diabetes management wearables have already seen a lot of interest (e.g. big players like Google are active in the space, as well as startups like
Sano Intelligence), and we can expect to see more funding and focus into wearables targeting other specific conditions. Some examples that have received funding so far have been
Chrono (addiction),
ZetrOZ (pain management), and
Owlet (baby monitoring). We will also see several enterprise wearables receive funding this year that help doctors, especially in hands-free scenarios (surgery, dentistry, etc.). One such wearable company is
Augmedix.
4. As consumers generate more of their own data, out-of-hospital EHR data platforms will aggregate the disparate data points
Patients are generating more of their own data thanks to wearables, home diagnostic tests, genome sequencing, etc. Slow-moving EHR (electronic health records) platforms have not yet adopted systems to integrate this out-of-hospital data, leaving open territory for new entrants. Effectively integrating data from out-of-hospital sources should also allow doctors to identify behavioral or environmental factors in patient health, better understand how different diseases and conditions are interrelated (co-morbidity analyses), and drive better outcomes. This will also allow hardware companies to focus on their products instead of the platforms and software behind it. Doctors don’t want to see a constant “firehose” of raw data generated by medical devices, so software companies will manage it and reduce the information overload that doctors would face.
5. More pharma and health insurance corporates will set up VC arms to invest in fledgling companies
As corporate investors search for new opportunities and sources of innovation, digital health has a bull’s eye painted on it’s back. Many of the top executives from a range of industries, including pharma, tech, and insurance
have talked about the vast importance of digital health and we’ve already seeing more corporates set up investment arms to make sure they’re capturing value from this wave of disruption. A symbiotic relationship is formed where corporations can outsource R&D and complement their core businesses by investing in smaller companies, while they also provide necessary resources and connections to the startups themselves.
6. Digital health startups will target “wellness” budgets of employers, and be better incorporated into employee plans
As health insurance premiums increase, employers are looking for ways to reduce their costs. Many are expanding their employee wellness budgets and promoting preventive measures to keep their employees out of hospitals. Large companies are providing mental health coaching and fitness trackers to their employees. In addition, many wellness perks are said to trigger increases in work productivity, which is an important benefit beyond the reduced premiums. We can expect to see more companies expand their corporate wellness programs for this reason, as well as using more healthcare focused perks as a recruitment tool (e.g. Facebook’s “egg-freezing” program for women). Some startups taking advantage of this trend are
Keas,
ShapeUp, and
WellTok.
7. Late-stage funding contractions means we’re going to see more digital health IPOs
We’ve identified 34 digital health companies on our
Tech IPO pipeline list, alongside 6 digital health companies valued above a billion dollars (Zocdoc, Proteus Digital Health, 23andMe, NantHealth, Oscar, and GuaHao), many of which will need to go to public markets for further funding if late-stage investors continue to move further away from private markets as they did in Q4’15 (this may be a trend that’s particularly pronounced in healthcare, where companies have much longer time horizons for returns). We’ve dubbed this the “dragged-to-IPO” phenomenon. Many have reached valuations that limit the universe of larger companies that might consider them attractive M&A targets.
8. Problems that plague tech startups will become more pronounced in digital health companies
Some of the biggest trends and issues that we’re seeing in the general tech startup space are prominent in digital health companies; specifically when it comes regulatory issues, unit economics, and winner-take-all markets.
- Regulatory issues: While tech is seeing many regulatory battles (W-2 issues, brokerage laws, etc.), many companies choose the “do first, ask questions later” approach to these laws. This is a riskier strategy for digital health companies, which face stringent FDA and HIPAA regulations, as well as the fact that patients’ lives are on the line.
- Unit economics: Digital health companies will struggle with unit economics much as tech startups do when they find their unprofitable business models don’t always necessarily flip in a positive direction at a certain scale or price point. This is particularly true for digital health plays in the direct-to-consumer and on-demand space, where reimbursement is still murky, distribution and marketing costs are high, and patients are not used to paying out-of-pocket.
- Winner-takes-all: Finally, many hot areas of tech eventually see clear winners due to network effects, first mover advantage, etc., leaving little room for new entrants. This tendency is even more pronounced in digital health where first movers can get through the FDA process, gather outcomes data to prove their effectiveness to potential customers, and have sticky customers that face high switching costs once they’re integrated into a system.
Source : mobihealthnews.com