Global Digital Health Investment Report 2018: Record $9.5 Billion in Funding Reflects Growing Investor Rationality

Mercom Capital Group, a U.S. healthcare market research firm, recently released a report titled “Analysis of Global Digital Health Investment in 2018.” VCBeat (WeChat official account: vcbeat) has compiled and translated the main content of this report for our readers.

2018 was a bumper year for digital health venture capital financing, and also a year of greater rationalization in healthcare venture investment.

According to the data presented in the report, global venture capital investment in digital health (including private equity and corporate venture capital) reached a record $9.5 billion in 2018, representing a 32% increase from the $7.2 billion invested across 778 deals in 2017. The total funding secured by all digital health companies (including debt and public market financing) amounted to $13 billion in 2018, marking a 58% rise from $8.2 billion in 2017.

The report shows that since 2010, digital health companies have completed over 4,000 venture capital transactions, with a total funding amount of $35 billion. Adding nearly $12 billion in debt and public market financing (including initial public offerings), the cumulative funding for the industry has reached $47 billion.

“Venture capital funding in the digital health sector has reached a new high, indicating that venture capitalists are highly enthusiastic about digital health companies and that investors remain optimistic about the healthcare sector,” said Raj Prabhu, CEO and Co-Founder of Mercom Capital Group, in an interview with the media following the release of the report. “Of course, information asymmetry between investors and fundraising companies has made investors increasingly cautious. According to sources on Wall Street, more than 60% of publicly traded digital health stocks underperformed the S&P 500 Index in 2018.”

— Consumer-centric digital health companies raised $5.2 billion across 447 deals in 2018, a 24% increase from the $4.2 billion raised in 514 deals in 2017; practice-centric digital health companies raised nearly $4.3 billion across 251 deals in 2018, a 43% increase from the $3 billion raised in 264 deals in 2017.

——Top Six Digital Health Sectors by Funding Amount in 2018: Data Analytics ($2.1 billion), Healthcare Apps ($1.3 billion), Telemedicine ($1.1 billion), Mobile Wireless Technology ($847 million), Clinical Decision Support ($711 million), and Wearable Sensor Technology ($703 million).

——There were a total of 223 mergers and acquisitions in the global healthcare sector in 2018, compared with 203 in 2017.

—The health and medical app sector was the category with the highest number of M&A transactions in 2018, totaling 32 deals; second was the data analytics sector, with 27 transactions; third was the medical practice management solutions sector, with 22 transactions.

1. Veritas Capital and Elliott Management acquire athenahealth for $5.5 billion;

On November 12, 2018, U.S. private equity firm Veritas Capital and U.S. hedge fund sponsor Elliott Management acquired athenahealth, a company providing internet-based business services for physicians’ clinical practices, for $5.5 billion.

Upon completion of the transaction, Athenahealth will merge with Virence Health, the former GE Healthcare division acquired by Veritas in early 2018. The combined company will be managed by Bob Segert, Chairman and CEO of Virence, together with executives from both companies.

2. Platinum Equity Acquires LifeScan for $2.1 Billion;

On October 1, 2018, U.S. private equity firm Platinum Equity acquired LifeScan, a medical device company that produces and sells blood glucose monitoring systems, for $2.1 billion.

LifeScan, a leader in blood glucose monitoring products with its headquarters in Scotland, reported net revenue of approximately $1.5 billion in 2017. LifeScan will leverage Platinum Equity’s financial and operational expertise to increase the market share of its diabetes care products.

3. Vista Equity Partners Acquires MINDBODY for $1.9 Billion;

On December 24, 2018, U.S. private equity firm Vista Equity Partners acquired MINDBODY, a U.S.-based fitness software development studio, for $1.9 billion.

Upon closing of the transaction, Vista will provide MINDBODY with resources and capital support to fully unlock its market potential in the fitness sector, thereby driving MINDBODY’s rapid growth.

4. Roche acquires Flatiron Health for $17;

On February 15, 2018, Roche, the first company to provide targeted therapy for patients in the United States, acquired Flatiron Health, a U.S. healthcare technology company, for $17 per share.

Flatiron Health will continue to maintain its current business model, partner network, and original objectives. Roche will primarily provide Flatiron Health with commercial advisory guidance and financial support for its operations.

5. Inovalon Acquires ABILITY Network for $1.2 Billion;

On March 7, 2018, U.S. healthcare technology company Inovalon acquired ABILITY Network, a U.S.-based provider of CMS-certified health IT solutions, for $1.2 billion.

Upon completion of the transaction, Inovalon will provide necessary capital and management support to ABILITY Network, thereby propelling it to become a leader in the vertically integrated healthcare services sector.

6. Veritas Capital Acquires GE Healthcare’s IT Division for $1 Billion;

On July 11, 2018, U.S. private equity firm Veritas Capital acquired GE Healthcare’s IT division for $1 billion.

The healthcare technology sector has always been a key focus for Veritas. By leveraging GE’s robust R&D capabilities and resource integration strengths, Veritas Capital will empower the company’s product development, thereby enhancing operational efficiency and driving the transformation and upgrading of new business lines.

7. U.S. diversified technology company 3M acquires M*Modal, the largest clinical transcription services provider in the United States, for $1 billion.

On December 19, 2018, the diversified technology company 3M acquired M*Modal, the largest clinical transcription services provider in the United States, for $1 billion.

3M will leverage M*Modal’s technological R&D capabilities and talent resources to optimize 3M’s health information systems. To ensure business continuity for both companies, 3M will maintain its strategic business relationship with M*Modal regarding the remaining transcription, dictation, and coding services.

It is evident from the data trends that venture capital investment in the digital health sector is highly likely to continue its steady growth in 2019, which bodes well for technology companies operating in this field. However, the slight annual decline in the number of transactions indicates that investors are increasingly focusing on leading companies and emerging enterprises with significant growth potential within the digital health landscape. More stringent investment criteria will require companies in this sector to place greater emphasis on refining their products and services, as well as enhancing their core competitiveness, in order to gain investor favor. This will facilitate the effective alignment of business operations with capital, thereby yielding better economic returns.