Dive Brief:
- The digital health sector took in a record cash infusion of $3.1 billion spread over 107 deals in the first quarter of 2020, before the economy tanked due to the effects of the coronavirus pandemic.
- The multibillion-dollar sum is more than one-and-a-half times larger than the total funding in the first quarter of any previous year, and the second largest quarter of all time, according to digital health venture fund and research firm Rock Health.
- However, it's unlikely that rosy picture will carry into the remainder of 2020. "Though some of the economic blow will be tempered by demand for connected healthcare, we do not anticipate investment activity to keep pace with Q1 levels in the coming months," Rock Health researchers wrote in a report out Monday.
Dive Insight:
Investors were bullish on digital health as 2020 dawned, funneling record funds into the sector to cap off the heftiest 12-month funding period for digital health, with $9.3 billion invested from the second quarter of 2019 through the first quarter of this year, Rock Health found.
The trend followed moderate investments in 2018 and 2019. Prior to the pandemic, digital health funding for 2020 was well on its way to pacing higher than 2016, 2017, 2018 and 2019 totals, which rung in at $4.6 billion, $5.8 billion, $8.2 billion and $7.4 billion, respectively.
Startups are particularly vulnerable to sharp economic downturns, and many have laid off employees and attempted to slash costs as revenue plummets. The novel coronavirus has hurled millions of Americans into unemployment and sent the stock market into a prolonged period of volatility.
Congress passed the largest economic package in history in late March, benchmarking $2 trillion to prop up the economy and shore up the flagging healthcare system. But it's unclear the extent that COVID-19 will hit the digital health industry, as the headwinds could be partially offset by rising demand for virtual care as patients increasingly seek healthcare from home.
Digital health products could also aid the response by helping public health officials coordinate a larger network of people more quickly to curtail disease spread. The FDA doesn't plan to police lower risk devices during the public health emergency declared on March 13, such as software that uses a patient's demographic and health information to screen for COVID-19 symptoms or those that enable a patient to alert first responders when they're in need.
A slew of digital health startups have pivoted existing products in the wake of the pandemic and the friendlier regulatory environment. For example, telehealth company Doctor on Demand launched an online assessment tool for COVID-19 and data firm Ambient Clinical Analytics has a platform for hospitals to expand ICU capabilities.
Six megadeals accounted for one-third of the total funding in the first quarter, including $285 million in Series E funding for online fitness platform ClassPass, $250 million in Series D funding for digital pharmacy Alto and $146 million for wearable defibrillator manufacturer Element Science, Rock Health said in the new report.
Also, a significant portion of dollars flowed to startups developing provider-facing products, a trend that could ebb or strengthen as hospitals and doctor's offices struggle with capacity and resources from COVID-19, Rock Health found. Durable medical equipment manufacturer Outset raised $125 million in a Series E round, clinical data aggregator Verana Health raised $100 million in a Series D and AI cancer player Tempus raised $100 million in a Series G.
