Digital health poised for record Q3, with fast growth in mental, women’s health

By | September 29, 2020

Digital health funding in the third quarter has already usurped a record-setting second quarter this year as the COVID-19 pandemic continues to spur investor interest in the space, analysts say.

Digital health companies raised about $ 5.8 billion in the second quarter, up about 22% from the first. But funding has already reached roughly $ 6.7 billion since July, and could bypass $ 8 billion by the third quarter’s close on Wednesday, Ja Lee, managing analyst of healthcare at CB Insights, said at the advisory firm’s conference last week.

Either figure would set a new record for the nascent sector.

COVID-19 sharply increased consumer demand for digital products to access the healthcare system at home, like telehealth for virtual doctor visits. Experts agree it’s likely to result in a long-term shift in the healthcare landscape, with a significantly greater proportion of healthcare delivered digitally going forward.

And investor activity is growing in previously niche areas, partially as a result. Mental health, for example, has seen a huge increase in deals this year, according to CB Insights. It’s quickly becoming one of the most crowded areas of digital therapeutics, with conditions like depression and anxiety being exacerbated by COVID-19. A study published Wednesday in Science Advances found notable increases in acute stress and depressive symptoms in the pandemic’s early months that grew significantly as deaths did in the U.S.

As a result, mental and behavioral services are becoming more differentiated, with a growing number of services for different use cases peddled to employers and health plans. Analysts are reporting a rise of mental health platforms focused on psychotherapy and those leaning toward specific psychiatric services, along with mental health options targeted toward women.

Healthcare megarounds, or funding rounds of $ 100 million and above, in the third quarter have already exceeded that of any quarter in the previous 11 periods, according to CB Insights. One such megaround was for Lyra, a California-based mental healthcare benefits startup covering more than 1 million members, which raised $ 110 million in August. The deal raised Lyra’s total funding up to $ 292 million, and brought its total valuation above $ 1 billion, according to the company.

Earlier the same month, virtual behavioral health care system Ginger, which sells psychiatry, therapy and coaching services, raised $ 50 million in its largest funding round to date.

Interest in women’s health has also picked up over the last few years, and the market is expanding to offer a wider range of products and services, such as fertility, Lee said. The third quarter so far has seen more funding flow into the space, including growing interest from public companies as women’s health gains more corporate acceptance and interest.

As a result, employers have more options to offer fertility benefits, like two-year-old millennial-focused startup Kindbody, which had a $ 34 million round in July, and five-year-old Carrot Fertility, which raised $ 24 million in August.

Chronic care management, telehealth hot post-‘Teladongo’

Experts also forecast rising M&A in the chronic care market, especially following virtual care vendor Teladoc’s whopping $ 18.5 billion acquisition of chronic care player Livongo in August. Interest in the sector has snowballed as the pandemic made accessing in-person healthcare difficult, incentivizing people with chronic conditions — many requiring consistent, timely check-ins — to turn to telehealth, digital coaching and remote symptom monitoring.

One such company, Vida Health, has seen consultations triple in the past three months, CEO Stephanie Tilenius said at CB Insights.

“We’re seeing a lot of interest in our company. So we’ll see how that progresses,” Tilenius said.

COVID-19 accelerated the industry by about five years, mainly by introducing more people to the concept of virtual care, but interest was growing steadily before the pandemic, argued Livongo founder Glen Tullman. Industry proponents say chronic care management has untapped potential, as current players touch only a fraction of the roughly 150 million people in the U.S. with chronic conditions.

And virtual care is becoming more of a necessity than a luxury amid the pandemic as a tool to minimize COVID-19 exposure and ensure patient access to care, though volume has flagged since a nadir in April.

As a result, telehealth businesses will continue to expand their tech and care offerings through organic growth and acquisitions, while new entrants will seek inroads, Marissa Schlueter, senior healthcare analyst at CB insights, said at the conference. For example, in-home healthcare network Heal launched a telemedicine app in March, and health data analytics firm Evidation Health raised $ 45 million to expand into virtual care in July.

As a result, investments will rise to fund these efforts. Telehealth startups have raised $ 6.15 billion across 412 deals year to date, and that’s expected to grow to $ 8.86 billion (and 594 deals) by the end of the calendar year.

By comparison, telehealth companies raised $ 5.8 billion across 407 deals in 2019, according to CB Insights data.

Schlueter expects horizontal consolidation among specialty telemedicine operators, and vertical integration as payers look to bring digital services under their umbrella. And the massive Teladoc-Livongo deal marrying two of the biggest names in telehealth and chronic care management highlights that Teladoc’s competitors, like Boston-based Amwell, are behind in the chronic care space.

Schlueter called out Livongo competitor Omada Health, which recently acquired a virtual physical therapy company, as an “attractive but likely pricey target” for acquirers. However, Omada CEO Sean Duffy shrugged off the speculation at a Thursday panel.

“The plan of record has always been, and for the foreseeable future remains, build the sort of business that can remain an independent business,” Duffy said. But overall “there will be more deal activity, no doubt. We’re seeing it, we’ve seen it, we’ll continue to see it.”

In overall healthcare funding globally, the third quarter could be on track to beat its second-quarter record, too, according to Lee.

Healthcare companies worldwide brought in a record $ 18 billion in the second quarter following a first-quarter slump. But given the current run rate, CB Insights projects that’s likely to pass $ 20 billion, driven by high deal amount and volume mostly in America and Asia.

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