Mercom Capital Group has released its annual report on funding and merger and acquisition (M&A) activity for the Healthcare Information Technology / Digital Health sector in 2017. Mercom’s comprehensive report covers Digital Health deals of all sizes across the globe.
Venture capital (VC) funding, including private equity and corporate venture capital, in Digital Heath globally witnessed a record-breaking year in 2017 with nearly USD 7.2 billion raised in 778 deals. This was a 42 percent increase from the previous record set in 2016 of USD 5.1 billion in 622 deals. Total corporate funding for Healthcare IT companies – including debt and public market financing – climbed to USD 8.2 billion in 2017, a 47 percent increase from the USD 5.6 billion raised in 2016.
Healthcare IT VC Funding 2010-2017
Digital health companies in the United States raised USD 4.9 billion in 2017 with the remaining USD 2.3 billion coming from other countries.
Since 2010, the sector has accumulated USD 26 billion in VC funding in 3,450 deals and almost USD 8.6 billion in debt and public market financing (including IPOs), bringing the cumulative funding total for the sector to USD 34.3 billion.
“Venture capital funding into Digital Health spiked after plateauing the last couple of years. Artificial intelligence and Data Analytics companies had a breakout year with over a billion dollars raised. Digital Health public companies had a much better 2016 compared to previous years with a majority of stocks outperforming the S&P 500. However, a buoyant stock market did not translate into companies going public. For the first time in years we did not see any companies issue an IPO in all of 2017. M&A activity, on the other hand, has been declining slightly over the last few years. Investors do not want to miss out on the sheer size and potential of this growing market, but the exit path for many companies remains elusive,” commented Raj Prabhu, CEO and Co-Founder of Mercom Capital Group.
Digital Health VC Funding 2010-2017 (By Category)
Consumer-centric companies brought in USD 4.2 billion in 514 deals in 2017, up 21 percent from USD 3.5 billion raised in 437 deals in 2016. Practice-centric companies raised close to USD 3 billion in 264 deals in 2017, almost twice the USD 1.6 billion raised in 185 deals in 2016.
Top-Funded Digital Health Categories Since 2010
The top funded areas in 2017 included: Data Analytics with USD 1.1 billion, mHealth Apps with USD 759 million, Patient Engagement Solutions with USD 708 million, Telemedicine with USD 624 million, Appointment Booking with USD 516 million, and Clinical Decision Support with USD 514 million.
Categories that saw substantial year-over-year (YoY) funding growth were Data Analytics, Patient Engagement, Clinical Decision Support, and Appointment Booking companies.
For the first time, Data Analytics was the top funded category. The big growth in Data Analytics funding was largely driven by the USD 419 million that went into Artificial Intelligence-based analytics. Together with predictive analytics, these two categories made up almost USD 500 million in funding.
mHealth apps and health wearable sensors witnessed steep declines in funding levels year-over-year.
Top-Funded Digital Health Categories in 2017
The top VC funding rounds in 2017 raised money for: Outcome Health with USD 500 million, Modernizing Medicine with USD 231 million, Hudong Feng Technology with USD 200 million, WuXi NextCode with USD 165 million, PatientPoint with USD 140 million, Alignment Healthcare with USD 115 million, Annoroad with USD 105 million, and PatientsLikeMe with USD 100 million.
VC investor participation went up in 2017, with the total number of participating investors (including accelerators and incubators) increasing to 1,288 from 1,115 investors in 2016. The most active VC investors in 2017 were F-Prime Capital Partners and Sequoia Capital with nine deals each, followed by Matrix Capital Partners with eight deals, and GE Ventures, Khosla Ventures, and Flare Capital Partners with seven deals each. Accelerator and incubator funding activity slipped to 58 deals in 2017 from 83 deals logged in 2016.
Top Digital Health VC Investors In 2017
Forty-three countries had Digital Health VC funding deals in 2017 compared to 34 in 2016.
“The largest funding deal in 2017 was the USD 500 million raised by Outcome Health in Q2, but since then the investors who put in the USD 500 million have sued to get their money back. The USD 500 million counted this year in our report may be adjusted in the future if the company has to return the investment. We are also seeing that the definition of Digital Health continues to expand - for example, companies making treadmills with wifi, medicine delivery, and blood tests are being included in the category. This, however, can be misleading and gives a false interpretation of funding trends in the sector,” added Prabhu.
Digital Health - Top VC Funding Rounds in 2017
There were 203 M&A transactions in 2017, similar to the 205 transactions in 2016. There were 13 companies that participated in multiple transactions in 2017. Four public companies were also acquired or merged in 2017.
Data Analytics companies were involved in the most M&A transactions in 2017 with 21, followed by Practice Management Solution companies with 19 transactions, mHealth App companies with 17, and Telemedicine companies with 16 transactions.
There were 240 companies that made multiple acquisitions from 2010 to 2017. During the seven-year period, IMS Health acquired 12 companies, CompuGroup Medical AG acquired 11, and iMedX acquired 10 companies. McKesson and Quality
Systems acquired nine companies each, while Allscripts, athenahealth, Emdeon, GE Healthcare, Harris Corporation, and Philips acquired eight companies each. PracticeMax acquired seven companies.
Digital Health M&A Activity 2010-2017
The top five disclosed M&A transactions in 2017 included: Internet Brands’ acquisition of WebMD for USD 2.8 billion,
Optum’s USD 1.3 billion acquisition of the Advisory Board Company, McKesson’s acquisition of CoverMyMeds for USD 1.1 billion, Konica Minolta’s acquisition of Ambry Genetics Corporation for USD 1 billion, and Navicure’s acquisition of ZirMed for ~USD 750 million.
Top 5 Digital Health M&A Transactions in 2017 By Disclosed Amount
Announced debt and public market financing raised by Healthcare IT companies nearly doubled to more than USD 1 billion in 2017 from USD 533 million raised in 2016 and the total number of transactions likewise jumped to 34 deals from 18 deals in 2016. No IPOs were announced in 2017 whereas there were four IPOs that raised a combined USD 234 million in 2016.
Of the 26 digital health public companies tracked by Mercom, 14 companies beat the S&P 500 in 2017 compared to just eight outperforming companies in 2016. About 38 percent of public Healthcare IT company stocks were in negative territory in 2017.- Mercom