As digital health companies raise an alarming amount of funds again, the question looms-what happens when the music stops?
So far, digital health companies are expected to raise more than $28 billion in funding this year. Rock health Chief Operating Officer Megan Zweig in an interview with Zoom. This is a record number, significantly higher than the number in previous years.In some cases: Last year, digital health companies accumulated $14.5 billion Statistics by Rock Health, And in 2019, the amount was 7.9 billion U.S. dollars.
Experts interviewed by MedCity News predict that the crazy pace of 2021 will not continue next year, but the amount of financing is expected to be similar to what we saw in 2020. An expert predicts that venture capital investment in this field will not be lower than this number.
“In my opinion, this will always exceed $16 billion,” said Chris Moniz, director of healthcare practice at Silicon Valley Bank, who focuses on health technology and equipment.
Investment and valuation heating up
With the surge in investment, the valuation of digital health is also rising. Company partner Steve Tolle (Steve Tolle) said that what used to be a Series B financing is now a $25 million Series A financing. HLM Venture Capital PartnersHe pointed out that given the high valuation, caution is needed-if a startup company with revenues of less than US$10 million raises a new round of financing at a valuation of US$300 million, people should be skeptical.
“We are a company that doesn’t like hype around high value,” he said. “If we really believe that the company has great potential, we will do it.”
Several factors contributed to this. First, the pandemic has prompted many people to use virtual care for the first time, although with the continued existence of Covid-19 and telemedicine increasingly seen as an enhanced function rather than a substitute for face-to-face care, this use has stabilized .
Secondly, private equity companies have become interested in digital health, leading the company’s large-scale financing in later stages. For example, Tiger Global Already prolific.It recently co-led a $600 million investment Musculoskeletal care startup Hinge Health,and Co-led investment of US$304 million in financing with Blackstone For decentralized clinical trial platform Edible.
In addition to raising more funds, start-up companies also raise funds more frequently.
“It’s undeniable that finding the right deal at the right price has become a more competitive market for investors,” Zweig said, noting that investors need to consider what else they can offer startups. From business development support to operation guidance.
A large number of IPOs, but with mixed returns
In 2021, there will be many exit opportunities for digital health companies. In addition to a large number of mergers and acquisitions, there are also several companies going public, both following the traditional route and merging with special purpose acquisition companies (SPACs).
Zweig said that this is a good signal that the digital health market will usher in a sustainable market after experiencing a downturn a few years ago.
According to Moniz of Silicon Valley Bank, as of early December, there were approximately 29 digital health companies listed. There are only 12 IPOs in 2020.
However, not all of these stocks have performed well. Of the 19 companies tracked by MedCity News that went public in the past two years, all companies fell on the first day of trading.
Some companies are still above the value of their IPOs, among which Toxic Valuation is more than twice its $26 IPO price, and Oak Street Health This is a 51% increase from the $21 IPO price. But in recent months, both have fallen back from earlier highs.
The performance of some companies is much worse. Conversation spaceFor example, the stock trading price on Tuesday was less than US$2. Its executives leave.
In general, the value of every company listed through SPAC is less than $10, which is the standard stock price for this type of transaction. Because of the way they are structured, Most of the benefits for investors Before the company actually goes public.
“It’s hard to say whether this is company-specific or the nature of the SPAC mechanism,” Moniz said of the decline in stock prices.
Tolle is not convinced that this is simply because of the way these companies enter the open market.
“Whether it is a traditional IPO or SPAC; if the fundamentals of the business are challenged, as a stock, your performance will not be very good,” he said. “Many companies have taken advantage of this time window and think they can jump out and ride the waves.”
Even for those who went public through traditional mergers, the overall medical technology industry has declined slightly.
“Do we think this is because these are not good companies? No, I think it’s a function of valuation,” Moniz added. “When you are private, the real high valuation is great. But will the premium be maintained in the open market?”
Differentiation is the key
As competition intensifies, companies will have to work hard to differentiate themselves. This is especially true if they sell through the same channels (such as self-insured employers).
For example, mental health startups may wish to add their products in addition to self-directed cognitive behavioral therapy tools or meditation exercises, such as The merger of Headspace and Ginger. Network size will also become more and more important.
“We have all these remote behavioral health companies, but we lack qualified providers,” Thor said. “In my opinion, this will be a battle for who has the best network.”
Digital health companies can also turn to research or regulatory labeling to differentiate themselves from competitors.Especially digital therapy companies, such as pear and mindWhen they sought the coverage of the health plan, they had sought FDA approval to prove their therapeutic effect.
“This is science, this is my work, and this is how you save costs-to enter a business, it’s almost an entrance fee,” Moniz said.
Regardless of patients and payers, digital healthcare companies also need to stand out from another group of people: doctors. With the proliferation of health applications and other digital tools, clinicians are being overwhelmed by new technologies and other indicators that need to be tracked.
“I don’t want to ignore user burnout,” Zweig said. “I think this will be a very important challenge for innovators.”
Even if the market is a bit lively now, there should still be many opportunities for digital health companies in the future. The industry has attracted more investor interest and there are many potential acquirers. Improving the technical infrastructure should make it easier for new companies to start and enter the market.
Photo: CaptureTheWorld, Getty Images
