A Dynamic Digital Health Sector Means More and Bigger Deals

The digital health sector is beginning to mature and investors are pouring more money into more deals, reports Rock Health in its survey of digital health investment in the first half of 2017. And, we might add, into bigger deals. So much so that the sector has broken records for deal volume and value.

The first half of the year saw nine investment rounds of $100 million or more—matching the number of rounds for all of 2016. The second half of 2015 was the last time we saw this volume of megadeals. The majority of those deals happened in the third quarter, a time we noted was dominated by investments in software infrastructure companies.

In the first half of this year, investments run the gamut from patient engagement tools, to in-home connected fitness equipment, to clinical research platforms.

Record-Breaking Levels of Investment

The largest investment of the year to date was an $800 million round that went in January to Verily Life Sciences, a health-focused division of Alphabet. Verily develops tools and platforms designed to better understand ways to predict and prevent disease onset and prevention. Verily announced that it will partner with Temasek, a Singapore-based investment company, as it advances plans to commercialize healthcare solutions for global markets with its development partners. In return, Temasek gets a minority stake in the company.

Outcome Health, which raised nearly $600 million in May, came in second. The Chicago-based company develops a platform that provides exam room technologies that engages patients and caregivers while they await their clinicians. Alpha Venture Partners, Balyasny Asset Management, CapitalG, Goldman Sachs Investment Partners, Juna Equity Partners, Leerink Transformation Partners and Pritzker Group Venture Capital participated in the investment.

In-home connected fitness equipment company Peloton Interactive took in a Series E investment for $325 million in May. Balyasny Asset Management, Comcast NBCUniversal, Fidelity Investments, GGV Capital, Kleiner Perkins Caufield & Byers, NBCUniversal, QuestMark Partners, True Ventures and Wellington Management participated in the round.

Florida software company Modernizing Medicine, which provides mobile, cloud-based, specialty-specific technologies to empower physicians and improve efficiency and outcomes, received a $231 million investment from Warburg Pincus.

Bright Health received both a Series A and Series B round in the first half of the year. The provider of a health insurance service platform received its Series A investment in the first quarter for $115.20 million. Bessemer Venture Partners, Flare Capital Partners, New Enterprise Associates (NEA), Oxeon Partners and Waterline Ventures participated. The Series B round of $160 million followed in June, with participation from Greenspring Associates, Greycroft Partners, Redpoint Ventures, Cross Creek Advisors, NEA, Bessemer Venture Partners and Flare Capital Partners.

In June, Patient Point received a private equity investment of $140 million from Searchlight Capital Partners and Silver Point Capital. The company provides patient engagement content through digital waiting room screens and interactive touchscreens in exam rooms.

In March, Warburg Pincus made a $115 million growth investment in Alignment Healthcare, a provider of clinical care coordination and risk management tools based in Orange, California. Alignment is also backed by General Atlantic.

Rounding out the list is Cambridge-based PatientsLikeMe, a clinical research platform that provides real-time insight into thousands of diseases and conditions. The company received a $100 million equity investment with participation from iCarbonX and Invus Group.

No Slowdown in Sight

As Rock Health points out, investors don’t seem fazed by the uncertainty around national healthcare reform and political volatility. The year so far has been the busiest in terms of digital health investment, with a record-shattering second quarter fueled by a healthy investor appetite for digital health. We hope this excitement keeps the deals going through year-end. Stay tuned.

Originally posted on Fenwick's Life Sciences Legal Insights blog on July 27, 2017.