Digital Health Investment Trends Q2 2018: Megadeals Become the Norm, China Rising

Private investment in digital health continued apace in the second quarter of 2018, based on our latest look at deal flow. As the sector has matured, growth in investment levels quarter-over-quarter and year-over-year appears sustainable for the foreseeable future.

Likewise, the closing of a handful of megadeals each quarter is becoming the rule rather than the exception. The second quarter saw seven megadeals for $100 million or more. That is right in line with the first quarter, when we also recorded seven rounds of $100 million or greater.

The top investees in the second quarter were diverse, ranging from biopharmaceuticals to artificial intelligence to primary care. This diversity may be a sign that investors are looking beyond the low-hanging fruit of infrastructure and patient engagement, or even diagnostic applications, to areas such as primary care where opportunities for digital disruption are less obvious.

It is also interesting to note that over half of the investment rounds of $100 million or more went to companies based in China. We’ve seen a steady increase in investments in Chinese digital health companies over the past few years. But this is the first time that we have seen them account for half of the top deals—including the three largest rounds for $200 million or more.

Here’s a summary of the seven largest deals of the quarter:

WeDoctor is a developer and provider of an online healthcare solution platform in China that is backed by tech giant Tencent Holding.

Investment: $500 million, strategic corporate

Investors: AIA Group, the largest publicly-listed Pan-Asian insurance company, NWS Holdings and China Capital Zhongcai Fund Management

Brii Biosciences, a biopharmaceutical company based in Shanghai, China, is working to bring infectious disease therapies to the Chinese market by leveraging the disruptive application of digital and data insights.

Investment: $260 million, early stage

Investors: 6 Dimensions Capital, ARCH Venture Partners, Blue Pool Capital, Boyu Capital Advisory, John Maraganore, Sequoia Capital, Yunfeng Capital

Yitu, a Shanghai-based technology startup focused on artificial intelligence, is developing technology intended to improve the quality of healthcare by integrating AI technologies, such as facial recognition, into a hospital environment.

Investment: $200 million, Series C

Investors: Gaocheng Capital, ICBC International, SPDB International

Welltok, the developer of a SaaS consumer-facing health enterprise platform that allows population health managers to connect consumers with tools and resources to help them meet their personal health goals.

Investment: $117 million, Series E2

Investors: Australia Future Fund, Bessemer Venture Partners, Emergence Capital Partners, Everyday Health, Flare Capital Partners, Georgian Partners, ITOCHU Technology Ventures, New Enterprise Associates, Ziff Davis Publishing Holdings

Livongo, a provider of a chronic disease management platform that delivers personalized health management through real-time information, feedback and ongoing support.

Investment: $105 million, Series E

Investors: 7wire Ventures, Draper Fisher Juervetson Management, Echo Health Ventures, General Catalyst, Kinnevik AB, Kleiner Perkins Caufield & Byers, M12, Merck Global Health Innovation Fund, Sapphire Ventures, Wanxiang America, Zaffre Investments

Iora Health, a primary care provider that provides team-based care supported by a technology platform that integrates population health management directly into the primary care workflow.

Investment: $100 million, Series E

Investors:. 406 Ventures, Devonshire Investors, F-Prime Capital Partners, Flare Capital Partners, GE Ventures, Humana, Khosla Ventures, Polaris Partners, Temasek Holdings

DXY is the developer of one of China’s largest online healthcare service communities that connects physicians with each other and with life sciences professionals, medical students and others.

Investment: $100 million, Series D

Investors: Undisclosed

Digital Health Opportunities in China

China is emerging as an important source of digital health innovation and investment opportunities. Out of the top 20 investments in our analysis, eight involved companies based in China, all of which were later-stage investments.

In many ways China may be poised to leap-frog Western healthcare firms when it comes to deploying disruptive technology. As China faces rising demand from an increasingly affluent population, its overburdened public healthcare system may prove to be more open to innovation.

Originally posted on Fenwick's Life Sciences Legal Insights blog on July 23, 2018.