Investment in Digital Health Surges

In 2014, investment in digital-health companies grew 93 percent, outpacing that of biotechnology and medical devices.

by Stephanie Lee, San Francisco Chronicle / January 6, 2015
(TNS) --The burgeoning digital-health industry welcomed more than $4 billion in venture funding in 2014, a sum nearly equal to the prior three years combined, according to a study by Rock Health.

That record investment is still small compared with the amount of venture capital invested in traditional health-related fields such as biotechnology and medical devices. But investment in digital-health companies — loosely defined as businesses that deal in both health and technology — grew 93 percent, outpacing that of the other two sectors, according to Rock Health, a San Francisco accelerator that seeds companies in the sector.

Companies that received the most funding dealt with analytics and big data. They included Flatiron Health, which raised $130 million last year to aggregate clinical and financial data about cancer cases in real time to improve patient care.

The sector that saw the most growth was telemedicine startups, which raised $285 million to provide health care diagnoses through phones, videos, text-messaging and other online tools. Such companies included Teladoc and Doctor on Demand. Telemedicine companies will be a mainstay, Rock Health predicted, as insurers work out ways to reimburse doctors for delivering care remotely.

Other growing areas included companies that aim to lower administrative costs for health insurers; and “digital therapies,” technologies designed to help people curb or control diseases.

The most well-funded areas, in order, were big-data analytics; consumer tools for buying health services or insurance; devices designed to treat a specific condition or disease; telemedicine; software that supports personalized medicine; and platforms for managing the health of large groups of people.

It was a busy year for deals. More than 95 companies were acquired for more than $20 billion in disclosed transactions in 2014.

But the year wasn’t all good news for digital-health companies that went public. The five that did so, according to Rock Health, are now trading below their highs. Castlight Health, whose Web application helps employers manage employees’ health care benefits and costs, lost nearly 75 percent of its peak value. Publicly traded digital-health companies in general performed below the S&P 500.

©2015 the San Francisco Chronicle