Tag: rock health

Rock Health is wrapping up the year in style by updating its Innovation Maturity Curve with the hottest trends of 2024, and sharing its predictions for what lies ahead.

The curve uses three major data categories to plot digital health innovations:

• Research volume – gauges the potential of a topic through PubMed publications
• Venture funding – tracks investment as a leading indicator of commercial interest 
• Partnership activity – uses industry partnerships as a proxy for commercial traction

Here’s how 2023’s biggest trends progressed over the course of the year:

AI in Healthcare (Maturity Score: Developing) – Digital Health Wire readers know the AI hype cycle is still in full swing, with AI-first digital health startups landing $3.3B in venture capital through the end of Q3. AI partnerships also surged (Rock Health counted 80+, an undercount if anything), but 2024’s plateau in research activity gave another sign that we’re transitioning to practical applications and commercialization. 

• Keep an eye on: We’re entering a phase of AI consolidation, with cutthroat competition for major accounts in segments like ambient documentation. As Big Tech inks their own partnerships and juggernauts like Epic double down on new features, “AI enablement will become table stakes across solutions rather than a core differentiator.”

Digital Obesity Care (Maturity Score: Developing) – Moving up from “Nascent” on last year’s curve, the conversation around obesity care has been transformed by GLP-1s and contributed to a rise in digital platforms to help patients access treatment and support.

• Keep an eye on: Increased competition necessitates differentiation. With GLP-1 access still in flux, players need to build momentum with more than just prescribing (precision treatment planning, biometric tracking, support for co-occurring conditions like PCOS).

Food as Medicine (Maturity Score: Emerging) – FaM moved from a niche term to a buzzword (props to Rock Health for helping it happen), with category funding doubling on-year after big raises from players like Foodsmart ($200M). Payors, providers, and grocers contributed to over 30 new FaM partnerships this year.

• Keep an eye on: FaM innovation is closely tied to reimbursement models for food delivery and nutrition consultations, so continued success hinges on sustained policy support. Assuming that happens – seems likely given the Make America Healthy Again chatter – 2025 could be another huge year.

The Takeaway

With the digital health recalibration now (mostly) behind us, Rock Health expects 2025 to give innovators a chance to demonstrate a measurable impact on outcomes and continue their trek along the maturity curve. The whole report is well worth checking out for details on smaller up-and-coming categories like new wearable form factors, digital twins, and climate tech.

Rock Health’s Q3 Digital Health Market Update showed that investors have found comfort strolling down a path of “focused funding,” with last quarter’s innovation story shifting from transaction volume to market positioning.

The U.S. digital health sector logged $2.4B in venture funding across 110 rounds in Q3 2024, bringing year-to-date funding to $8.2B. 

• While Q3’s 110 rounds marked a slowdown from 136 in Q1 and 133 in Q2, average investment size held steady at $22M quarter-over-quarter, indicating that investors are honing their focus while continuing to make sharp plays.

• The analysis also noted that investments are overlapping with partnerships, with companies keen to support startups they’ve already worked with in crowded spaces like healthcare AI – as seen with NVIDIA and Hippocratic AI.

The real narrative behind last quarter’s activity was what Rock Health referred to as “tapestry weaving,” or digital health players building up their offerings to compete with legacy leaders and market incumbents. The related graphic was easy on the eyes.

• While Q3 mergers and acquisitions were also low at just 21 moves – versus a quarterly average of 37 last year – companies like Dario and Fabric are using M&A to integrate new capabilities and expand their footprint.

• Like weaving a tapestry, both Dario’s addition of Twill and Fabric’s acquisition of TeamHealth VirtualCare stitched together different solutions to create a more robust platform and address a broader range of customer needs. 

Tapestry weaving isn’t exactly an easy hobby. It involves integrating different products, teams, and go-to-market strategies that all have a chance of backfiring along the way.

• Big acquisitions help compete for big contracts, but they can also strain the acquirer’s balance sheet.

• CVS is an easy example. In the last six years, CVS used $88B to add a major payor, a clinic operator, and a home-care provider to its flagship pharmacies. The entire company is now valued at less than the cost of those three moves ($83B current market cap).

The Takeaway

Although the raw count of digital health investments continues to drop off, activity volume isn’t the same as activity quality. The tapestry weaving trend is a reminder that the “true impact of digital health innovation is shaped in the details,” through its investment structures, targeted partnerships, and post-M&A playbooks.

If Rock Health’s Q1 2024 Digital Health Funding Report makes one thing clear, it’s that the times of transition are behind us, and we’re now fully entrenched in a new digital health funding cycle.

The first quarter saw $2.7B in digital health venture funding across 133 rounds, marking the lowest quarterly total seen since 2019. It’s not as bad as it sounds.

• Although total funding wasn’t trending in the right direction, the pace of the funding was actually healthy, and the 133 rounds was the highest in the last six quarters.

The average transaction size of $20.3M mostly tells the tale of growth-stage companies having to justify their valuations based on clinical outcomes rather than fancy storytelling.

• Crowded markets are pushing enterprise customers to seek out outcomes data as a way to differentiate players and evaluate value-for-investment.

• As outcomes data becomes a moat and a customer draw-in, investors are seeking out companies that can demonstrate efficacy early – making outcomes data more central to fundraising conversations… and at earlier stages.

AI drove a record share of funding. While not exactly too surprising, AI-enabled companies captured 40% of Q1’s funding total ($1.1B across 45 deals), compared to 33% of 2023’s funding pot and 29% of 2022’s.

• As AI energizes the sector, it isn’t too hard to follow the funding to the areas with the most perceived promise: scribing, precision medicine, and care enablement.

• Abridge raised a colossal $150M Series C, AI precision health company Zephyr AI landed a $111M Series A, and a suite of high flying startups landed huge rounds, including Ambience Healthcare ($70M), Fabric ($60M), and Codametrix ($40M).

The last theme is familiar: creative fundraising continues to be a crowd favorite, especially as public market delistings cause investors to rethink their exit potential.

• Nearly half (48%) of Q1’s funding rounds were unlabeled, compared to 44% of all transactions in 2023.

• Founders are going above and beyond to entice investors with more upside in the event of an exit, as seen with Transcarent structuring its $125M Series D to offer funders 2.5x their investment should the company M&A or IPO. 

The Takeaway

Expectations have been reset for digital health startups, causing them to evolve their strategies and reorient around different metrics of success (strong outcomes / margins vs. high projected growth). These expectations are undoubtedly higher than they were during the pandemic era of loose capital, but that’s probably not a bad thing for a sector that’s still striving for maturity.

Rock Health’s 2023 digital health funding numbers are in, and although they’re every bit as bleak as expected, there were some silver linings that could bode well for the year ahead.

Here’s 2023 by the numbers:

• US digital health funding totaled  $10.7B across 492 rounds ($21M average)
• Q4 funding totaled $1.9B across 122 rounds (lowest quarterly total since Q3 2019)
• Unlabeled rounds accounted for a record 44% of annual total
• Surprisingly no pronounced spike in startup shutdowns

Last year’s $10.7B funding total was the lowest seen since 2019, but Rock Health points out that the real story often gets missed by the headline number. (Chart: Funding Trend)

• Most startups tend to raise every 12-18 months, however Rock Health’s database shows that 81% of US digital health startups that raised in 2021 or earlier haven’t closed a subsequent labeled round.

• Silent rounds (quiet raises from existing investors), Series extensions, and unlabeled rounds appear to have been the tools of choice to stay afloat.

Rock Health’s predictions for 2024 

• Labeled raises will return – The startups that extended their runway with creative financing will need to produce proven outcomes data or showcase new products to keep investors interested. This year will separate the best from the rest, and the latter group will be looking at adjusted valuations (down rounds) or restructured cap tables.

• M&A pace will accelerate – 2023 failed to produce the uptick in M&A that was expected to be brought on by attractive valuations, due in part to “higher for longer” interest rates and market volatility. In 2024, getting acquired will start to look like the best path for startups struggling on the fundraising front. (Chart: M&A Trend)

• The public market cohort will recalibrate – After a year without a single digital health public exit, we should see a few of the late-stage players that delayed their listing to wait out market choppiness finally take the plunge, especially those with strong financials. (Chart: Digital Health Exits)

The Takeaway

While last year definitely delivered on “financial creativity” from nimble founders, the transition period can’t last forever, and Rock Health expects some startups will have to face the music in 2024 (i.e. raise at a reduced valuation, seek an acquisition, call it quits). Those are tough decisions to make, but the silver lining is that they’re also the decisions that will strengthen the sector in the long run (i.e. smaller cohort of stronger companies, platform synergies unlocked through M&A, and a more successful IPO class).

Rock Health is wrapping up the year in style by sharing the trends it believes are most likely to move the needle in 2024, based on where they stand along its “innovation maturity curve.”

The top trends were plotted along the curve to reflect their funding momentum, research volume, and partnership activity, revealing insights into which innovations are ready to make the leap from hype to impact.

• Food as Medicine (Maturity Score: Nascent) – Nutritional recommendation platforms are moving beyond their historically narrow set of use cases (“niche” support for type 2 diabetes) to a variety of conditions ranging from mental health to cancer. Keep an eye on: As legislation and reimbursement pathways continue to expand in 2024, more providers will start using food as medicine to differentiate their care delivery models.

• Digital Obesity Care (Maturity Score: Nascent) – Although GLP-1s were one of this year’s hottest topics, weight management support services like remote monitoring and behavioral coaching are also coming along for the ride. Keep an eye on: Supply chain and accessibility challenges will continue to constrain GLP-1s, and payors could push for more precise triage to determine who gets priority for medication-based programs.

• AI in Healthcare (Maturity Score: Developing) – AI startups were one of the only groups spared from the venture funding slowdown, raising nearly $2.8B across 101 rounds through Q3. Keep an eye on: Providers and payors will be solidifying their approach to AI governance and thoroughly assessing the tradeoffs between platform-level integrations (EHR plugins) and best-in-breed solutions (built for specific features).

• Value-Based Care Enablement (Maturity Score: Developing) – With the most partnership growth in the analysis, VBC enablement is gaining commercial traction and moving closer to maturity. Keep an eye on: As health systems continue to consolidate, VBC solutions might be pushed toward platform-ization to address more needs, especially in areas where they’re easiest to adopt (solidified, attributable care pathways).

• Data Interoperability (Maturity Score: Calibrating) – Interoperability infrastructure is still under construction, with the ONC only recently onboarding the first cohort of QHINs, but commercial partnerships are picking up as regulations stabilize. Keep an eye on: Data will be increasingly important as more powerful analytics tools become available, and disruptive solutions will need built-in insights capabilities as a value-driver.

The Takeaway

If 2023 was digital health’s transition year, Rock Health expects 2024 to be its recalibration year. Major innovations have begun their trek along the maturity curve, and it’s now time to build the strategies that will give them the staying power to keep progressing.

Another quarter’s gone in a blink, which means our friends over at Rock Health are already on deck with another recap of the biggest digital health funding trends of Q3.

Here’s Q3 by the numbers:

• US digital health funding totaled $2.5B across 119 rounds ($21M average)
• 4 of the past 5 quarters saw funding in the $2B range (establishing new normal)
• Capital shifting to digital support for disease treatment (notably kidney & heart) 

Although the $2.5B raised in Q3 was the second-lowest total since 2019, it was also the fourth of the past five quarters to log funding in the $2B range – a far cry from the volatility we’ve seen since the start of the pandemic. (Chart: Funding Trend)

• On top of that, every quarter for the last year has notched an investment count in the low hundreds, maxing out at 131 rounds in Q1 2023.

• New norms have been established, meaning we’re finally past the shakeout and onto a fresh investment cycle. 

The other major story from Q3 was that capital is shifting away from COVID-era favorites like life science R&D catalysts (a top investment in both 2021 and 2022) toward digital health solutions that support disease treatment. (Chart: Top Value Propositions)

• Disease treatment is now the most-funded value proposition of the year ($1.6B YTD), including recent raises from Vivante Health (virtual digestive care) and Healthmap Solutions (value-based kidney care).

Value-based care enablement was another obvious standout last quarter, and Rock Health predicts that VBC will become an increasingly important component of commercial roadmaps and enterprise partnerships.

• This will likely be particularly true in high-cost areas like mental health, cardiology, and oncology, not-so-coincidentally three of the top clinical indications in Q3 funding.

The Takeaway

The headline for the third quarter has a familiar ring to it – overall digital health funding is slowing, but bringing more stability along with it. That predictability is much needed after years of wild market swings, and the new investment cycle is also equipping founders with a clear playbook: find a high-cost area, focus on outcomes, and build a sustainable business.