Flare Capital Partners GP Michael Greeley

Digital Health

Rock Health 2023 Full-Year Funding Recap

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).

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The Wire

• Amazon and Omada Partnership: Amazon has officially arrived in the chronic condition management space, launching Health Condition Programs designed to surface eligible benefits for weight management, diabetes, and other cardiometabolic conditions – with Omada on board as its first partner. When Amazon users search for devices like blood pressure cuffs or glucose monitors, they’ll now be given the option to check their eligibility for one of Omada’s programs for more comprehensive support. Amazon gets more of its users associating the site with healthcare, and Omada gets a new enrollment pathway and a massive visibility boost.

• Withings Debuts BeamO Multiscope: Withings came to play at this week’s Consumer Electronics Show, debuting its BeamO “multiscope” that blurs the line between connected health device and mass appeal consumer product. The BeamO is designed to be a vitals monitoring multitool for home checkups, packing a thermometer, stethoscope, pulse oximeter, and EKG into a seriously sleek package (hats off to the product design team). The launch date is currently slated for June, at which point the BeamO will join other recent releases in Withings’ virtual care lineup like the Body Pro 2 smart scale.

• Childhood Screen Time Linked to Sensory Issues: Early-life exposure to television and short form video might be leading to sensory issues, according to a JAMA Pediatrics study that asked caregivers of 1,471 children how many hours of screen time the child watched and how they responded to stimuli at 12, 18, and 24 months. While the researchers don’t attempt to prove cause and effect, two-year olds with higher screen time were more likely to have “atypical sensory processing,” such as increased sensation seeking (OR: 1.2), sensory sensitivity (OR: 1.25), and sensation avoiding (OR: 1.21).

• Atropos + Arcadia: Arcadia is the latest partner to join the Atropos Evidence Network, adding another high-quality data asset to a resource roster that already includes the likes of Mayo Clinic and Clarify. Arcadia’s provider customers can now access Atropos’ portfolio of evidence generating applications to support value-based performance, while Atropos users can conduct real-world evidence studies leveraging Arcadia’s longitudinal research dataset. 

• Mayo Signs Cerebras for Generative AI: Mayo Clinic inked a new partnership with Silicon Valley startup Cerebras Systems to develop generative AI algorithms for healthcare. In an announcement at the JP Morgan Healthcare Conference, Mayo revealed that the focus of the collaboration will center around models for tasks such as summarizing medical records or analyzing images for patterns that humans might miss. Cerebras specializes in both hardware and software for AI development, and any new tech created through the partnership will be made available through Mayo Clinic Platform.

• Hospitals’ Local Economic Impact: To put into perspective just how big of an influence health systems have on their local economies, the Healthcare Association of New York State published a report to quantify that impact for NY-based hospitals. In 2022 alone, NY hospitals generated $201B of economic activity (~10% of the state’s GDP), along with approximately 859k jobs, $56B in salaries, $31B in taxes, and over $16B in community investments. That all stems from providing care to a collective 68M patients over the course of the year (58M outpatient, 2M inpatient, 8M ED visits).

• iRhythm’s CE Marks: iRhythm announced the EU CE Mark approval of its new Zio ambulatory ECG monitor and ZEUS System, which supports the analysis of ECG data recorded by the Zio monitor and saw its US launch back in September. Intended for 14 days of continuous use, the Zio ECG monitor is significantly smaller (-72%), lighter (-62%), and thinner (-23%) than the previous Zio XT, providing a less cumbersome experience to patients with potential arrhythmias.

• Biggest Healthcare Fails of 2023: The Lown Institute released the unenviable recipients of its 2023 Shkreli Awards, granted to the “perpetrators of the most egregious examples of profiteering and dysfunction in healthcare.” It’s a tough list to read, but there’s no doubt that the stories that made the cut deserve to be there. This year’s top honor went to Columbia University, which failed to prevent continued sexual assaults by one of its OB-GYNs despite 250 patient complaints, leading to a lawsuit that settled for $235M.

• New Data Supporting Hospital-at-Home: An observational study in the Annals of Internal Medicine highlighted significant benefits of the Acute Hospital Care at Home waiver program for 5,100 socially vulnerable / medically complex patients that were monitored from July 2022 to June 2023. Despite many of the participants having conditions such as heart failure (43%) and chronic lung disease (43%), those who received hospital-at-home care saw overall low mortality (0.5%), less use of skilled nursing facilities (3%), and lower rehospitalization rates (6%) – regardless of race, ethnicity, or dual eligibility.

• Digital Health’s Rural Road Trip: A high-tech “clinic on wheels” is rolling out as part of the NIH-funded RURAL project, which is aiming to determine why the prevalence of conditions such as heart disease and COPD is so high in the rural South. The mobile clinic is equipped with a CT scanner and on-board laboratory to perform cardiac and lung CT exams, along with blood pressure, cholesterol, and blood glucose tests for over 4k individuals.

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