Digital Health Investment Slows but Continues to Grow: Report

The digital health industry has seen a 12 percent investment increase in the first half of 2013, though growth is slower than a year ago.

Investment in the digital health industry is growing but not as much as in years past, according to a midyear report by heaIth IT startup accelerator Rock Health.

Funding of digital health companies totaled $849 million through June 30, 2013, a 12 percent growth in investment over the first half of 2013, compared with a 73 percent increase in digital health investments in the first half of 2012.

For the July 1 report, Rock Health tracked digital health funding for the previous 181 days of 2013.

The drop in funding is not a cause for alarm, according to Malay Gandhi, Rock Health's chief strategy officer.

"When you take into account the rates, it looks really different, but I don't view it as a negative trend," Gandhi told eWEEK.

He attributed the larger growth numbers in years past to a smaller base from which to launch.

"Of course it looks like a really large growth number because we were starting from $343 million and now we're starting from $757 million," he explained. "It's just arithmetic. When you're dealing with a small base, it's easy to grow by that much."

Regarding health care IT venture capital funding, Gandhi said, "Our perspective is that the excitement hasn't waned at all."

Gandhi said some big deals sometimes come in July. "It's a midyear number, and we'll see where we are toward the end of the year. You just never know if there is a big deal lurking."

Rock Health's portfolio of startups include the electronic health record (EHR) developer for the iPad, Drchrono; the RxApps text-messaging service; and Clinicast, a producer of population health analytics software.

The major areas of health care IT funding in 2013 are remote patient monitoring, big data analytics, hospital administration, EHRs and wellness, Rock Health reported.

In the first quarter of 2013, investing in medical devices dropped by 29 percent and investment in biotechnology slipped by 2 percent, compared with the same period a year ago. Digital health investment leads to faster returns than biotechnology, pharmaceuticals or medical devices, according to Gandhi.

"You can get faster returns with digital health, he said, noting the longer amount of time needed to take a biotechnology, medical device or pharmaceutical item to market due to the regulatory process. Risk to reward isn't there in medical devices," Gandhi said.

Health care IT venture capital deals doubled in the first quarter of 2013, according to a report by the Mercom Capital Group.

Among the largest health care IT investment deals so far in 2013 is Proteus' Series F financing, which has raised a total of $62.5 million in its latest round of funding and $45 million within the last year. Oracle announced May 1 that it invested an undisclosed "minor sum" in Proteus Digital Health, which has developed an ingestible pill sensor that allows people to track their medication compliance. Drug manufacturers Novartis and Otsuka Pharmaceuticals also invested in Proteus.

The biggest active investors in the study were Social+Capital Partnership followed by Norwest Venture Partners.

Digital health funding has slowed due to an uncertainty in the trajectory of the health care IT market, particularly the pace of adoption of new products and whether new care models will work, John Moore, an analyst at Chilmark Research, told eWEEK in an email.

Health care IT is a conservative market as far as new tech adoption, Moore said, "and it is difficult to rapidly scale."

In addition to examining digital health funding since last year, the Rock Health report examined trends in funding models, such as the growth in crowd-funding for health care IT.

Indiegogo is a prominent site used for digital health campaigns, Gandhi noted. Companies that manufacture health-tracking devices, such as Misfit Wearables and Scanadu, have been active on Indiegogo.

Digital health companies that are successful in raising the most funds show a fast return on investment to the health system and are product-oriented, Gandhi said.