Digital Health Investment Landscape: Telemedicine Takes The Lead For Now

I’ve noticed that certain areas of digital health investment are having a moment right now, especially in telemedicine, as doctor visits went virtual while everyone sheltered in place during the COVID-19 pandemic.

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Eager to know more, I listened in on a Thursday afternoon webinar hosted by Manatt’s Lisa Suennen, whom I’ve long known to be one of the experts in this area, and her colleague, Jared Augenstein, as they discussed “The Digital Health Investment Landscape Post-COVID-19: What’s Next in 2020 and Beyond?”

Suennen began by explaining that digital health investment opportunities, “have become interesting lately,” and that while adoption has been challenging, there remains a lot of activity and interest. In addition, tech companies that have not dabbled in the health care space before are now entering the field.

Here are five highlights from the webinar:

1. Despite the environment, investments are still happening. Suennen pointed out that prior to 2010, hardly any venture capital investments were in health care technology. By 2018, $17 billion of capital was flowing to health tech startups. Despite a slight downtick in 2019, the investment dollar amount is still high, she added. Before COVID-19 changed everything, Suennen said, 2020 was on its way to being “the best year ever” for the industry as indicated by Rock Health’s April report showing $3 billion was invested in digital health in the first quarter. In previous investment reporting, telemedicine was not high on the list for investment dollars, but has now become a bright spot due to COVID-19, she said. That, coupled with better adoption, a more favorable regulatory environment, interoperability, and user experience, means “digital health is clearly here to stay,” she added.
2. As mentioned, telehealth has exploded. The number of Medicare beneficiaries receiving telehealth services beginning in March increased by over 100 times, said Augenstein, who relayed data from the U.S. Centers for Medicare and Medicaid. Specifically, it went from 11,000 users on March 7 to 1.3 million users by April 18. He said he expects many of the regulatory flexibilities introduced during COVID-19 to remain. Augenstein also expects that now that physicians are used to delivering virtual care, and patients are used to receiving it this way, the industry will “reset to a new normal over the next one to three years as the pandemic fades.”
3. Health care provider organizations are under stress. Suennen said that 63 percent of all funded digital health companies in the first quarter of 2020 were focused on selling to providers. She expects there will be difficulty in providers adopting new technology because they are under stress from not having the typical revenue and patient volume. Suennen also highlighted that chronic illness treatment costs will probably be higher than expected due to people not getting their normal care.
4. There will be winners. Companies in the areas of supply chain solutions; virtual clinical trials (which I reported on here); digital therapeutics/diagnostics; predictive analytics–especially those that drive new patients and revenue opportunities; and digital training solutions (stay tuned for an announcement later this month), will do well.
5. But there will also be some losers. As discussed in No. 3, providers aren’t taking risks right now, so they are not buying something that is a “nice to have.” That goes for products that reduce patient volume, are value-based, niche, ignore the increasing reach of Medicare or Medicaid, consumer pay products, or brick-and-mortar growth dependent. In addition, digital companies that pivoted to focus all of their attention on COVID-19 solutions may not have the same opportunities when things return to normal, Suennen said.

In conclusion, Suennen commented, “COVID-19 may have given digital health the boost it needed to move past the hype and toward widespread adoption.” However, she said she predicts the sales cycle will be longer as customers are distracted and investors have their eye on telemedicine. For everything else, most investors are busy shoring up their portfolio companies.

“Investor opportunities will come, and good companies will come out of this time,” Suennen said. “We are watching with great interest in how that turns out.”

Illustration: Li-Anne Dias