Digital health investment had a blockbuster year in 2021, propelled in large part by the shift to virtual care during the COVID-19 pandemic.
The first nine months alone brought in a total of $21.3 billion for digital health startups across 541 investment deals, dwarfing the $14.6 billion record of 2020, according to Rock Health, a venture fund dedicated to digital health.
That momentum is projected to continue in 2022 as digital health companies lead the way in healthcare innovation with the use of artificial intelligence, machine learning, data analytics and telehealth.
Here are five digital health markets to watch as investors look to pour major cash into the healthcare sector:
1. Telehealth 2.0
Following a telehealth boom in 2020 propelled by the COVID-19 pandemic, virtual visits have started to stabilize but at elevated levels compared to pre-pandemic demand.
Telehealth use overall has leveled off at levels 38 times higher than before the COVID-19 pandemic, ranging from 13% to 17% of visits across all specialties, according to an analysis from McKinsey released in July.
This, in turn, has fueled massive investment into virtual care companies. Globally, telehealth companies raised $4.2 billion in the first half of 2021, according to Mercom Capital Group, a global communications and research firm.
Industry experts say the telehealth industry is becoming more mature and is shifting away from just urgent care visits to focus on more specialized care, or what some call "telehealth 2.0"
The big telehealth players to start to build out specialized virtual clinics for high-cost conditions like kidney disease, MSK pain or migraines to keep up with startups flooding the market, Jeff Becker, principal healthcare analyst at CB Insights, told Fierce Healthcare back in October.
RELATED: Q3 2021's health tech funding blows previous years out of the water
Bill Taranto, founding partner and president of Merck Global Health Innovation Fund, Merck’s $500 million venture fund investing in digital health,
"In 2022, entrepreneurs and investors will expand telemedicine into more chronic care spaces like cardiology. Today, someone in the U.S. suffers a heart attack every 40 seconds and heart disease costs the U.S. about $219 billion a year," he said.
Telehealth offers a more convenient, cost-effective way to diagnose and treat cardiovascular disease.
"Overall, expect telehealth players to build out their offerings across the chronic care landscape in a meaningful way in 2022," Taranto said.
2. Growing demand for wearable tech to monitor health
Consumers are buying more connected monitoring devices, spurred by the COVID-19 pandemic, and it's a trend that's expected to ramp up in 2022.
Deloitte predicts strong demand for wearable wellness technology in 2022 with 320 million consumer health and wearable wellness devices expected to ship worldwide in 2022. By 2024, that figure will reach 440 million units, the company predicts. This growth is likely being driven by new offerings hitting the market and more healthcare providers becoming comfortable using them.
People are increasingly using smart watches to monitor their health, not just their running pace, as new hardware, software and apps have turned them into personalized health clinics, Deloitte analysts wrote.
Heart rate monitors are now standard on most smartwatches, and some have FDA approval for detecting abnormalities such as atrial fibrillation, a major cause of stroke.
Major healthcare players are ramping up their investments in the wearable and connected device markets. Best Buy spent nearly $400 million to acquire Current Health, a remote patient monitoring and connected device company. Google shelled out $2.1 billion for fitness tracking giant Fitbit. And tech company Whoop, which makes wearable fitness tracking technology, raised $400 million to date, with a $3.6 billion valuation.
Smartwatch innovation is accelerating rapidly, thanks to advances in sensors, semiconductors and artificial intelligence. With more sophisticated health tracking features, consumer wearables can now act as a screening tool to flag a potential medical issue but are not sophisticated enough to be used as medical-grade devices, according to Mark Day, executive vice president of research and development at health AI company iRhythm.
"What [consumer wearables] can do is raise awareness of health and wellness, which allows patients to be easily identified and then come into the traditional healthcare system for diagnosis and treatment," Day said. iRhythm is a digital healthcare company focused on cardiac care that combines wearable biosensor devices and cloud-based data analytics.
On the flip side, traditional medical devices will migrate more towards wearables, with consumer comfort in mind.
"We are pursuing an FDA clearance for a wearable form factor that operates at a medical-grade capability. I think consumer devices and regulated medical devices will move closer to each other and this is a trend that will continue over time. This will help improve population health as more patients can be engaged in proactive management and treatment at an earlier point," he said.
RELATED: The digital mental health market is booming. Here’s why some experts are concerned
3. Digital mental health apps will branch out into more conditions
The digital mental health space was growing rapidly even before the COVID-19 pandemic but stress and anxiety brought on by the health crisis have accelerated demand for virtual behavioral health services, including mobile mental health apps.
The potential market for these apps is considerable. Nearly 800 million people worldwide, or 11% of the global population, live with a mental health condition.
Deloitte Global predicts that global spending on mobile mental health applications will reach close to $500 million in 2022. That’s assuming an annual growth rate of 20%—a conservative figure, considering the 32% growth these apps enjoyed, from $203 million to $269 million, from the first 10 months of 2019 to the same period in 2020, the company wrote in a recent report.
And it's a market that's attracting massive investment dollars for startups. Globally, mental health startups raised a record high of $2 billion in equity funding in 2020, according to CB Insights.
Mental health is the top-funded therapeutic focus so far in 2021 with $3.1 billion raised, according to a recent report by Rock Health, a venture fund dedicated to digital health.
There is now a growing crop of digital mental health "unicorns," or privately held startup companies valued at over $1 billion. These include Cerebral, Modern Health, Lyra Health and Ginger, now merged with Headspace.
As digital mental health companies compete in an increasingly crowded space, companies are beginning to differentiate by focusing on complex mental and behavioral health support, including serious mental illness and substance use disorders, according to Rock Health researchers.
Expect to see a heightened focus on clinical evidence to demonstrate that digital solutions are safe and clinically effective in order to win over regulators and payers like the Centers for Medicare and Medicaid Services (CMS).
“There is a lot of saturation in the marketplace with companies offering very similar products. Eventually, these companies will have to differentiate themselves not based on claims but based on results,” John Torous, M.D., director of the digital psychiatry division at Beth Israel Deaconess Medical Center in Boston, told Fierce Healthcare.
“As COVID-19 accelerates the demand for digital mental health services, companies will need to separate themselves based on who has high-quality evidence that it works," he said.
RELATED: Women's digital health rakes in $1.3B in 2021 buoyed by investor interest in more integrated care
4. Digital women's health will expand to more comprehensive care
Digital health startups focused on women's health saw a sudden meteoric rise in 2021, surpassing $1 billion for the first time as the sector pulled in $1.3 billion in funding across 26 deals in the first three quarters.
The women’s health market is projected to hit $60 billion by 2027, according to Emergen Research.
The new wave of women's digital health funding is pushing beyond historical norms of pregnancy and fertility support to more comprehensive offerings, from primary care to chronic disease management and menopause, according to Rock Health.
"We are seeing an evolution in the last two years, where before that women's health was mainly focused on menstrual health and fertility, and now we're seeing an expansion beyond those categories. The successes from those businesses showed that it’s a huge market, that’s it not a niche," said Marina Pavlovic Rivas, founder and CEO of Eli Health during a recent webinar about the women's health market.
"Women are only fertile for 30 years, but almost all the investments are in that maternal space. There is so much that happens before and after fertility," Kaitlin Christine, founder and CEO of Gabbi, said during the same webinar. " It’s increasingly important to think about women’s health as holistic. I don’t think that shift has happened quite yet, but we’re on the precipice where I think we're going to see more investment and focus on these other things that aren’t maternal focused."
Industry experts expect investment in women's health companies to continue in 2022 as these startups focus more on underserved populations and expand into more health conditions.
But there is still a need for more buy-in from venture capital firms, they said.
"Women’s health is viewed as this category where investors check the box and say, 'We made our women’s bet.' That is shocking to me given how large the category is and how substantial a portion of the population it is and how much need there is," Christine said. " You have large investment funds that have yet to make a women’s health investment."
RELATED: Pear's digital therapeutic for alcohol use disorder bears fruit with FDA breakthrough tag
5. Digital therapeutics are ready for prime time
Investors have taken a keen interest in digital therapeutics, judging by the sheer amount of cash being funneled into the space.
DTx delivers evidence-based therapeutic interventions via software, like mobile health and wellness apps, that replace or complement the existing treatment of a disease.
Year-to-date funding in the DTx industry is up 79% over 2020, according to CB insights. And the global digital therapeutics market is projected to hit $13.1 billion by 2026, up from $3.4 billion in 2021, according to a Markets and Markets report.
About 35 to 40 digital therapeutics have been approved by the FDA since 2017, though the agency doesn’t have a specific definition for the products, Morning Consult reported.
"More than any other area, this is the space where I believe we’ll see the most entrepreneurial and investment activity in the coming year," Taranto said.
He forecasts that digital therapeutics will show promise in the coming year are in mental health and substance abuse. Pear Therapeutics, for example, recently received breakthrough device designation from the FDA for its digital therapeutic candidate focused on the treatment of alcohol use disorder.
During the pandemic, federal regulators loosened some requirements to make digital health tools more accessible.
But the sector continues to face regulatory and payer-side challenges that could slow widespread adoption.