Digital health funding expected to drop in Q4 after record-breaking Q3: report

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2020 is still on pace to be a watershed year for digital health and healthcare funding and could hit $76 billion in total investments by the end of the year, according to CB Insights' data. (Jirapong Manustrong/Getty Images)

After hitting the high-water mark in the third quarter, global healthcare funding is projected to slow down in the final quarter of 2020.

Global healthcare funding soared in the third quarter, hitting a new high of $22.3 billion across 1,575 deals.

To date, investors have poured $10 billion into healthcare companies in the fourth quarter, and funding is projected to hit $19.6 billion by the end of the quarter, down 13% from the third quarter, according to data from CB Insights on healthcare and digital health investments.

But that's still up 22% compared to the same period a year ago when global healthcare funding reached $15.7 billion.

CB Insights projects total deal count in the fourth quarter to reach 1,267, also down 22% from the third quarter.

Global digital health funding reached new heights in the third quarter, jumping 73% to hit a record $8.4 billion across 505 deals. This was fueled by an all-time high of 23 mega-rounds, CB Insights reported.

That's projected to fall to $5.5 billion across 372 deals in the fourth quarter, the company said. That's still well above the $4.9 billion raised in the fourth quarter of 2019.

RELATED: Global healthcare funding hit a record in Q3. Here's how much digital health companies raised

Halfway through the fourth quarter, digital health companies across the globe have raised $2.8 billion.

There is typically a drop-off in funding in the fourth quarter, but this year's slowdown is expected to be a sharper decline after the record-breaking investments in the third quarter.

Early-stage deal share may drop off in the fourth quarter as well. As in the third quarter, late-stage deals continue to make up a larger share than they had in previous quarters, CB Insights reports.

2020 is still on pace to be a watershed year for digital health, and healthcare funding could hit $76 billion in total investments by the end of the year, according to CB Insights' data. That compares to $58 billion in global healthcare funding in 2019.

Investor interest in digital health companies shows no signs of letting up as the COVID-19 pandemic has driven demand for virtual care and digital health tools.

"While our current projection for Q4 2020 has it declining from the previous quarter’s record-highs, the quarter still has a lot of potential—especially given the amount of mega-rounds, or rounds over $100 million, we’ve seen so far," Ja Lee, CB Insights managing analyst for healthcare, told Fierce Healthcare.

"In the past week alone, we’ve seen a spree of deal activity, especially in life sciences," he said.

The healthcare industry has seen 30 mega-rounds in the fourth quarter to date, with the U.S. and China making up the majority of these deals.

RELATED: Health tech funding snapshot—Honor scores $140M for in-home care; Lark Health lands $70M, expands Anthem partnership

German biotech company ATAI Life Sciences, for example, raised a $125 million series C round. Other large deals include tech-enabled primary care startup Carbon Health securing $100 million in series C funding, in-home healthcare technology company Honor banking $140 million in series D funding and on-demand digital primary care startup 98point6 raising $118 million.

Bind, a company that offers "on-demand" health plans, also scored a $105 million series B funding round.

The biggest round to date is China-based biotech company LianBio’s $310 million private equity financing.

"We've seen many deals above $50 million ranging across different therapeutic areas, geographies, and company stages after our mid-quarter analysis was done," Lee said.

There’s also been more activity with mental health technology companies, with Spring Health’s $76 million series B round and Headway’s $26 million series A round.  

"Overall, this report is meant to illustrate the funding trends we’re seeing at about the midpoint of the quarter. Even with our current projection, Q4'20 is still on track to outperform previous quarters with the exception of Q3'20, which will result in a strong year for healthcare funding in aggregate for the year," he said.