Digital health funding in first half of 2019 hits record $5.1B: report

Global venture capital funding for digital health companies in the first half of 2019 hit $5.1 billion with 318 deals, the highest amount raised in the first six months of a year so far, according to a new report.

In the second quarter of 2019, venture capital funding held strong at $3.1 billion in 169 deals following the $2 billion raised in 149 deals in the first quarter, according to a new report from Austin, Texas-based communications and research firm Mercom Capital Group.

In the first half of 2018, digital health companies raised $4.9 billion in 383 deals.

Global digital health firms have received more than $40 billion in venture capital funding deals since 2010, with U.S. companies raising approximately $30 billion to date, Mercom Capital Group reported.

A strong second quarter helped boost digital health funding after Mercom Capital Group reported in April that venture funding for digital health companies leveled off in the first quarter of 2019, dropping 19% compared to the first quarter of 2018.

Mercom Capital Group pegs total corporate funding in digital health companies—including venture capital, debt and public market financing—at $5.5 billion in 2019 to date. Corporate funding set a new record for the second quarter in 2019 with $3.3 billion compared to $2.2 billion in the first quarter of 2019, according to the report.

RELATED: Digital health investments in 2019 poised to surpass 2018: Rock Health

While funding activity was robust in digital health in the first half of 2019, merger and acquisition activity was weak, said Raj Prabhu, CEO of Mercom Capital Group.

"Weak M&A activity has not affected investment activity over past years. We are in an 'invest first and ask questions later' environment where investors are more worried about missing out in this hot space. After a long hiatus, we are seeing several digital health companies entering the IPO market in the United States. Successful IPOs could open the floodgates, whereas if IPOs fizzle out, it could shut the IPO exit path for many digital health companies,” Prabhu said.

In the first half of 2019, there has been one IPO for $179.4 million, Change Healthcare.

Four other companies have filed to go public—Livongo, Health Catalyst, Phreesia and Peloton. 

Investors continue to have a strong appetite for analytics startups, raising $1.1 billion in the first half of 2019. Other top-funded categories include telemedicine with $896 million, mHealth apps with $627 million, wellness with $341 million, healthcare booking with $336 million and clinical decision support with $287 million.

In addition, wearable sensors raised $285 million in funding, mobile wireless raised $264 million and healthcare benefits brought in $208 million.

Consumer-centric companies accounted for 60% of the funding in the second quarter of 2019, raising $1.9 billion in 93 deals compared to $1.1 billion in 83 deals in the first quarter, Mercom Capital Group reported.

RELATED: After record-setting 2018, digital health venture funding levels off

The top venture capital deals in 2019 so far include $250 million raised by Tencent Trusted Doctors, a Beijing-based company formed through the merger of Tencent Doctorwork and Trusted Doctors that provides both online and offline healthcare services, followed by $205 million raised by health insurance startup Collective Health. Precision medicine company Tempus scored $200 million in funding in the first half of 2019, while French digital health startup Doctolib raised $170 million and Health Catalyst raised $100 million.

A total of 821 investors participated in funding deals in the first half of 2019. Prominent corporate investors included Amazon’s Alexa Fund, GV (formerly Google Ventures), Goldman Sachs, Merck, UnitedHealthcare’s Optum Ventures, Piper Jaffray, Blue Cross Blue Shield, Oracle, Merrill Lynch, Fidelity and Cisco Investment, Mercom Capital Group reported.

So far, 2019 has seen less M&A activity with 91 total transactions to date. That compares to 116 M&A transactions in the first half of 2018. In the second quarter of 2019, there were 46 M&A transactions, compared to 68 M&A transactions in the second quarter of 2018.

Notable M&A transactions this year include Dassault Systemes' acquisition of Medidata, a company that develops software as a service for clinical trials, for $5.8 billion, Golden Gate Capital acquired a 51% stake in Ensemble Health Partners for $1.2 billion, and Nordic Capital acquired a majority stake in ArisGlobal for $700 million, according to the report.

JPMorgan Chase acquired InstaMed for more than $500 million, Thomas H. Lee Partners acquired Nextech Systems for $500 million and Hill-Rom Holdings acquired Voalte for $195 million.

Acquirers of digital health startups included a diverse group of tech giants, pharma companies and insurance companies like Apple, Google, Best Buy, Merck and UnitedHealth Group.