Record year for venture funding of health IT companies
With only three quarters completed, 2013 has already been a record year for venture funding in digital health, according to San Francisco-based health IT incubator Rock Health, which has been tracking deals in the space since 2011.
Digital health venture funding totaled $1.4 billion in 2012, and has already surpassed that in the first nine months of 2013 with $1.5 billion flowing into digital health as of Oct. 1, says Halle Tecco, Rock Health CEO and co-founder.
Digital health funding is up 37 percent relative to Q3 2012 on a total of 145 deals, according to Rock Health, which tracks all deals of $2 million or more.
The growth of the digital health sector is "reflected in the increase in funding of companies being built in this space," Tecco points out. However, "there is a dearth in seed funding of digital health companies," she said at the recent StrataRx conference in Boston. "We believe the reason is there hasn't been a lot of exits (yet). We don't have a lot of companies like Apple and Google supporting startups."
In 2012, a total of 179 organizations invested in digital health companies, but most did only a single deal. "Very few investors in the space are making multiple investments, which represents a challenge," Tecco says.
For that reason, more health IT companies are turning to crowdfunding to bring digital health products to market, she says. This year, Tecco began tracking crowdfunding of digital health campaigns on Indiegogo, Kickstarter, MedStartr, and Fundable. There were 34 digital health crowdfunding campaigns that closed in Q3, raising a total of $2.1 million.
The most successful campaigns of the third quarter included Scanadu raising $1.7 million on Indiegogo for a medical tricorder, and Sensoria Fitness raising $115,000 on Indiegogo for its sensor-filled socks.
A handful of categories have accounted for about half of health IT venture funding so far in 2013, according to Tecco: remote patient monitoring, hospital administration, analytics/big data, wellness, clinical electronic health records, clinical data capture and the surrounding "ecosystem". These themes comprise about half of venture funding in 2013, with the largest five deals representing 60 percent of all funding, Tecco notes.
One of the most successful fundraisers in the space has been Redwood City, California-based Proteus Digital Health, which announced that it had raised $62.5 million in its latest round of funding (including $45 million within the past year), led by Oracle with participation from existing investors Otsuka, Novartis, Sino Portfolio and others.
Proteus is developing an intelligent medicine system called Raisin. It includes sensor-enabled pills, a wearable, biometric sensor patch, and companion smart phone apps. The patch records when a pill is ingested and also tracks other items such as sleep patterns and physical activity levels.
"We see healthcare IT as a spectrum," Tecco says. "On one end of the spectrum it's consumer-oriented technologies that are delivering some sort of care -- diagnosis or treatment. On the other end it's the use of data and other technology tools to enable the healthcare system to be more efficient and reduce errors."
Tecco acknowledges that there are "huge concerns" among consumers, providers and government about maintaining the security and privacy of health data. "Consumers will expect a level of protection around their personal data, similar to what the banking industry provides for their customers."
On a positive note, Tecco said, certain provisions in the Health Insurance Portability and Accountability Act have "given health IT entrepreneurs a framework to develop tools" while complying with HIPAA's data confidentiality requirements.
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