5 Things We Learnt About Investments In Digital Health: Our E-book

At The Medical Futurist (TMF), and especially at The Medical Futurist Institute, we don't usually deal with investment-related news and announcements. We receive many press releases coming from incubators and venture capital firms each week, but we never share them on our channels. Even though we focus on technologies and trends rather than companies of interest to investors, this doesn’t mean that we don’t keep a close eye on all these developments.?

We are in close contact with many digital health startup founders, analyze the technologies they work on and objectively share news relevant to investors. Above all, The Medical Futurist team is a fierce advocate for proper digital health adoption; and for that, we need good investments in good digital health companies. This will help shape an optimistic healthcare landscape that can better deal with crises like COVID-19 and form a future better fit to solve the major problems.

The rise in investments during and after the pandemic made us realize that it's high time to address this topic again. As such, we set out to update our e-book titled “The Medical Futurist's Guide To Investing In Digital Health." This guide is aimed to serve as an executive summary for those interested in investing in digital health. In it we discuss reasons to invest in this industry; analyse 24 technological trends we consider the most promising; take a closer look at famous and notorious examples of companies that succeeded brilliantly or failed tragically in the industry; and the lessons investors can learn from them.?

We also sought insights from incubators and digital health startuppers to include in this guide. We invite you to grab a copy of our latest e-book on LeanPub for a more detailed look into the promising trends in digital health for investors and how we assess technologies and companies at TMF.

Growth in the traditional health industry is unsustainable

Analysts seem to agree on an important point. The overall size of the global health industry ($7.9 trillion in 2023) is on an upward trajectory. However, this growth and more importantly, its share related to GDP seems unsustainable – as it is projected to reach $10 trillion by 2027. According to this Deloitte forecast, it will amount to 26% of the global GDP by 2040. And here is when digital health is seen as the greatest promise.

Although somewhat more slowly, eventually, the healthcare sector seems to be catching up with other, more consumer-focused areas, like banking, consumer finances, retail and so on, which have already gone through paramount changes regarding efficiency. ?Analysts forecast similar landslides in many, health-related areas, including 'bordering’ sectors, like fitness, wellness, prevention, mental health and nutrition among others.

Healthcare is a slow-moving animal, but it is in dire need of change. This could open the door to health tech companies that can tackle specific parts of the value chain. Which are the niches health tech can address? Many!

In this article, we further share 5 things we've learned about investments in digital health while working on the e-book. From the impact of the pandemic to companies that leave a bitter taste in investors’ mouths following unfulfilled promises, anyone interested in digital health can get additional insights by analysing investments in the field.

1. Generative AI has arrived and will transform medicine

Although we've been predicting for years that AI will transform healthcare, it suddenly became very obvious in the past year. ChatGPT, the first widely available solution for interacting with AI was released at the end of 2022 and it has changed everything. Artificial intelligence, which was the mystic tool available only to a select few, became an everyday tool for anyone - overnight.

And with it, large language models (LLMs) moved into the spotlight. Although using LLMs in patient-facing roles without solid regulatory safeguards is a no-go, the field is developing with impressive speed and healthcare-specific models are being tested.

But despite the sudden popularity, LLMs are not the only promising AI algorithms. In fact, there are already over 700 AI-based medical devices that have FDA approval, and we see many promising ventures in drug design, clinical documentation, and medical coding. And of course, we wonder about the black-box nature of this amazing technology when AI has curious medical discoveries, detecting things that – to the best of our human knowledge – should not be detectable from the input data. Like knowing the race of the patient from chest X-rays alone.?

AI has amazing potential to improve medicine, it will be a major tool to address shortages in healthcare personnel, relieve professionals from most of the administrative burden, and assist us in diagnosing cases, in designing new drugs and devices.

2. Digital health has matured enough by now

Before the 2010s, the digital health market was simply not mature enough. Startups were still finding their footing and solutions weren’t refined; resulting in a flawed perception and slow adoption rates. As such, it might have been too early to invest in this industry.

However, now the landscape is wildly different and we found that the opportune time to invest in digital health has arrived. Technologies that digital health startups work with have been fine-tuned. The cultural transformation required for digital health adoption is taking place; countries like Germany and Denmark have national digital health strategies to address the industry.

Meanwhile, many mature digital health solutions have hit the markets in recent years, delivering tangible, measurable results, like the teletherapy program for OCD (obsessive-compulsive disorder) patients, which was found to reduce symptoms by 43.4% with patients maintaining the results for up to a year later.

Such approaches prepare policymakers, patients, and physicians to be ready to adopt digital health solutions.

The Global Digital Health market size is projected to reach $1.6 trillion by 2032 from $217 billion in 2022, with an annual growth of over 255% between 2023 and 2032. The right time to invest is now as very soon everyone else will want a piece of the cake. As such, investors and venture capital firms should consider this time factor before it’s too late.

3. Notorious investment stories can ruin a field for years

Some digital health companies claim to have the best tech with mouth-watering potential and investors are quick to jump on the hype train. But these go bust within years and serve as cautionary tales for investors to be wary of channelling funds in that particular sector. We came across several notorious examples in the industry.

The poster child of such examples is Theranos and its one-drop blood test promise. The startup raised $400 million from investors; was later valued at $10 billion; and even won the FDA’s approval at one point by going through regulatory loopholes. However, it all turned out to be a scam on many accounts from faking demonstrations to using unreliable tech. This jeopardizes investments in the blood testing sector as several other companies are working on providing solutions with proven tech.

4. There is a shift from investments in health IT to investments in digital health

Another example is that of Proteus. The digital pill pioneer developed the first such pill to receive FDA approval and even had a $1.5 billion valuation in 2019. But in 2020, the company filed for bankruptcy. Even though some research backed its tech to improve adherence, it was bad management that led to its eventual downfall. They couldn’t reach certain milestones within deadlines under pressure from major investors. They also had poor adoption due to the exorbitant price tag of $1,650 per month, while the generic drug costs less than $20 monthly. The fallout is that other companies like etectRx and SIGUEMED working on similar solutions face a steeper slope in attracting investors from here on.

The direction of funding has pivoted from the pandemic-driven focus on on-demand healthcare services and life science research and development, which were prominent in 2021 and now, the emphasis is on digital health solutions that aid in disease treatment, streamline nonclinical operations, and manage complex health conditions like kidney disease.

Mental health continues to be the leading area for clinical investment in digital health startups, with $0.9 billion allocated so far this year. Nephrology has emerged securing $0.7 billion in 2023, a significant increase from the $54 million raised in the previous year, positioning it as the second-highest funded area in the sector.

At the moment, we see three fields that are especially promising from the investors' point of view:

• technologies and solutions targeting niche areas and niche medical specialties, like diabetes care, the OCD teletherapy solution we mentioned before, or the smart glasses specifically developed for blind and visually impaired patients (as opposed to a general telehealth app for example)
• technologies that produce valuable health data for users and their physicians alike, like skin-checking apps, or smartphone-connected ECG sensors providing data for cardiologists as well
• technologies and solutions aiming to improve the quality of patient-doctor relationships, like voice-to-text solutions

This indicates a general trend of shifting investments from health IT towards digital health.?

To differentiate between the two terms, the “Gary rule” helps. Gary is the IT guy at your company. If there is an issue he alone can fix - like outdated antivirus software or malfunctioning electronic health records (EHR), then we’re talking about health IT. However, if there is an issue that Gary alone cannot fix as it requires input from more stakeholders such as analysing patient data from wearables and addressing the related technological issues, then it’s a digital health issue.

With the democratised access to care that digital health offers, such solutions are increasingly attractive to consumers; and, in turn, investors. For instance, during the COVID-19 crisis, McKinsey reports that medical providers saw 50 to 175 times more patients via telehealth than they had done before.

Following this trend are companies that provide on-demand care like AliveCor, the company behind portable ECGs. In 2020, the company launched KardiaCare, a digital subscription service. It integrates its devices with personal results to offer ECG reviews by cardiologists, monthly summaries and a suite of other features to help users interpret their ECG data. Their KardiaMobile Card is a single-lead, FDA-cleared medical-grade pocket ECG that has the dimensions of a credit card that detects six types of arrhythmias. To date, the company has raised about $300 million in total venture funding.

5. Successful startups meet real-life patient or clinical needs

Often in tech shows like CES you’ll come across silly products like a blockchain toothbrush, or a watch giving you electro-shocks. At other times you’ll come across startups like Magic Leap that make promising partnerships and and amass tons of funding but don’t deliver on their promise. Or even those like CliniCloud that have a brilliant team and good tech but ultimately close shop. Such examples showed us that for startups to find success in digital health, their products must offer solutions to real clinical needs.

For a technology to be successful, it should integrate into the practical reality of healthcare. For example, mySugr helps diabetics reinterpret the condition as a “monster” that can be tamed through their app. Through motivating challenges, personalised insights and a scoring system, it encourages patients to “tame the monster” by keeping their glucose level at a desirable one. Pharma giant Roche even saw the potential in mySugr’s gamified approach and acquired the startup in 2017. It paired the mySugr app with its existing Accu-Chek Guide glucose meter to create the mySugr Bundle; thereby augmenting diabetics’ management of their condition.

To learn more about the promising technological trends in digital health, we again encourage you to get a copy of the 2023 update of our Invest In Digital Health e-book on LeanPub. You will find further details about our assessment methods when it comes to these technologies and the relevant companies. We hope you’ll find it useful!