Challenging Market Dynamics Are Accelerating Digital Health Sector Maturity

The past year’s macro events are accelerating the sector’s maturity and driving the consolidation of this highly fragmented sector. While this contraction signifies progress toward a stronger and more relevant future, addressing the hype surrounding Digital Health is crucial. Recent incidents like eMed Healthcare UK ’s collapse and Pear Therapeutics ’ bankruptcy serve as cautionary tales, emphasizing the need for substantiated proof points, realistic projections, and tangible results.

Venture capital investment portfolios have been facing significant stress, highlighting the challenges of achieving favorable returns. The “emperor’s clothes syndrome” of the recent past has revealed vulnerabilities in this ecosystem, leading to a more discerning approach to investment evaluation.

In the last 6 months, venture capital funding, across the globe, has declined by 49% year-on-year, with deal volume shrinking by 39% (see chart above).

Despite this constraint, partnerships in the Digital Health landscape have grown by 1.2 times, indicating the increasing recognition of collaboration and shared expertise.

However, the global average number of ventures successfully raising funding in the past 18 months has fallen to below 30%, reflecting the caution of investors and the growing demand for concrete proof points.

Investors are increasingly prioritizing proof points e.g. Clinical Evidence when assessing investments, which is correlating with investment ticket size. This trend underscores the importance of solid data and substantiated claims in securing funding.

So is it Bust after Boom?

We anticipate a further shakeout in the Digital Health ecosystem as venture capital funding continues to be very cautious. The focus will continue to shift towards proven proof points and discouraging reliance on ambitious assumptions, as seen with Pear Therapeutics.

Looking forwards, we expect the following key drivers to continue to power the much-needed maturing of the exciting and promising Digital Health innovation ecosystems.

Digital Health Platforms will gain momentum through the growing number of venture-to-venture mergers and acquisitions. Market economics are now overriding founder egos, enabling a pragmatic approach to platform development and integration to provide consumers with integrated solutions rather than a plethora of point solutions.

The pharmaceutical industry faces challenges with a patent cliff and a dry product pipeline. Big pharma will increase investments in Digital Health , particularly AI, to revitalize their R&D efforts.

Health systems , having endured the pandemic’s challenges, will be a key driver to Digital Health scaling and adoption. Their focus will be on improving capacity, efficiency, and productivity to overcome rising demand and labor costs.

Insurers and payers , previously cautious, must urgently harness Digital Health innovation to reduce the ever-growing cost of claims and enhance their relevance to consumers whose expectations are changing.

So what's next for Digital Health

The Digital Health ecosystem transformation is underway, marked by consolidation, increased scrutiny, and a shifting investment landscape. Success in this industry now depends on providing solid proof points, fostering partnerships, and building strategic Digital Health platforms, whilst collaborating with health systems and insurers/payors.

By navigating these challenges, we can pave the way for a sustainable and impactful Digital Health future.

Galen Growth | Insights You Can Trust , has just published its comprehensive analysis of the key trends across the globe's Digital Health ecosystems , namely North America, South America, Europe, the Middle East, Africa, and Asia Pacific. It is free to download.