Investment in medical tech

Digital medicine

Main article: Digital medicine

Mergers and acquisitions in the medical tech industry

Main article: Mergers and acquisitions in the medical tech industry

2023

Investment in American medical tech startups fell to a minimum in 4 years - to $10.7 billion

At the end of 2023, the volume of investments in American startups in the field of digital health care amounted to approximately $10.7 billion. For comparison, a year earlier this figure was $15.3 billion, and in 2021 - $29.2 billion. Such data are provided in the Rock Health study, the results of which were published on January 8, 2024.

It is noted that in 2023, the volume of funding for medical tech startups in the United States fell to a minimum in four years. Analysts say that the observed picture is associated with high interest rates and cautious behavior of investors in a difficult macroeconomic environment. The number of transactions made is also decreasing: in 2023 it amounted to 492 against 577 in 2022 and 738 in 2021.

The average size of a deal to finance American medical tech startups in 2023 was recorded at $21.7 million. For comparison: a year earlier, this value was $26.5 million, while in a record 2021 it reached $39.6 million. The study's authors say that amid a lack of funds, start-ups have sought alternative ways to finance, such as extending existing rounds, unmarked investment programs (without designations like Series B or Series C) and "quiet" deals with existing investors.

Rock Health data shows that M&A activity in the medtech segment did not grow year-on-year in 2023, though cash-strapped start-ups were expected to look for buyers. In addition, despite the funding gap and weak investor activity, there was no clear surge in startup closures, although there were several notable bankruptcies (such as Babylon Health) and asset sales. Most companies have made changes to the operating model to reduce dependence on external capital.^[1]

Named the 5 largest transactions for investing in medical tech startups in the world

At the end of 2023, the largest investment deal in the global digital health and medical technology market was the raising of $280 million by Neuralink, owned by Elon Musk. This is stated in a report by Becker's Hospital Review, published on December 15, 2023.

Neuralink, a brain-computer interface firm, held a Series D funding round in August 2023. The investment program was led by the Founders Fund, the venture capital firm of billionaire Peter Thiel. Thus, since its inception, Neuralink has raised a total of about $640 million, and the capitalization of this medical tech startup has reached $5 billion (as of June 2023).

The largest investment deal in the global digital health and medical technology market was the raising of $280 million by Neuralink

The second place in the list of the five largest transactions for investing in medical tech startups in 2023 went to the ShiftMed support program, a digital health recruitment company. In February, she received $200 million in a round of funding conducted by Panoramic Ventures. Arcadia, a medical data analysis firm, closes the top three: in April 2023, it raised $125 million from Vista Credit Partners.

In addition, in April 2023, MedShift, a startup that provides corporate solutions to medical device manufacturers, received $108 million for development, which corresponds to fourth place in Becker's Hospital Review. On the fifth line is Artera, which develops tools based on artificial intelligence to identify malignancies. In March 2023, the company held a round of financing in the amount of $90 million. The program was supported by Johnson & Johnson Innovation, as well as one of the co-founders, Chairman of the Board of Directors and CEO of Salesforce Corporation Marc Benioff.^[2]

In the US, large startups in the field of digital medicine massively lay off employees due to lack of money

American startups in the field of digital health care are forced to massively reduce the number of personnel. And some companies have several rounds of layoffs. This is stated in a study published on November 3, 2023.

It is noted that in 2020-2021, the digital health care industry in the United States developed rapidly. In particular, in 2020, such startups raised a total of about $14.9 billion, thereby setting a record. And in 2021, the collected amount reached $29.1 billion. Such a rapid development of the segment is primarily due to the high interest from investors during the COVID-19 pandemic. In the context of widespread restrictions, a variety of digital services have become in demand, including telemedicine.

American startups in the field of digital health care are forced to massively reduce the number of personnel

However, in 2022, the situation began to change: a number of digital health companies, which had previously held funding rounds of $100 million or more, began to reduce staff. In 2023, the state of affairs only worsened. Against the background of the formed macroeconomic situation, high inflation and a sharp increase in interest rates, even those startups whose market value previously exceeded $1 billion are forced to cut workers. Some companies that carried out layoffs in 2022 are making additional cuts in 2023. Moreover, experts warn that these measures may not be enough to stay afloat.

In total, in 2023, the number of personnel decreased 32 American startups in the field of digital medicine against 26 in 2022. A number of companies are cutting 20-25% of the state, such as the Nomad Health platform. At the same time, at least two startups - Friday Health Plans and Medly - completely got rid of their workers in 2023.^[3]

U.S. Digital Health Investment Sizes Decrease, Deals Decline

The founders of digital health start-ups continue to face a tougher funding cycle, with the number of deals shrinking and the size of investments shrinking. However, in a number of sectors there are vivid examples of a different approach, as investors show interest in startups exploring new treatment routes and developing solutions for non-clinical document management.

Thus, in the third quarter of 2023 the American startups health care , $2.5 billion was raised in the field of digital in 119 transactions, which is the second lowest indicator in terms of funding since the fourth quarter of 2019. Such data are provided in an analysis venture capital fund by Rock Health, which focuses on digital health. Thus, the total amount of funding in 2023 amounted to $8.6 billion raised under 365 transactions, the information and analytical educational project reported on October 26, 2023, citing Evercare Fierce Healthcare magazine.

In the second quarter of 2023, digital health startups received $2.5 billion in 113 transactions, after $3.5 billion in 131 transactions in the first quarter.

Investment in digital health startups began to decline in 2022 after record growth in 2021 caused by the transition to telemedicine and digital technology during the COVID-19 pandemic. If funding continues at the same pace, Rock Health predicts that digital health will record its lowest funding level since 2019 in 2023.

The digital health investment market will calm down, a "new market equilibrium" and "stabilizing financing dynamics" compared to the turbulent dynamics in 2021 and 2022, Rock Health analysts predict.

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Rock Health

According to analysts, there is a more conservative mentality among investors, they make fewer transactions and negotiate more tightly on the terms of transactions, which further contributes to a decrease in the financing cycle.

Early rounds of funding are still a concern, and there has been a marked increase in the number of start-ups attracting expanded and unmarked rounds. This is likely, Rock Health believes, contributed to few series being announced in 2023, with just 34 Series B rounds, up from 82 in 2022, and just 11 Series C rounds, up from 35 in 2022. That's the lowest since Rock Health began tracking venture funding for digital health in 2011.

In 2023, digital health funding will shift from pandemic era priorities and catalysts for health research and life sciences to digital health products and services supporting disease management, non-clinical workflow, and management of complex conditions such as kidney disease.

Disease treatment ranked first in terms of funding, raising $1.64 billion between the first and third quarters of 2023. Vivante Health, a company specializing in the treatment of diseases of the digestive system, received $31 million to expand its platform, combining integrated telemedicine, nutrition coaching and independent modules for the treatment of diseases of the digestive system.

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Rock Health

In the period from the first to the third quarter of 2023, $1.59 billion was allocated for solutions for non-clinical document management. According to analysts from Rock Health, players in this area solve a variety of tasks - from managing durable medical equipment (Synapse Health, $25 million) to managing the revenue cycle (Collectively, $29 million) and planning and communication with patients (Keona Health, $7 million).

The most funded clinical area among startups in the field of digital health care remains mental health, for which $900 million was allocated in 2023, and startups in the field of nephrology in 2023 raised $700 million.

Investors are also showing increased interest in supporting value-added services. Better Life Partners, which offers virtual mental health services, addiction treatment and care coordination, raised $26.5 million, and Healthmap Solutions raised $100 million to expand its business. The company serves insurance and healthcare organizations that seek value-added solutions for chronic kidney disease.

Analysts at Rock Health also believe there is reason to be optimistic about the public digital health services market, despite some notable failures by some former "darlings" of the market. In particular, in IPO 2023, the companies Pear Therapeutics Babylon Health filed for bankruptcy. Pear's closure reflects the company's difficulty in securing insurance companies' reimbursement of prescription digital therapeutics, and Babylon closed after losing major contracts, including due to operational inspections.^[4]

Lowest level of venture capital investment in medical tech recorded since 2015

After booming in 2021, which offset a lack of investment deals in 2020, the number of mergers and acquisitions (M&A) as well as the amount of venture capital investment in medical technology have a steady downward trend. Such information was published in a report by Evaluate Medtech, which became known on July 25, 2023.

The first half of 2023 was marked by a particularly low level of venture capital investment in the industry. According to Evaluate Medtech, only about $2.5 billion has been invested in medical technology startups over these six months, the lowest since 2015. If this pace continues until the end of the year, then 2023 will be another year of "fall" compared to $7.3 billion raised by venture capital funds in 2022, when everything returned to normal after the level of 2021 - then the volume of investments in medical tech startups amounted to $9.9 billion.

Of the 65 investment announcements in the first half of 2023, only four marked a nine-figure amount and only one financing exceeded $200 million. Read more here.

2022: Investment in global medical IT projects halves

On January 9, 2023, Rock Health published a report analyzing the global digital health market. It is noted that in 2022, investments in the corresponding segment sharply decreased.

Analysts note that in the period from the third quarter of 2019 to the second quarter of 2021, investors continuously increased investments in digital healthcare. Growth has been seen for seven consecutive quarters - with a single decline in the second quarter of 2020. However, then the positive dynamics changed to negative: investment growth in the period from the third quarter of 2021 to the fourth quarter of 2022 was recorded only twice - in the last quarters of 2021 and 2022.

As a result, at the end of 2022, the total volume of investments in digital health care amounted to $15.3 billion in 572 transactions. At the same time, the average deal size was at $27 million. For comparison: in 2021, 738 transactions were carried out for a total of $29.3 billion. Then for each transaction accounted for an average of $39.7 million. In the first half of 2022, quarterly funding averaged $5.2 billion, and dollars in the second half of the same year, the figure fell to $2.4 billion.

A notable factor in the "downward" financing trajectory in 2022 was the reluctance of investors to invest heavily in late-stage transactions, which led to a sharp drop in the total number of mega agreements. So, in 2022, 35 startups in the field of digital health care attracted investments in the amount of $100 million or more. This is significantly less than the number of such transactions concluded in 2021 and even in 2020 - 88 and 43, respectively.

The observed picture, as noted by Rock Health experts, is associated with a number of factors. These are supply chain problems, inflation, rising interest rates and an unfavorable macroeconomic situation in general. Apparently, 2022 marks the end of the macro-finance cycle.

2022 was a reminder that investment is cyclical. We expect that 2023 will be built on slow, stable and possibly even boring strategies for both medical startups and enterprises: cash management, restructuring taking into account income volatility and investment in technological infrastructure, the authors of the report say.

However, 2022 saw sustained interest in emerging digital healthcare companies. The study indicated that the average deal size for Series A funding rounds in 2022 reached a maximum of $15 million, while investment sizes for Rounds B, C and D decreased.

For growth-stage startups that did not receive funding in 2022, limited cash reserves could have a key impact on further development. Analysts do not exclude that in 2023 a significant number of mergers and acquisitions will be concluded on the market. Another option for such companies will be an attempt to conduct new rounds of financing with a smaller own valuation.

Experts also admit that in 2023 investments in digital health care will begin to gradually grow. But the trajectory of such growth will look more like the picture of 2011-2019 than the stormy 2019-2021. In other words, investors will choose a slower and more sustainable path that better reflects the current realities and risks. Priority will be given to startups choosing measured and considered paths to success.^[5]

2021: The rise of investment in digital healthcare in the US

Over the past decade, digital health funding in the United States has grown by more than 1,200%.

Investments in the United States in digital health companies continue to break records: in the first half of 2021, $14.7 billion was invested in the sector, which is already more than in the entire 2020.

The first two quarters of 2021 were the largest in U.S. history in terms of digital health funding, according to a Rock Health report. Most of the funds came from mega deals with amounts of $100 million or more.

2020: Venture investments in digital medicine grow rapidly

Digital medicine accounts for a third of all global venture capital investments in healthcare. In 2016-2018, the volume of venture capital investments grew steadily, on average annually by 30%. In the first quarter of 2020, market growth remained.

Source: CBInsights, Healthcare Report Q1, 2020

2019

Investments in telemedicine companies reached 1.5 billion rubles

In 2019, 1.5 billion rubles were invested in Russian telemedicine companies, according to VEB Ventures (a subsidiary of ВЭБ.РФ).

According to experts, from the beginning of 2017 to the middle of 2020, the total volume of crowned investments in telemedicine companies in the Russian Federation exceeded 2 billion rubles.

Telemedicine services are enjoying increasing interest in clinics, gradually becoming a popular and even mandatory service service of a modern medical institution, said Denis Shvetsov, executive director of Doctor Nearby. Clinics and providers of medical services will become a driver of digital medicine, he is sure, and on this basis projects in the field of electronic medical records, storage and transmission of medical data, education for doctors will develop more actively.

Investments in telemedicine companies in the Russian Federation for the year reached 1.5 billion rubles

The unprecedented COVID-19 epidemic has led to an increase in demand for remote medical consultations around the world. WHO mentioned telemedicine as one of the most important decisions in the framework of the emergency response policy caused by the spread of coronavirus, since remote consultations can significantly reduce the number of visits to medical institutions, "Leonid Melamed, co-founder and shareholder of Doctor Nearby, told TASS (VEB Ventures invests 1 billion rubles in it).

According to him, telemedicine is able to take on the tasks of the necessary constant monitoring of patients with chronic diseases such as diabetes, cardiovascular and neurological diseases. All these factors are decisive for the growth of the telemedicine services market, he said.

According to Veronica Fidler, Senior Managing Director of VEB Ventures, the current market situation by 2020 will positively affect the value of telemedicine assets in Russia and in the world.^[6]

Venture investors invested $8.9 billion in IT medicine for the year

In mid-January 2020, the international communication and analytical company Mercom Capital Group released an annual report on the financing of companies operating in the digital health technology sector.

Global venture capital financing for IT medicine companies decreased in 2019 to $8.9 billion in 615 transactions (in 2018, this figure was $9.5 billion in 698 transactions). Total corporate funding for digital health companies, including venture capital, loans and government funding, reached $10.1 billion in 2019. In 2019, raising funds in the form of loans and government orders in the field of digital health care amounted to $1.7 billion in 20 transactions (compared with $3.5 billion in 21 transactions in 2018).

Mercom Capital Group Issues Annual Funding Report for Companies Operating in the Healthcare Digital Sector

Approximately 67% of the funds were sent to US companies ($5.9 billion in 426 transactions in 2019 compared to $7 billion in 420 transactions in 2018), which is 16% less than the same period last year. In second place is the United Kingdom ($853 million), then China ($663 million) and France ($372 million).

Thus, after three years of continuous growth, the number of venture transactions in the field of digital health care began to decline. The company's 2019 M&A activity also declined. Major transactions were concluded by telemedicine companies, whose funding increased by 55% compared to the same period last year, and digital medical products based on artificial intelligence brought their creators more than $2 billion. In addition to telemedicine ($1.8 billion), data analytics ($1.6 billion), mHealth applications ($1.2 billion), clinical solutions support tools ($748 million) and wireless communications for mobile devices ($556 million)^[7]

2016

Medical startups raised $4 billion in investments

In 2016, medical startups are becoming one of the leading industries in the venture capital industry. In 2016, medical device companies attracted a total of about $4 billion in investments, only slightly falling short of the five-year high of $4.1 billion reached in 2014.

The most active investor in medical device startups has been the NEA fund, leaving Versant Ventures, OrbiMed Advisors and High-Tech Gruenderfonds behind. Analysis company CB Insights analyzed the acquisitions of medical startups by giant corporations from 2012 to 2016.

As the medical device industry picks up steam, giant corporations like Medtronic, Boston Scientific and Teleflex compete as ever to buy private startups. The top 3 includes areas for the production of devices for neurosurgery, orthopedics, cardiology and other areas of medicine. Below are data from analysts at CB Insights, on the activities of the most active corporations that have acquired 5 or more medical device startups since 2012.

• For startups for which information about the financing and valuation of the company was disclosed, the total amount of investments attracted at the time of the first merger or acquisition was $38 million. The disclosed median cost of the startup at the time of acquisition was $140 million. For the venture area, this is the average, in 2016 the picture was about the same.

• The most active buyer of medical device startups is Medtronic: 15 companies since 2012. Most acquisitions are recent: 60% of transactions were made in 2015. The median disclosed funding for the startup at the time of the acquisition of Medtronic was $34 million. The median estimate at the time of acquisition was $150 million.

• The second most active buyer in this area is. Since Boston Scientific 2012, she has 8 deals with companies working on heart valves, neurosurgical devices, equipment for gastroenterology and gynecology. The variety of startup activities is explained by a wide range of interests of the buying organization. Perhaps the most outstanding purchase is the acquisition of Cameron Health in 2012: a startup for the development of an implantable subcutaneous pacemaker was bought dollars for 150 million with a condition of payment of $1.05 billion while fulfilling key revenue indicators.

• BC Technical is pointwise focused on the takeover of medical imaging companies: they have accounted for 100% of startups acquired by the corporation since 2012. However, BC Technical has not made a single purchase since 2015. The most recent deals include the acquisition of diagnostic equipment development startup Legacy Medical Imaging and MRICT service provider MagnaServ Enterprises.

• Stryker, known for its focus on orthopedic devices, tends to acquire companies operating in the field. 70% of the corporation's purchases since 2012 have been orthopedic companies, with the exception of two hospital bed manufacturers - CHG Hospital Beds and Muka Metal. Recent deals include the 2016 purchase of Intratek, which develops equipment for hand and foot operations, and Ivy Sports Medicine, which manufactures knee implants.

Venture-funded startups (including corporate venture funds) accounted for 22% percent of all healthcare companies absorbed since 2012. The latest acquisition of this kind by this time is the purchase of the startup Symetis, developers of an artificial heart valve, by Boston Scientific Corporation, in a deal valued at $435 million. BioMed Ventures, Novartis Venture Funds, Banexi Ventures, and NBGI Ventures invested in Symetis. On the one hand, 22% can be considered a relatively small market share, but one can note a trend towards supporting medical startups in the investment market.

Technologies for medicine in third place in venture capital investments in Russia

Judging by the data RVC on the review of the Russian investment market for 2016, this is not only a foreign trend. In terms of volumes VC investments for 2016, the medical industry, Russia which received $12 million, is in third place after the telecommunications ($83 million) and computer ($14 million) industries.

The medical market in Russia has bypassed sanctions and large international companies are actively operating in our country. So, in 2016, a major deal was completed to create a joint research and production enterprise Medtronic and Renova Group of Companies under the name Stentex, which will localize Medtronic technologies in Russia for the production of coronary stents and catheters.

In 2016, Johnson & Johnson announced the creation, together with Himrar Ventures and the Skolkovo Foundation, of a venture capital fund to invest in Russian startups in the field of pharmaceuticals, medical devices and biotechnology. The total volume of the fund is estimated at $28 million, the fund will be aimed at companies at an early stage.

Gadget suppliers enter the medical tech market

In addition to traditional large manufacturers of medical devices (Medtronic has existed since 1949), players from other industries are also actively entering the medical device market - primarily manufacturers of smartphones and wearable gadgets. Apple, Samsung and Google have invested not only in creating an infrastructure for developers of health monitoring applications, but also are actively developing their own gadgets (Apple Watch and Samsung Gear) to monitor body parameters and physical activity, including buying up solutions developed by startups.

In some cases, companies are costing the hiring of key researchers from such startups, as happened in 2013 with Apple and C8 MediSensors, the developer of a non-invasive glucometer that received permission to sell in Europe for medical use. Apple lured from C8 MediSensors Uyun Block, head of medical device production, and later Stephen Weido, who was responsible for developing medical devices for non-invasive blood glucose detection. Four years later, Tim Cook announced that he was personally testing a non-invasive glucometer connected to an Apple Watch.

In 2016, Nokia, which leaves no ambition to return to the international market, acquired wearable tracker company Withings for 170 million euros.

The story of the startup's bankruptcy and the announcement of the liquidation of fitness tracker company Jawbone showed that big investments are not always good. Startups burn out - everyone is used to this, but the situation with Jawbone is unique - they raised $900 million. They were invested by well-known and experienced venture capital funds Sequoia, Andreessen Horowitz, Khosla Ventures and Kleiner Perkins Caufield & Byers, and then the Sovereign Wealth Fund, raising the value of Jawbone to $3.2 billion in 2014. Despite the investment, the startup has failed to overtake its main rival Fitbit, conquer the market and force its product to take off. According to research firm CB Insights, Jawbone is the second-largest of all venture capital failures (in terms of funding), the lead belongs to Solyndra, a technology startup for solar panels, which filed for bankruptcy in 2011. Experts believe that the main reason for the failure of the startup Jawbone lay in the initially weak potential of the company, but not the technology itself.

The complexity of the medical gadget market is confirmed by Intel's example: in 2016, it closed the Basis fitness tracker development direction due to technical problems with a overheating device and recalled the product for security reasons - apparently, the company did not find the optimal opportunity for itself to solve this problem^[8].

The medical device industry in the world is on the rise: representatives of the related industry of gadgets enter the arena, which can help accelerate the development of companies and the introduction of innovative ideas. In addition, the active competition of the players of this market benefits the entire medical community. In Russia, the medical equipment industry is just emerging. But Russian startups can catch the most promising areas and launch them in Russia.

Notes