Sharp Decline in Q3 Digital Health Funding

Q3 2022 digital health funding in the U.S. fell to the lowest level for 11 quarters. Funding dropped to just under half (48%) of funds allocated in Q2 of this year. Compared to the huge backing we saw last year, 2022 is lagging severely behind with only $12.6B raised so far compared to $21.3B this time last year. 

Why it’s Notable: 

• Digital health funding has been steadily increasing over the last number of years, with 2021 seeing record breaking numbers in the U.S.. However this momentum has not carried over into 2022 as Rock Health reports. The lower funding was attributed to smaller deal sizes, fewer late stage digital health investments and a lower number of digital health mega deals (totalling $100M). 

• Although funding has been low, we have seen big tech and healthcare players make significant investments within the digital health space over the last year. In Q3 alone, we saw CVS announce plans to acquire Signify Health for $8B and Amazon plans to acquire One Medical. 

Industry Implications: 

• One point to consider is that due to the current macroeconomic situation, investors may be treading with caution and focusing on companies that can demonstrate ROI. With this reducing funding environment, solutions with a strong business model and proven ROI will more than likely succeed.

• Interestingly, in tandem with this reduced funding, numerous digital health companies have been reducing their workforces. Although the reasons for this are varied, it begs the question whether these two trends are linked. Are companies scaling and diversifying too fast, resulting in a need to back-track? Are companies concerned about the funding environment and refocusing their efforts to cut down on expenditure? 

• Pharma companies have still been active over the past year investing and acquiring digital health companies. Digital health mental health chatbot Woebot received an investment from Bayer while most recently Pfizer has finalized their acquisition of ResApp, a mobile app that analyzes cough sounds and diagnoses respiratory diseases including asthma, pneumonia, COPD and bronchiolitis. It will be interesting to see whether pharma will revert to their core business models or continue to invest in digital innovation amidst this reduced funding landscape. 

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