In its assessment of first-quarter venture capital deals in digital health, PitchBook counted $1.1 billion in 77 total deals, a 6% quarter-over-quarter growth in the number of deals reached and a 27% decline in deal count growth.
The value of digital healthcare deals in the first quarter of 2024 declined 9.4% from the first quarter of 2023, the new report says.
The investments made in the first quarter mirrored the last three quarters in number and value, PitchBook says. The industry seems to have leveled off with about $1 billion per quarter over approximately 80 deals, it reports.
Transcarent and Rightway snagged the most funding during the first quarter, with $126 million and $108.8 million deals, respectively. They were the only digital health investments over $100 million in the quarter. The companies are followed by funding announcements from Pelago, Forta and Sonder, which secured VC investments between $51 million and $59 million.
Alumni Ventures was the most active digital health VC investor in the first quarter with four deals, followed by Connecticut Innovations with three deals. Since 2020, General Catalyst, Alumni Ventures, Gaingels, Optum Ventures and City Light Capital have led digital health VC investment, PitchBook says.
The PitchBook report highlighted the struggle of telehealth and digital therapeutics companies to achieve long-term sustainability in the digital health industry. In the first quarter, both Walmart’s telehealth offering MeMD and Optum’s virtual care service announced their closures. Fabric recently acquired MeMD, the company announced last week.
“It is becoming increasingly apparent that the COVID-19 pandemic was both a blessing and a curse for the telehealth sector,” PitchBook wrote.
Telehealth has rallied more than $15 billion in venture capital investment since 2020, PitchBook says, but it highlighted low interest rates, unsustainable business models and “questionable M&A” as reasons for the sector’s decline. It called out Teladoc’s catastrophic acquisition of Livongo and the impending delisting of public company Amwell from the New York Stock Excahgne.
However, PitchBook says telehealth has had a positive impact on healthcare and foresees investment in specialty telemedicine, B2B platforms and hybrid care models.
Digital therapeutics also struggled in the first quarter of 2024, according to PitchBook: As of May, digital therapeutics no longer has any publicly traded companies, it writes. Akili Interactive was taken private by Virtual Therapeutics for $34 million in May, and Better Therapeutics bowed out of the game in March. Major player Pear Therapeutics was sold for parts in 2023. PitchBook pointed to continued reimbursement issues with the products as a major hindrance to their profitability and a driver of healthcare consolidation.
However, PitchBook sees opportunities to fold digital therapeutics into more general care platforms or within condition management programs.
Analysts expect deals to happen between digital-first companies acquiring complementary assets, pointing to the first-quarter acquisition of Twill by DarioHealth.
Initial public offerings did not play out in early 2024, as PitchBook expected. It now predicts companies will wait until next year to go public.
“Heading into 2024, we believed several digital health IPOs could be forthcoming; however, we now expect the highest quality startups to wait until 2025, as these companies often have balance sheets strong enough to weather the storm and may be comfortable letting others test the public markets first,” analysts wrote in the report.
PitchBook’s report highlights future opportunities in mental health chatbots and care search platforms.
“Public health offers a clear market opportunity for AI chatbots and can be an effective tool to reach patients in underserved areas with long waitlists for mental health providers—though we view mental health chatbots as a niche service in the near term,” the report says.
There is a need for the platforms to build consistent referral networks and establish a trusted brand among patients, analysts noted. The report also notes that long-term business plans for the companies remain unclear due to the lack of reimbursement for chatbots.
“Looking ahead, existing digital mental health platforms could launch their own chatbot or partner with early movers in the space, and increasing patient comfort with engagement of general language models like GPT could lead to greater patient willingness to interact with a mental health chatbot, particularly if recommended by a trusted provider,” PitchBook says.
Headway, Quartet Health, SonderMind and ZocDoc are examples of care search platforms PitchBook called out as cost-effective digital health opportunities. These platforms do not employ providers but operate as a network-based referral model in which providers typically pay to be added to the platform’s network.
“Apart from a few large platforms, we expect the market will also be able to sustain smaller specialty care search platforms as well, with caregiving and nursing homes an example of specialty care search that could gain a foothold,” PitchBook says.
It also sees opportunities for a major search engine to partner with a company like ZocDoc. PitchBook projects ZocDoc will go public within the next two years, which it says will be a litmus test for the care search industry.