3 things investors need to know about the growing digital health sector

By: Sebastian Seiguer, Managing Director of emocha Health

Health care, more than any other area of ​​the economy, is outdated. For an industry that accounts for 18% of US GDP, the pandemic investment boom in digital health has been a welcome relief to those looking to bring healthcare into the digital age.

Prior to 2020, digital health companies had limited options for raising capital, but the pandemic has completely changed that, with many investor dollars pursuing proportionately few goals. Private equity and growth capital have provided funding for many new concepts and models of care. However, amid the rush to fund digital solutions, investors should be aware of the following market nuances. Without paying attention, they risk making precarious investments or missing out on good opportunities.

Don’t confuse digital therapeutics with digital health

Digital health and digital therapy, although often confused, are not the same.

“Digital therapy” refers to a narrow segment of application-based technologies that treat a human disease or condition to help a patient achieve a drug-like outcome. While digital health technologies offer broader help and resources to patients, digital therapies take a clinical approach with a desired outcome. Thus, all digital therapies are regulated by the FDA and are subject to the same standards of evidence and FDA regulatory oversight as traditional medical treatments.

Digital health, on the other hand, is a broader category of digital and app-based technologies that use technology to deliver accepted clinical interventions or offer help and support resources to patients and providers. While digital health technologies can provide a platform for the delivery of care, and although some market entrants offer a technology-based clinical care team, the technology itself is not considered to be clinical care in the same way as digital therapies. Not all healthcare software is regulated by the FDA or other regulatory groups.

Both are hot markets for investors, but digital therapies are a very narrow class of technology and it’s not clear that there will be many use cases where one technology alone can achieve a major clinical effect from so early. The efficiencies to be achieved through digital health are another issue: as risk is shifted to health plans and providers, digital health platforms can be used to deliver real clinical care in the patient’s home .

Funding a business is different from helping people

Investors, especially large private equity investors, have opted for early entry into the seed, A and B rounds of large-scale healthcare companies. In fact, according to CB Insights’ State of Digital Health report, in 2021, global funding for the digital health sector increased 79% year-over-year to a record 57, $2 billion.

For example, virtual care startup Hims & Hers went public last year in a $1.6 billion SPAC merger, while traditional and enterprise venture capital funds Softbank, Coatue and Merck have backed digital health and digital therapy companies like Bioformis, Hinge Health, Altoida, and Click Therapeutics in the tens and hundreds of millions.

But investors should be aware that for healthcare startups, the challenges of securing funding are different from the challenge of helping patients. Moreover, the largest costs to the US healthcare system are not consumer health issues such as fertility, sexual performance, and optimizing nutrition for the affluent, but rather life-threatening and chronic diseases such as as diabetes, substance use disorders and heart disease. among our lowest salaries. Digital health companies creating solutions for these conditions are desperately needed to ease financial and logistical pressures on the US healthcare system, especially in the growing Medicaid and Medicare programs, the costs of which are borne by the taxpayer.

Patient engagement is the biggest challenge for future healthcare technology solutions due to the costs associated with keeping patients active in long-term and chronic care interventions. It is important to keep patients engaged with their care solutions for these conditions, but it is very difficult to do so, whether the solutions are in person or digital.

Companies that can successfully engage hard-to-reach and expensive patients on a daily basis while tackling these costly chronic diseases have the greatest opportunity to scale and generate profitable returns on investment.

Technology infrastructure is key to scaling up digital health

Many health investors are inspired by the visions and missions of health technology companies that strive to do better for people. But the infrastructure of a technology-powered healthcare system is still in its infancy. We do not yet have an end-to-end healthcare system that is fully powered by technology.

In the near term, healthcare programs that combine technological solutions with real human interactions will likely win and grow, with the help of investors. These companies can effectively leverage data, engage patients, and provide easy-to-access healthcare services in a single digital ecosystem.

Today’s challenges in healthcare, such as patient engagement and solutions for the most vulnerable and costly healthcare populations, will not be easily solved, even with increasing digitization. Investors need to be diligent and place their bets on companies whose technologies actually deliver on their promises and drive real change in the patients they serve.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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