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Digital Health Funding 2015 Midyear Report by @Rock_Health

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A summary of the companies, investors and themes that drove digital health funding to $2.1B only halfway through 2015. Includes details on the deals, companies, investors, and geographies driving funding. The report also covers merger and acquisition (M&A) activity, along with IPOs, and public market performance of digital health companies.

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Digital Health Funding 2015 Midyear Report by @Rock_Health

  1. 1. PRESENTATION © 2015 ROCK HEALTH Jan DIGITAL HEALTH FUNDING Midyear Update 2015 July 7, 2015
  2. 2. PRESENTATION © 2015 ROCK HEALTH Rock Health is powering the future of the digital health ecosystem, bringing together the brightest minds across disciplines to build better solutions. Rock Health funds and supports startups building the next generation of technologies transforming healthcare. Our partners include AARP, Abbott, Blue Shield of California, Boehringer Ingelheim, Brigham and Women’s Hospital, Deloitte, Genentech, and Qualcomm. Learn more at rockhealth.com MIDYEAR DIGITAL HEALTH FUNDING (2015) July 7, 2015 oming off a record-smashing year for digital health funding, where dollars into the space totaled more than 8% of all venture funding, it would not have been surprising if 2015 was a let down. However, 2015 has more or less kept pace with 2014. Digital health funding continues to grow faster than venture funding overall, suggesting a growing importance in every venture capitalist’s portfolio. Alongside the growth has come a downside—noise. With 136 companies raising more than $2M in just the first half of 2015, including 80 companies raising their first significant capital, there has never been this many digital health companies vying for the attention of both the industry and the consumer. As we wrote in our last report on funding, it is time for name-brand digital health companies to start exiting and returning capital to investors. 2015 has not disappointed, with five IPOs creating $11B in market capitalization, including the unquestioned winner of the first half, Fitbit. The last half of the year can turn many ways—there will definitely be more IPOs, and with venture markets extraordinarily hot, there will be a few important rounds coming this summer. Stay tuned! C MALAY GANDHI @mgxtro TERESA WANG @teresawang6 AUTHORED BY WITH HELP FROM CHARU RAGHU @raghucharu CARLOS RODRIGUEZ @rodcarl1
  3. 3. PRESENTATION © 2015 ROCK HEALTH Table of contents 3 SECTION KEY FIGURES 3 Dollars and deals Venture funding of digital health companies (2014 and H1 2015) Growth in venture funding (2014 vs. 2013 and TTM Q1 2014 vs. TTM Q1 2015) Funding of top 6 categories (H1 2015) Distribution of deals (2014 vs. H1 2015) 10 Investors Most active investors by deal count (H1 2015) 11 Geographies Deals by geography (H1 2015) 12 Exits and public markets Digital health acquirers by category (H1 2015) 2015 IPO price change relative to offering price 2015 IPO outlook survey Performance of newly public digital health companies (H1 2015) Public company IPO price appreciation versus years from IPO 15 Summary 16 Methodologies
  4. 4. PRESENTATION © 2015 ROCK HEALTH Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M Venture funding of digital health companies in 2015 is closely mirroring 2014’s record- breaking year, with funding surpassing $2B through the first half. 4 Following significant growth in digital health funding last year, the pace has been slightly slower to start 2015, coming in about $70M short of 2014’s first half record. Growth on a trailing twelve month (TTM) basis continues, with funding up 25% over that timeframe. While the first quarter had few large rounds (average deal size was $10M in Q1), the second quarter brought a number of large deals, pushing the 2015 average deal size above $15M, exceeding 2014’s $14.6M. DIGITAL HEALTH VENTURE FUNDING 2014 and H1 2015 2014 $ 4.3B 2014-2015 JAN $0B $1B $2B $3B $4B $5B FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2015 $2.1B
  5. 5. PRESENTATION © 2015 ROCK HEALTH Source: PwC MoneyTree (latest data available is for Q1 2015); digital health data based on Rock Health analysis Note: Digital health only includes U.S. deals >$2M Digital health funding continues to grow faster than overall venture funding and funding in the software, biotech, and medical device sectors. 5 The first quarter of 2015 continued the trend of significant growth in overall venture funding. The first quarter had $13.4B invested, representing 26% growth versus Q1 2014 and 51% growth on a TTM basis. Digital health represented approximately 5% of all venture funding in the first quarter, with a 15% decline versus Q1 2014, and 77% growth on a TTM basis. Growth in the space continues to outpace all others, including the overall market, software, biotech, and medical device. As more of the venture pie gets eaten by digital health, medical device companies appear to be the most harmed, with overall digital health funding now approximately 30% higher than medical device funding. GROWTH IN VENTURE FUNDING 2014 vs. 2013 and 2015 Q1 TTM vs. 2014 Q1 TTM 15% 40% 77% 56% 51% 22% 30% 114% 86% 65% ALL VENTURE FUNDING SOFTWARE DIGITAL HEALTH BIOTECH MED DEVICE 2014 vs. 2013 2015 Q1 TTM vs. 2014 Q1 TTM LEGEND
  6. 6. in the first half of 2015 136digital health companies each raised more than $ 2 million
  7. 7. PRESENTATION © 2015 ROCK HEALTH Manufactures consumer technology and wearable devices Growth Delivers real-time actionable clinical data to empower physicians and support precision medicine Growth Builds an enterprise wellness platform to engage employees in sustainable behavior change Growth Provides healthcare data warehousing and aggregates and harnesses data utilized in population health and ACO projects $ 125M Series D Offers on-demand and scheduled video call visits with US-licensed healthcare providers via any smartphone, tablet, or computer $ 125M Series B Leverages service and technology to simplify the management of complex medication regimes $ 81M Series C The six largest rounds of the year represent over one third of all funding in 2015. 7 LARGEST VENTURE ROUNDS H1 2015 The three largest venture deals of the year, all growth capital, could not present more diverse companies. On the one end, Virgin Pulse is taking its first outside capital, having been funded by the Virgin Group since its inception 12 years ago. On the other end, Jawbone and NantHealth combined have taken on at least $1.3B in venture capital. These latest rounds, financed by BlackRock (Jawbone) and Allscripts (NantHealth) show the diverse base of investors that later stage companies are pulling from in advance of hopeful public offerings. Doctor on Demand raised one of the largest Series B rounds in the history of digital health, only exceeded by NantHealth, Evolent Health, and Flatiron Health’s rounds. Source: Rock Health Funding Database, Company websites $ 92M$ 300M $ 70M $ 50M $ 50M $ 200M
  8. 8. PRESENTATION © 2015 ROCK HEALTHNote: Rock Health tracks funding across 24 separate categories The top six categories accounted for more than 50% of all digital health funding in 2015, three of which were not ranked within the top six in 2014. 8 EHR AND CLINICAL WORKFLOW Electronic health records and surround applications, including clinical workflow support/ augmentation HEALTHCARE CONSUMER ENGAGEMENT Consumer tools for the purchasing of healthcare products and services or health insurance (B2B and B2C) ANALYTICS AND BIG DATA Data aggregation and/or analysis to support a wide range of healthcare use cases WEARABLES AND BIOSENSING Wearable or accessory devices that detect specific biometrics and are designated for consumers TELEMEDICINE Delivery of healthcare services (synchronous or asynchronous) through non-physical means (e.g. telephone, digital imaging, video) ENTERPRISE WELLNESS Services designed to improve general well-being of employees Jawbone ($300M) $ 387M Health Catalyst ($70M) $ 212M PillPack ($50M) $ 176M Doctor on Demand ($50M) $ 169M Virgin Pulse ($92M) $ 128M Augmedix ($16M) $ 74M
  9. 9. PRESENTATION © 2015 ROCK HEALTH There was a slight increase in the number of Series B stage deals; however, Seed and Series A stage deals continue to drive the vast majority of deal volume. 9 In the first half of 2015, Series B represented 22% of overall deal volume versus only 18% in 2014, with ten companies who raised Series A in 2014 progressing “on time” into their Series B raises. Stride Health and PillPack were notable for announcing round-to-round progress (Seed to A, and Series B to Series C, respectively) in under 12 months. Average deal size by round has remained consistent at the early stage, while round sizes were down 20-35% in Series C and Series B (H1 2015 versus 2014), respectively. DEAL DISTRIBUTION 2014 vs. H1 2015 (% of deal volume by stage) 100%75%50%25% LEGEND D+CB SEED & A Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M 0% 2014 H1 2015 Stage progression Number of companies Seed to A 5 A to B 10 B to C 3 C to D+ 3 Represents the number of companies that raised Seed, A, B, or C round capital in 2014 and have progressed in the first half of 2015
  10. 10. PRESENTATION © 2015 ROCK HEALTH 1 2 Venture funds continue to be active in early stage deals while corporate venture funds invested heavily in later stage deals. 10 Many of the most active venture investors return in 2015, including NEA, Venrock, First Round, and Social+Capital Partnership. They were joined by new names, including RRE Ventures and Thrive Capital. The top of the corporate investor ranks has remained largely the same, with Google Ventures falling off the most active list as they move towards broader life sciences initiatives. We tracked 330 distinct investors to date in 2015, with nearly a third of those doing their first and only digital health deal since 2011. MOST ACTIVE FUNDS Deals in H1 2015 3 2 1 3 1 2 3 2 3 2 1 3 1 5 4 4 VENTURE CORPORATE # of deals LEGEND Seed or A H1 2015 total Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M 4 4 H1 2015 totalSeed or A 3 3 3 3 3 3 3 3 5 Benchling (Seed) Collective Health (B) Doctor on Demand (B) Evidation Health (A) Honor (A)
  11. 11. PRESENTATION © 2015 ROCK HEALTH Digital health companies headquartered in California continue to garner the majority of funding, with Bay Area-based companies accounting for almost 40% themselves. 11 DEALS BY GEOGRAPHY H1 2015 Digital health companies from 23 states received funding (side note: in five years of tracking, nine states have yet to record a digital health deal) with California alone responsible for more than half of all venture funding in the first half (Jawbone and NantHealth alone accounted for nearly 25% of all dollars). Boston and New York City continue to tussle for the second largest digital health hub in the U.S., with New York City doing one additional deal but each accounting for 10% of the total venture dollars. Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M 44 6 18 5 $0-10M $10-50M $50-100M $100-500M $500M+ > # of deals in metro area LEGEND 4 17
  12. 12. PRESENTATION © 2015 ROCK HEALTH Digital health Other healthcare Tech Other Medical device Private equity Provider Payer 1 2 1 4 12 50 1 3 11 9 8 5 Source: Rock Health tracking and analysis based on news reports and company filings Only halfway through 2015, there have already been 92 M&A deals, which is almost as many as all of 2014, but total disclosed dollars only reached $2.6B. 12 In 2014, we tracked a total of 95 digital health company acquisitions, while only halfway through 2015 we have already tracked 92 digital health deals. Other digital health companies continue to be the most active acquirers, acquiring more than half of the companies tracked. The most notable transactions in 2015 include the Under Armour purchase of MyFitnessPal for $475M and Managed Health Care Associates purchasing LTC pharmacy software company SoftWriters for $450M. 2014 H1 2015 value of deals LEGEND Remainder of deals Top 3 Deals $20.4B $2.6B Aggregate transaction value Per disclosed deal $1.4B $113M $477M $119M $21M $21M $501M $251M n/a n/a $200M $200M n/a n/a n/a n/a $2.6B $704MTOTAL # of M&A deals LEGEND With disclosed transaction value 2015 total 5 DIGITAL HEALTH ACQUIRERS BY SECTOR H1 2015
  13. 13. PRESENTATION © 2015 ROCK HEALTH 17% 102% 40% 16% 68% 15% 90% -7% -1% 50% Four venture-backed digital health companies have gone public in the first half of the year, and Teladoc debuted on day one of the second half of 2015. 13 Venture-backed digital health companies with IPOs in the first half of 2015 were able to raise more than $1B in overall capital and reached more than $10B in total market capitalization. The Fitbit IPO was the largest technology IPO of the year (all sectors) and had an incredibly successful debut, while both Evolent and Teladoc were able to move above $1B market caps post-offering. IPO LANDSCAPE 2015 IPO performance 2% 2% 2% 3% 3% 4% 4% 6% 8% 10% 15% 19% 20% Source: 2015 performance from NASDAQ as of market close on June 30, 2015; investor survey was conducted on May 30, 2015 at the Fenwick Investor Summit (n = 39) Note: Teladoc numbers are as of July 1, 2015, when TDOC began trading 0% EVH FIT NVTA MB TDOC* 2015 total IPO RAISE $196M $732M $102M $101M $157M $1.3B MARKET CAP $1.1B $7.9B $0.5B $0.6B $1.0B $11.1B IPO Baseline LEGEND Price change relative to IPO 2015 high June 30, 2015 * WHO ELSE WILL IPO IN 2015? Survey of investors
  14. 14. PRESENTATION © 2015 ROCK HEALTH PRICEAPPRECIATIONSINCEIPO -150% 0% 150% 300% 450% 600% YEARS SINCE IPO 0 5 10 15 20 Source: The Digital Health Public Company Index by Rock Health (as of market close on June 30, 2015); Available from: https://www.motifinvesting.com/motifs/the-digital-health-index-by-roc-O7xghiOF#/ While mirroring general market trends, publicly-traded digital health companies were able to outperform the broader S&P 500 public market index in the first half of 2015. 14 PERFORMANCE OF PUBLIC DIGITAL HEALTH COMPANIES H1 2015 5% 10% -5% S&P 500 1.2% Digital health companies 7.3% 1/1/2015-6/30/2015 The digital health public company index is comprised of 25 companies, totaling $71B in aggregate value (Cerner, IMS, and Fitbit hold nearly 60% of the value). The digital health index was able to significantly outperform the broader stock market through the first half in 2015, and was assisted by the addition of Fitbit in June. ATHN CERN OMCL MDSO Index includes 25 companies: ATHN, CERN, CNXR, CPSI, CRCM, CSLT, EVDY, EVH, FIT, HSTM, IMPR, IMS, INOV, MB, MDAS, MDRX, MDSO, MRGE, NVTA, OMCL, QSII, STRM, VCRA, VEEV, WBMD 0% FIT 30
  15. 15. PRESENTATION © 2015 ROCK HEALTH Venture funding for digital health companies in the first half of 2015 reached $2.1B, closely mirroring total funding in 2014. This represents 25% TTM (Q3 2014-Q2 2015) growth in funding compared to Q3 2013-Q2 2014. 139 deals, across 136 companies, closed with an average deal size of $15.4M. Summary of findings 15 FUNDING AND DEAL VOLUME The top six themes of the year that received 54% of all funding included: wearables and biosensing, analytics and big data, healthcare consumer engagement, telemedicine, enterprise wellness, and EHR and clinical workflow. Analytics and big data, in addition to healthcare consumer engagement continue to be the categories which appear in the top six year after year. MAJOR THEMES In 2015, 330 distinct investors funded digital health companies, including 108 investors that funded a digital health company for the first time since tracking began. The most active corporate digital health investors have remained stable—and diverse—over the past four years. MOST ACTIVE FUNDS There was a lot of M&A activity in the first half of 2015. There were 92 M&A transactions tracked, closing in rapidly on the 95 deals done in 2014. However, disclosed deal value was significantly lower than last year ($20.4B in 2014 vs $2.6B in H1 2015). Digital health companies were still the most active acquirers of other digital health companies, in predominantly small transactions. Beyond private exits, the public markets welcomed five venture-backed digital health companies (Teladoc debuted on July 1st) with a total current market capitalization of $11B. EXIT ACTIVITY
  16. 16. PRESENTATION © 2015 ROCK HEALTH Rock Health defines digital health as the intersection of healthcare and technology. This means that the venture funding tracked only includes technology-enabled, health-related companies, whether they focus on the administration of healthcare, the delivery of healthcare, or the process of bringing breakthrough new healthcare products to market (both R&D and commercialization). Healthcare companies that aren’t digital. Health insurance companies, such as Oscar, or healthcare providers, such as One Medical, are pure services companies (that employ technology, certainly, as does every company). This is in direct contrast to a technology-enabled services business such as telemedicine, that simply could not exist without digital. Molecular diagnostic companies, such as Guardant Health, that perform FDA-regulated testing and render a diagnosis or report to physicians are also excluded. Similar to biopharma companies, molecular diagnostic companies are significantly more capital intensive than software-based companies and would skew funding. Technology companies that aren’t healthcare. Tech companies that are industry- agnostic or diversified across more than two verticals are not included (companies operating in two verticals must designate healthcare as their primary vertical to be included). Software companies focused across human resources (and not solely health benefits), such as Zenefits, are also not included. Methodologies Rock Health funding data only includes disclosed US deals over $2M. Deals under $2M would be impossible to track comprehensively since companies often do not file their small seed rounds with the SEC or disclose to press. We also believe that deals under $2M generate noise in key statistics, including deal count and average deal size. Disclosed deals under $2M represent less than 5% of the total we report, giving us confidence in our overall figures. In prior years, we have attempted to include international companies that were funded by U.S. investors, monitoring the portfolios of hundreds of VCs. In reviewing this data, we have concluded that it is challenging to track all international deals and beginning with the 2014 year end report, we are no longer tracking or reporting any international deals. All numbers in this report are for U.S.-based companies only. Funding tracked includes venture debt, venture rounds, and growth equity but excludes lines of credit (working capital) and cash/equity associated with merger or acquisition activities. Deals data is gathered based on publicly available resources (press releases, news outlets, SEC filings, etc.) and supplemented with CapIQ’s venture data. 16 WHAT IS DIGITAL HEALTH? HOW WE TRACK DIGITAL HEALTH FUNDING
  17. 17. PRESENTATION © 2015 ROCK HEALTH GET OUR DATA AND SUPPORT OUR WORK Our Funding Database is available as part of a research subscription on our website. The subscription includes a dataset encompassing individual deals back to 2011, provides details on each of the funded companies, and profiles investors based on deal volume. The annual subscription includes quarterly data updates and member-only webinars. Please visit rockhealth.com/research to learn more. research@rockhealth.org @rock_health