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Dive Brief:

• The first half of 2021 alone brought in $14.7 billion in digital health funding, quickly zooming past the previous annual record set last year, according to Rock Health.
• The first half saw 372 deals with an average size of $39.6 million, spearheaded by 48 megadeals of $100 million or above that made up almost 60% of the half’s total funding.
• And that interest isn’t limited to the private sector: Public exits also snowballed, with 11 completed initial public offerings and mergers with special purpose acquisition companies (an increasingly popular albeit nontraditional route to going public), compared to just seven exits in 2020. The consultancy expects another 11 SPACs to close in 2021, according to the Tuesday report.

Dive Insight:

The coronavirus catapulted digital health into the mainstream last year, resulting in a flurry of big deals, high-profile exits and historic levels of funding flowing into the red-hot market. That momentum has only accelerated in 2021, according to the new Rock Health report. Just halfway through the year, funding has already surpassed the annual record set in 2020, with the first half of 2021 comprising the two largest quarters of funding activity in the U.S. digital health market ever.

Monthly funding in June alone of $3.1 billion was almost triple that of June last year, which brought in $1.1 billion as funding first began to accelerate after initial coronavirus lockdowns.

“The digital health investment climate in one word: Up,” researchers wrote in the report.

And the whole year is on pace to more than double 2020 in terms of both number of deals and companies funded as investors double down on their bets, Rock Health said.

The top-funded value propositions for 2020 and 2021 so far remain consistent, with companies involved in biopharma and medtech research and development and those delivering on-demand healthcare services bringing in the most dollars. Mental health, cardiovascular disease and diabetes are the top-funded clinical areas, while funding for startups helping manage substance abuse disorders has also steadily risen.

Enterprise-facing companies are still the dominant players in the marketplace, but more than a fourth of all digital health companies funded in the first half of 2021 were direct-to-consumer startups, Rock Health found. That’s the largest percentage in the past decade, and about five percentage points higher than in 2020.

More than half of the $14.7 billion in funding came from megarounds, including one of the biggest single rounds of investment in the history of the fledgling sector: a $540 million Series F funding round for Noom, a psychology-based weight-loss platform, in May. 

The 48 megadeals in the first half of the year already exceeds 2020, which saw 44. 

Following Noom, ​ the two biggest rounds were a $500 million Series D funding round for health tech startup Ro and a $400 million Series C funding round for Insitro, a machine learning-based drug discovery company, both in March.

Mergers and acquisitions are also growing in number. Each month in the first half of the year saw an average of 22 acquisitions of digital health companies, compared to the monthly average of 12 in 2020.

The heightened consolidation comes as point solutions are being rounded up into more integrated, one-stop shops for customers’ digital health needs. Though massive tech giants like Apple and Microsoft are pursuing health-related acquisitions, digital health companies themselves remain the biggest acquirers of other digital health companies, according to the report.

The uptick in public exits in the first half of the year is a “signal of the sector’s maturity, highlighting founders’ sustained access to capital, investors’ faith that more companies’ revenue models are ‘public market ready,’ and rising consumer confidence in the long-term value of digital health solutions,” Rock Health said.

But rising funding and exits in the sector are not without risk. Many investors are waiting to see whether the marketplace is capable of delivering on digital health tools that can scale, a factor that relies heavily on continued consumer and provider interest that could abate after the pandemic is in the rearview. In one potential indicator of an easing in demand, data suggests telehealth utilization among the privately insured population is slowing in 2021.

And Rock Health noted that though the 18 digital health companies trading in the public markets beat the NASDAQ on average in the first quarter, their stock fell below NASDAQ levels in the second.

“It might take some time for these newly-listed companies to get their sea legs,” the report said.