2023 has not been a great year for digital health. The rosy times that once characterized this sector are now facing challenges, with a noticeable dip in funding and the struggles of some prominent companies.
In this article, Dr. Gregor von Hussen, partner in the Healthcare Shapers  network and seasoned expert for organizations looking to achieve growth, transformation, and success, will delve into the situation, reflect recent developments, and discuss the future trends shaping the next phase of digital health.

Status Quo in Digital Health - Funding Downturn

In the first half of 2023, U.S. digital health startups experienced a decline in funding, raising $6.1 billion across 244 deals. Q3 2023 marked the second-lowest quarter by funding total since Q4 2019, with $2.5 billion raised across 119 deals (1). Anticipation of a slower economy and rising interest rates has impacted venture funds, leading to a more conservative investment mindset.

Lighthouse Companies are struggling

Several key players in the digital health space, such as Olive AI (2), Babylon (3), Pear Therapeutics (4), and Biofourmis (5), have faced significant challenges, including bankruptcy and major layoffs. Over-reliance on venture capital, product-market fit issues, rapid growth, high costs, reimbursement challenges, and clinical trial failures were contributing factors to these struggles.

Telehealth Market shifts

Telemedicine, which experienced a boom during the pandemic, has seen a decline in demand, signifying the end of the corona-induced telemedicine surge. Stock prices of major telehealth companies like Teladoc (6) dropped more than 50 percent in 2023, indicating a shift in investor sentiment.

Future Trends: Consolidation and Cleanup

Amazon's acquisition of OneMedical2 (7) and General Catalyst announcement of HATCo2 (8) - the no. 1 digital health investor’s move to build a health insurance network including acquiring a health care system to drive technology adaptation – indicate significant moves toward consolidation and market positioning.

The digital health landscape is poised for a period of consolidation, wherein companies are likely to merge or form strategic partnerships to streamline operations and achieve greater market share. This trend is a natural response to the challenges faced by some prominent players, as mentioned earlier, and aims to create a more stable and resilient industry.

Cleanup involves a reassessment of business models, shedding non-performing assets, and optimizing internal processes. As the industry matures, companies will focus on sustainable growth strategies, ensuring that their operations align with market demands and regulatory frameworks. This phase is crucial for weeding out inefficiencies and establishing a foundation for the next wave of digital health innovation.

Emphasis on Background Technologies

The future of digital health will be shaped by advancements in foundational technologies, particularly artificial intelligence (AI) and process management. AI, with its ability to analyze vast amounts of healthcare data, will play a pivotal role in improving diagnostics, treatment personalization, and predictive analytics. As machine learning algorithms become more sophisticated, they will enhance the accuracy and efficiency of healthcare processes.

Process management will be a key focus, addressing issues related to workflow optimization, resource allocation, and overall operational efficiency. By leveraging technology to streamline healthcare processes, organizations can reduce costs, improve patient outcomes, and enhance the overall healthcare experience.

Pharma and Medtech Industries Catching Up with Digitalization

The integration of biology and software represents a paradigm shift in the pharmaceutical and medtech industries. Traditionally slow to adopt digital technologies, these sectors are now recognizing the transformative potential of merging biological insights with advanced software solutions.

The convergence of biology and software allows for more efficient drug discovery, personalized medicine, and the development of digital therapeutics. By leveraging data-driven insights from biological research and combining them with sophisticated software algorithms, pharma and medtech companies can accelerate innovation, reduce time-to-market, and provide more targeted and effective treatments.

This catching up with digitalization signifies a broader trend of industries embracing interdisciplinary approaches, breaking down silos between traditionally separate fields, and fostering collaboration between scientists, engineers, and healthcare professionals. As a result, we can expect to see groundbreaking advancements at the intersection of biology and software, ushering in a new era of integrated healthcare solutions.

Conclusion: Keep a pulse on emerging trends!

As we navigate the challenges and shifts in the digital health landscape, it's evident that the sector is entering a new stage. The market is witnessing trends such as consolidation, increased focus on AI, and the integration of biology and software. Despite the current funding downturn, the industry is poised for a new equilibrium, where startups and investors can find upside, setting the stage for continued innovation and growth. As we move forward, keeping a pulse on these emerging trends will be crucial for stakeholders in the digital health ecosystem. 

Sources

1. RockHealth: https://rockhealth.org/insights/ 
2. The Rise and Fall of Olive AI: Lessons from a Healthcare Unicorn - Multiplatform AI
3. The fall of Babylon: Failed telehealth startup once valued at $2B goes bankrupt, sold for parts | TechCrunch
4. Pear Therapeutics apps sell for $6M in post-bankruptcy auction (fiercebiotech.com)
5. Unicorn down: Following layoffs, Biofourmis CEO quietly departs (statnews.com)
6. What’s Next For Teladoc Stock After An 89% Fall In Three Years? (forbes.com)
7. Amazon closes its acquisition of One Medical, but scrutiny of the deal is not over | CNN Business
8. HLTH23: General Catalyst unveils new company, eyes hospital M&A (fiercehealthcare.com)