Key takeaways

• Funding: In Q2, the US digital health sector closed with USD 3.6 billion across 289 rounds, implying ~5% growth from USD 3.5 raised in Q1. The average deal size was USD 12.6 million, down ~16% from Q1 2023. Next-gen Medical Devices startups got the most funding (USD 754 million), led by precision heart care company HeartFlow and robotic diagnostics provider Noah Medical. Preventive Healthcare startups continued to attract funds (USD 535 million in Q2 on top of USD 312 million in Q1) led by two primary care providers (Aledade and Strive Health). In addition, Hospital Management and Telehealth startups recorded many smaller rounds in Q2.

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• Partnerships: Of the 76 digital health partnerships recorded for the quarter, 43 involved incumbents, including Alphabet, Microsoft, Walmart, and CVS Health. These Incumbents were interested in signing Telehealth-related partnerships (~27% of the total) followed by Hospital Interoperability (~16% of the total). Among Big Tech incumbents, Generative AI emerged as a common theme, highlighted by AWS partnering with 3M and Philips to offer the Amazon Bedrock foundation model API service to incorporate generative AI capabilities into their healthcare-focused products.

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• M&A: The digital health space initiated or closed 13 acquisition agreements during the quarter, three of which were from incumbents: 1) the completion of CVS Health’s previously announced acquisition of Oak Street Health (USD 10.6 billion), 2) Pfizer acquiring Lucira Health (USD 36.4 million), and 3) JAB Holding Company acquiring Pumpkin Insurance Services. Notably, three of the acquisitions stemmed from bankruptcies.

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• Product launches: The quarter witnessed the entry of the first AI-discovered drug—developed by Insilico Medicine—into Phase II clinical trials. In total, Q2 had 14 new digital health product launches, while there were nine product updates to existing product offerings. The majority of these came from Telehealth, Preventive Healthcare, and Silver Economy Tech players. New product launches also included a few other AI-powered solutions (such as PathExplore and Illumina’s PrimateAI-3D)  aimed at accelerating drug discovery and development. 

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• Regulation: The regulatory landscape revolved around the expiry of the Covid-19 Public Health Emergency (PHE) on May 11, 2023, and the various new initiatives that were imposed including: 1) allowing patients to access telehealth services regardless of the provider’s location, 2) offering a grace period for telehealth platforms to obtain the Health Insurance Portability and Accountability Act of 1996 (HIPAA) certification, and 3) enabling the prescription of controlled substances via telemedicine for an extended six-month period.

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