Table of Contents

• Key takeaways
• Funding
• Product Updates
• Partnerships
• M&As
• Focus areas
• Appendices

Key takeaways

• Funding

  • AI Drug Discovery drove a surge in funding: In Q2 2024, the US Digital Health sector raised USD 5.4 billion across 231 rounds, up by ~39% QoQ from the USD 3.9 billion raised in Q1. The overall funds raised this quarter marked the largest recorded in the last four, surpassing Q3 2023 levels of USD 4.1 billion. 
  • AI Drug Discovery startups led the pack this quarter with an aggregate of nearly USD 1.4 billion across 17 rounds and an average deal size of USD 82 million. This was driven by Xaira Therapeutics, which raised USD 1 billion, and EvolutionaryScale, which raised USD 142 million. The theme of these rounds was “GenAI-powered protein design,” indicating the technology’s potential in developing novel treatments.

• Product updates

  • Drug discovery and clinical development took center stage, powered by GenAI/AI technologies: In Q2, Digital Health witnessed 47 new product launches and updates focused predominantly (~43%) on accelerating the drug development process, including drug discovery, preclinical testing, and clinical trial operations. 
  • Interest in this sector was particularly high this quarter, with DeepMind’s newest AlphaFold 3 model pushing the boundaries of AI in drug discovery. In previous quarters, primary care for dependents—elders and pets—stole focus, while this quarter saw only five updates from these industries. Nevertheless, other major primary care industries, such as Mental Health Tech, Telehealth, and Preventive Healthcare, continued to launch new products, contributing to 34% of all product updates. 

• Partnerships

  • AI Drug Discovery deals from startups dominated overall activity; GenAI/AI played a key role: Around 73% of all activity came from partnerships among startups to develop new products or expand their market reach. Notably, most of these deals involved the use of GenAI/AI technologies to develop new solutions and enhance scientific research. 
  • Overall activity for incumbents dropped to ~28% from ~51% in Q1. These deals were focused on AI drug discovery, precision medicine, and clinical trial technology, indicating a shift from primary care and hospital management toward clinical development in healthcare. Alphabet recorded the most number of partnerships (8) for the quarter, driven by Google Cloud’s AI/GenAI capabilities.

• M&As

  • Walmart exited from telehealth; primary care took the lead on M&A activity: We recorded 22 acquisitions this quarter, most of which came from Preventive Healthcare, Mental Health Tech, and Telehealth startups. The most notable transaction during the quarter was the divestment of Walmart’s telehealth business, MeMD, to health tech company Fabric for an undisclosed sum. In addition, UnitedHealth Group also announced shutting down its virtual healthcare arm, Optum, early this quarter. The numerous acquisitions across the primary care sector indicate a shift toward a consolidation phase, promoting better patient care.

• Outlook

  • GenAI continues to make significant strides in healthcare industry: While the focus of technology shifts every quarter, GenAI continues to be consistently applied across various areas of the healthcare value chain, and this trajectory is expected to persist in the medium term. According to the 2024 Generative AI in Healthcare survey by John Snow Labs, healthcare organizations have implemented significant increases in GenAI budgets. In addition, more GenAI adoption is expected in the next two to three years in primary care areas like patient-doctor conversation transcribing, medical chatbots, and support for patients in query responses. This is consistent with our earlier study, where we saw the highest incidence of GenAI activity in healthcare and pharmaceuticals.
  • Telehealth is expected to transition from basic standalone offerings to an integrated product: In Q1, we saw Telehealth receiving renewed investor interest (~USD 800 million raised) likely from growing efforts by the US Government to expand healthcare access across the US, especially in rural America. However, funding levels seemed to have halved in Q2 (only USD 368 million raised) amid Walmart’s divestment of MeMed. This could potentially be due to the uncertainty of telehealth regulations becoming permanent, as the extended period for telehealth flexibilities ends in December 2024. Nevertheless, we noticed startups upgrading their business models to offer integrated products that combine multiple services. For instance, Ro, a direct-to-consumer telehealth provider, introduced a vertically integrated solution that combines telehealth, pharmacy, and lab services. This shift toward integrated, one-stop solutions aims to enhance the value offered to patients. Some telehealth companies that raised funding this quarter also followed suit, including Transcarent, Thirty Madison, and Pomelo Care.

Funding: AI Drug Discovery picks up momentum; Telehealth goes downhill 

Analyst Take: Digital Health hit its highest level of funding in Q2 2024, surpassing Q3 2023, which raised USD 4.1 billion. We saw a significant spike in AI Drug Discovery investments this quarter, with 21x YoY growth and 3x QoQ growth, predominantly driven by GenAI-powered drug developer Xaira Therapeutics’ entry into the market—having raised USD 1 billion—and the launch of EvolutionaryScale’s AI protein design model, which attracted USD 142 million in seed investment; both companies aim to design novel proteins as medicines. The two mega AI Drug Discovery funding rounds indicate investor interest in potentially designing protein structures from scratch to treat various diseases.

• We recorded 231 funding rounds that raised USD 5.4 billion across companies that meet the FDA's definition of digital health. This quarter saw an increase in funding value of ~39% QoQ and ~42% YoY. Below is our breakdown of the 231 rounds based on the industries defined by SPEEDA Edge.

• In addition to the displayed funding activities, we identified 27 post-IPO rounds (post-IPO debt and post-IPO equity) of Digital Health players that raised an aggregate of USD 3.6 billion during the quarter. Post-IPO rounds were dominated by Next-gen Medical Device companies that raised USD 1.2 billion, accounting for ~33% of all post-IPO funding. Diagnostic imaging company RadNet raised almost 96% of this in April 2024.

Digital Health Q2 2024 funding breakdown

• In Q2 2024, AI Drug Discovery reclaimed the number one spot securing USD 1.4 billion (more than a quarter of the total funding) with an average deal size of USD 82 million. Around 72% came from GenAI-powered drug developer Xaira Therapeutics, which raised USD 1 billion in committed investment to fuel the development of its ML platform and advance its drug development activities.

Digital Health Q2 2024 funding by SPEEDA Edge industry

• Mental Health Tech came second, raising USD 477 million and accounting for ~9% of total funding for the quarter. Most of this came from telepsychiatry company Talkiatry, which raised USD 130 million in Series C financing to expand its value-based care offering. Two other peer companies, Grow Therapy and Two Chairs, also raised significant sums—USD 88 million Series C to enhance its offerings and USD 72 million Series C to expand customer access, respectively. There has been a substantial increase (~93% QoQ growth) in funding for Mental Health Tech startups, with insurance coverage playing a pivotal role as investors focus on mental health care covered by insurance. For instance, Talkiatry and Grow Therapy’s substantial investment rounds are partly due to their insurance-covered services.

• In Q2, only two out of the top five highest-funded Digital Health industries remained unchanged from the previous quarter—AI Drug Discovery and Hospital Management. Mental Health Tech replaced AI Drug Discovery in second place, as the latter became the highest-funded industry, surpassing its tally in the last four quarters. Telehealth, which recorded the highest funding in Q1, did not make it to the top five this quarter. Clinical Trial Technology, which did not raise any notable funding during the past year, saw a 20x YoY growth and 5x QoQ growth, predominantly attributed to Formation Bio’s USD 372 million Series D fundraise in June 2024.

Funding movement of top five industries

• Regarding the number of rounds in Q2 2024, Hospital Management (third in funding value) led the pack with 50 rounds, followed by Next-gen Medical Devices (sixth in funding value) with 32. The Hospital Management industry also accounted for the highest number of rounds that raised under USD 2 million, totaling ~USD 12 million.

• AI Drug Discovery startups, which attracted the most Digital Health funding for Q2 2024, predominantly consisted of SaaS companies (12 rounds) involved in drug discovery, biomarker development, and preclinical experiments. These companies raised an aggregate of USD 300 million. However, the AI drug discovery and development segment recorded the highest in dollar terms, with USD 1.1 billion across four rounds. Four out of 17 funding rounds were small rounds (less than USD 2 million), which raised a total of USD 4.8 million.

AI Drug Discovery startups that raised funding in Q2 2024

Number of rounds vs. average deal size by industry

Total funding vs number of rounds by series

Mega deals: AI Drug Discovery duo score mega deals with over a billion dollars in investments

• We recorded 11 mega deals (rounds that raised USD 100 million or more) that totaled USD 2.6 billion (~48% of all rounds; the highest thus far since Q1 2023). 

• AI drug discovery company Xaira Therapeutics, which designs novel proteins to develop therapeutics for specific disease targets using GenAI, dominated mega deals for the quarter, with a USD 1 billion investment from ARCH Venture Partners and Foresite Capital, among others. AI Drug Discovery also topped mega rounds with USD 1.1 billion in funding, which included EvolutionaryScale, an AI model developer focused on generating novel proteins, raising USD 142 million in seed funding.

Mega Digital Health deals in Q2 2024

Quarterly Digital Health funding by industry

• Since the beginning of 2023, funding composition across industries has been volatile except for some top industries. For instance, AI Drug Discovery and Next-gen Medical Devices have maintained a stable level of funding during the past four quarters, and despite fluctuations, have also maintained their position in the top 10. On the contrary, Telehealth, which topped the list in Q1 2024 (contributing ~20% to funding value), saw a steep drop this quarter, contributing only ~7% in Q2.

Quarterly funding comparison among industries

Product updates: New AI/GenAI offerings aim to accelerate drug discovery

Analyst Take: The number of Digital Health product launches and updates tripled in Q2 compared with the previous quarter, which included several AI/GenAI-powered digital health products. Unlike other quarters that were dominated by primary care products, Q2’s focus shifted toward drug discovery and development, with an emphasis on accelerating the clinical development processes via AI/GenAI. DeepMind’s AlphaFold 3 is expected to push the boundaries of AI in drug discovery further, with reports indicating accuracy to be at least 50% higher than traditional methods. 

• Q1 saw 36 new product launches and 12 new product updates in the form of new features and upgraded versions. Most of these came from companies in Precision Medicine and Telehealth. AI Drug Discovery and Preventive Healthcare companies also launched several products in Q2. As for incumbents' involvement, we recorded only three product developments during the quarter, accounting for 6% of all product launches. 

• Greater GenAI adoption was seen in drug discovery and clinical development solutions
  • In Q2 2024, we recorded a total of 25 AI/GenAI product developments compared with just eight in the previous quarter. Most of this came from Precision Medicine, which involved six companies launching AI products and two launching GenAI products. 
  • GenAI-powered products for the quarter included ConcertAI’s multi-modal data management platform, CARA AI, and a clinical trial screening system called “TriaLinQ.” Precision bioinformatics company OM1 also launched three new GenAI products—OM1 Orion, OM1 Lyra, and OM1 Polaris—to offer real-world evidence insights, predict disease progression, and optimize patient recruitment for clinical trials.

• New product features were added to existing offerings focused on enhancing user experience
  • Fitness app provider Strava introduced new features to its app, such as an “athlete intelligence” premium feature that leverages GenAI to provide summaries and improved fitness plans based on user data, an AI feature that aims to minimize suspicious activities in leaderboards, and a dark mode option to enhance user experience.
  • Health benefits platform Healthee launched an enhanced version of its AI-driven plan comparison tool with an advanced recommendation algorithm that considers various health factors, along with an "HSA Explained" feature to help employees better understand health savings accounts (HSA). 
  • Non-profit telehealth provider Cedars-Sinai upgraded its AI-powered virtual consultation platform with a Spanish version to broaden its accessibility to Spanish-speaking individuals for urgent issues such as colds, rashes, flu, and coughs. 

• Big Tech players continued to introduce new AI-powered digital health solutions 
  • We observed three digital health-related product launches or updates from incumbents (~6% of all product updates), compared with five in Q1 2024. All of these came from Big Tech companies such as Microsoft and Alphabet.
  • Alphabet, via its healthcare tech subsidiary, Verily, unveiled a new AI chronic care platform, Lightpath Metabolic, to support patients with cardiometabolic conditions. Open enrollment for the solution is expected in early 2026. The tech giant, via Google Deepmind, also introduced an advanced version of its protein structure prediction AI model, AlphaFold 3, which may unlock various possibilities in drug discovery. 
  • Microsoft launched an AI-powered digital pathology tool, Prov-GigaPath, to enhance cancer diagnostics. The tool, jointly developed with the University of Washington and Providence Health Network, includes a database of 1.3 billion pathology images. 

Partnerships: AI Drug Discovery startup deals dominate; Alphabet leads in Big Tech activity

Analyst Take: Unlike previous quarters, Q2 saw double the number of deals inked by startups from last quarter to advance drug discovery and clinical development. This involved companies in the AI Drug Discovery, Precision Medicine, and Clinical Trial Technology industries. Notably, ~92% of all startup partnership activity involved the use of GenAI/AI technologies. Incumbents, on the other hand, contributed ~28% of the overall activity, with a majority coming from Alphabet via Google Cloud. The quarter also recorded some partnerships that involved Microsoft, Amazon, and Oracle. 

• We recorded 92 Digital Health partnerships in Q2 2024, up 35% from last quarter. AI Drug Discovery continued to hold the top spot for the fourth consecutive quarter with 24 partnerships (26% of all partnerships). This was followed by Precision Medicine, with 17 partnerships (~18% of all partnerships).

• Incumbent partnership activity in Digital Health dropped to ~28% from ~51% of all partnerships in Q1 2024. We recorded 26 Digital Health partnerships involving healthcare and non-healthcare incumbents, such as in Big Tech. Similar to the previous quarter, AI Drug Discovery accounted for the highest incumbent activity (38% of total incumbent partnerships), driven heavily by Big Tech and Big Pharma.

• This quarter, Big Pharma activity was fully concentrated on AI Drug Discovery, indicating Big Pharma’s increasing interest in adopting AI into the drug discovery process. All partnerships focused on developing drugs by leveraging each other’s AI capabilities or developing AI tools that can accelerate drug design and discovery. This included
  • The BigHat Biosciences-Janssen Biotech (a subsidiary of Johnson & Johnson) partnership to develop novel protein therapeutics for various conditions by leveraging BigHat’s Milliner platform and Janssen’s drug development and data science expertise
  • Eli Lilly’s deal with OpenAI to leverage the latter’s GenAI capabilities to develop novel antimicrobials targeting drug-resistant pathogens. 

• Unlike the previous quarter, which recorded several Big Tech partnerships in the Hospital Management space, this quarter saw a larger focus on AI Drug Discovery, Telehealth, Next-gen Medical Devices, Clinical Decision Support Systems, etc. Eight out of 15 Big Tech partnerships came from Alphabet, including
  • GenAI-powered biotech company VantAI partnering with Google Cloud to leverage NVIDIA’s H100 graphics processing units (GPUs) and Google Cloud’s A3 virtual machines, which can speed up the training of geometric foundation models by 3x in order to make protein-protein interactions programmable
  • Telehealth company BrightInsight partnering with Google Cloud to integrate the tech giant’s GenAI models into BrightInsight’s solutions to improve patient care and healthcare provider efficiency.

• Other incumbents also inked partnerships in Digital Health, such as 1) warehouse retailer Costco and Sesame Care extending their partnership to offer Costco members a new weight loss treatment program and 2) retail giant Target’s partnership with ŌURA to sell its wearable smart rings in stores and online.

Incumbent partnerships in Digital Health

M&As: Walmart exits health business as remaining primary care market enters consolidation phase

Analyst Take: M&A activity during the second quarter was driven by primary care companies, along with some notable market exits. The virtual primary care market, after recording significant growth during the peak of the Covid-19 pandemic, is now facing a deceleration. The past year has seen numerous companies in this space either being acquired or merging with others, indicating a market transition toward consolidation, as the industry aims to streamline operations and enhance care services by unlocking synergies.

• The quarter saw 23 acquisitions compared with 13 in the last quarter. This included initial announcements and transaction closures. Preventive Healthcare recorded the highest number of acquisitions for the quarter (5), followed by Telehealth (4) and Mental Health Tech (3). Other industries, like Health Benefits Platforms, Pet Care Tech, and Precision Medicine, recorded two transactions each. 

• Incumbents’ M&A activity was muted this quarter
  • In Q2 2024, we observed only one M&A transaction involving incumbents compared with three last quarter. Big Pharma company AbbVie acquired AI drug discovery company Celsius Therapeutics for USD 250 million to advance Celsius’ inflammatory bowel disease (IBD) drug. 
  • A notable exit across the broader healthcare space, however, was Walmart’s divestment of its telehealth business. The retail giant shut down all its healthcare clinics nationwise and sold off its telehealth business, MeMD, to health tech company Fabric, citing a “poor business model.” 

• Preventive Healthcare companies recorded the highest number of acquisitions during the quarter (5), particularly in Digital Therapeutics (DTx). This was followed by Telehealth (4) and Mental Health Tech (3) companies. All transactions focused on expanding care offerings, including
  • Altaris Capital Partners’ acquisition of preventive care-focused DTx provider Sharecare for USD 518 million. Through the transaction—expected to close in 2H 2024—Sharecare can leverage Altaris’ industry expertise, resources, and capital to deliver enhanced primary care solutions. 
  • DTx company Sidekick Health’s acquisition of women’s health company Pink! for an undisclosed sum. Through this deal, Sidekick added Pink!’s breast cancer-focused digital offering, “Pink! Coach,” into its product portfolio, further expanding into women’s health and oncology. 

• Mental health-focused DTx company Click Therapeutics’ acquisition of Better Therapeutics for an undisclosed sum. The transaction will expand Click’s offerings to include obesity and cardiometabolic diseases and offer enhanced patient experience by combining the technologies and expertise of both parties.

Focus areas: R&D activity dominates Digital Health activity

Analyst Take: In Q2, Digital Health saw an increase in overall activity (~68% increase from last quarter), mainly driven by a surge in partnership activity in R&D with a 2x growth from the previous quarter, driven by the increasing use of AI/GenAI technologies in this area by Digital Health startups. Care delivery and management, which comprises industries like Hospital Management and Hospital-at-Home, saw a drop in activity in Q2, as the focus shifted toward clinical development solutions. 

• We have mapped all observed activity across the Health & Wellness and Pharma & Life Sciences verticals and categorized it across the various stages of healthcare delivery. During Q2 2024, Digital Health activity was mostly concentrated around R&D, accounting for 43% of all activities tracked (excluding funding). These activities mostly focused on AI Drug Discovery, Precision Medicine, and Clinical Trial Tech. 

Note: 1) Comprises data from SPEEDA Edge hubs that fall under the definition of Digital Health (excluding Pet Care Tech); 2) darker colors indicate greater intensity; 3) arrows show the movement of activity against previous quarter

Appendices

Appendix 1: Definitions of focus areas

Appendix 2: Product updates by industry

Appendix 3: Summary of incumbent partnerships in Q2 2024