Table of Contents

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

Key takeaways

• Funding

  • Next-gen Medical Devices led overall funding as levels return back to normal from a record Q2: In Q3 2024, the US Digital Health sector raised USD 4.3 billion across 223 rounds. This represents a decline of ~31% QoQ from the record-high USD 5.6 billion raised in Q2 (thanks to a USD 1 billion round from Xaira Therapeutics). Overall, Q3 funding was broadly in line with previous quarters, excluding the outlier of Q2.
  • Next-gen Medical Devices startups led the pack this quarter, with USD 1.2 billion over 45 funding rounds and an average deal size of USD 27 million. This was driven by the software-as-a-medical-device segment, which saw a 14x QoQ growth in funding, predominantly contributed by Caresyntax, which raised USD 180 million.

• Product updates

  • AI technologies brought drug discovery and clinical development to the forefront and Apple introduced new health-focused features: In Q3, Digital Health recorded 39 new product launches and updates. Around half of these initiatives aimed to accelerate drug development, including drug discovery, preclinical testing, and clinical trial operations.
  • We also noted companies unveiling AI-discovered drugs that will soon enter clinical trials. DeepCure’s first development candidate, DC-9476, is expected to commence clinical trials in 2025, while Insilico Medicine's second preclinical candidate is projected to submit its pre-IND application in Q4 2024.
  • Apple has expanded its healthcare-focused technology by introducing new features in its Apple Watch models and AirPods Pro 2 to detect sleep apnea and address hearing loss, highlighting Apple's growing emphasis on health-related innovations.

• Partnerships

  • AI Drug Discovery alliances remained a significant theme: In Q3 2024, AI Drug Discovery partnerships accounted for ~23% of all partnerships, primarily focusing on developing drugs together or utilizing both parties' technologies to enhance AI-driven drug discovery capabilities. These included Genesis Therapeutics’ partnership with Gilead Sciences to leverage the former’s AI platform in jointly developing novel drugs and DeepCure’s partnership with the Leeds Institute to evaluate its BRD4 inhibitor for rheumatoid arthritis. Telehealth partnerships, such as Suki and Meditech to deploy its voice AI assistant in more than 12 health systems, followed closely, contributing 20% to the overall partnerships.
  • Incumbents accounted for 30% of all partnerships during the quarter, with over half involving Big Tech collaborations. Alphabet led Big Tech activity with seven partnerships, including a collaboration with health insurance company Humana to utilize Google Cloud’s GenAI capabilities for enhancing member experiences and with AI clinical data analytics firm Mendel.ai to offer its Hypercube platform on the Google Cloud Marketplace.

• M&As

  • Virtual care companies maintained their consolidation trend through M&A activity: In Q3 2024, 21 transactions were recorded, with most deals stemming from startups in Telehealth, Age Tech, and AI Drug Discovery. A noteworthy transaction this quarter was Fabric's acquisition of TeamHealth VirtualCare, marking its fourth acquisition in the last 18 months. This trend suggests that despite the exit of some virtual care players from the market, the numerous acquisitions within the primary care sector signal a shift toward consolidation, ultimately enhancing patient care.

• Outlook

  • Primary care companies increasingly feel the pressure of being publicly listed, prompting a trend toward go-private transactions to avoid public scrutiny and regulatory burdens. For example, CloudMD completed a go-private transaction with CPS Capital in July 2024, along with decisions to go private from Digital Health firms R1 RCM and Augmedix for deals valued at USD 8.9 billion and USD 139 million, respectively. This shift likely reflects a desire among companies to focus on product and business development without the constraints of public market oversight.
  • Digital Health companies are likely to come under increased scrutiny from regulators: Recent regulatory actions in the Digital Health sector include a significant lawsuit by the Federal Trade Commission (FTC) against major pharmacy benefit managers—CVS Health's Caremark, Cigna's ESI, and United Health Group's Optum—for abusing their market power and engaging in anti-competitive and unfair practices that led to increased insulin prices. The FTC also cautioned drug manufacturers about the potential consequences of similar conduct. Furthermore, the agency is actively investigating firms potentially making misleading claims about AI technologies, which may bring healthcare companies into the purview of the investigation. These actions signal a more rigorous regulatory landscape, particularly in AI and healthcare innovation.
  • GenAI maintained its presence in the Digital Health sector during Q3: While not as prominent as in previous quarters, GenAI continued to influence startup and incumbent activities this quarter through several GenAI-powered partnerships, such as Epic partnering with Mayo Clinic and Abridge to develop a GenAI-powered medical documentation platform to assist nurses. Evidently, the role of GenAI in healthcare is a long-term development. For a deeper understanding of GenAI's broader impact on the healthcare sector, see our report, Revolutionizing Healthcare: The Power of GenAI.

Funding: Next-gen Medical Devices takes the lead, as funding stabilizes after an extraordinary Q2

Analyst Take: Following last quarter's record-high funding surge driven by a one-off mammoth funding round from Xaira Therapeutics (USD 1 billion), Digital Health funding returned to typical levels in Q3. However, investments in Next-gen Medical Devices saw a significant uptick, with 3x YoY and QoQ increases. This surge was primarily driven by AI precision surgery platform Caresyntax’s USD 180 million and non-implantable surgical devices company Imperative Care’s USD 150 million, aiming to enhance their product offerings further. Compared with Q2, the scale of mega deals declined, with the highest-funded Digital Health company raising USD 232 million (PayZen) in Q3, down from USD 1 billion (Xaira Therapeutics) in the previous quarter.

• We recorded 223 funding rounds that raised USD 4.3 billion across companies that meet the FDA's definition of digital health. This quarter saw a drop in funding value of ~31% QoQ and an increase of ~2% YoY. Below is our breakdown of the 223 rounds based on the industries defined by SPEEDA Edge.

• In addition to the displayed funding activities, we identified 23 post-IPO rounds (post-IPO debt, post-IPO equity, and post-IPO secondary) of Digital Health players that raised an aggregate of USD 2.9 billion during the quarter. Hospital-at-Home company AdaptHealth recorded the highest fundraising—close to USD 1 billion dollars in September 2024—accounting for ~33% of all post-IPO funding.

Digital Health Q3 2024 funding breakdown

• Next-gen Medical Devices raised the highest funding in Q3 2024, reclaiming the number one spot after Q2 2023, securing USD 1.2 billion (more than a quarter of the total funding) with an average deal size of USD 27 million. Notable contributions came from data-driven surgery platform Caresyntax, which raised USD 180 million (a combination of debt financing and Series C funds), and non-implantable surgical devices company Imperative Care, which raised USD 150 million. 

Digital Health Q3 2024 funding by SPEEDA Edge industry

• Hospital Management came second, raising USD 448 million and accounting for ~11% of total funding for the quarter. More than half of all Hospital Management funding came from healthcare-focused payment solutions company PayZen, which raised USD 200 million in debt financing and USD 32 million in Series B funding in August 2024; the funding is expected to fuel its market expansion efforts. Despite recording a 22% QoQ decrease, the industry has maintained its contribution to the Digital Health sector from last quarter.

• In Q3, four out of the top five highest-funded Digital Health industries remained unchanged from the previous quarter, as Next-gen Medical Devices entered the top five list after just missing out during the previous quarter (sixth in the list). Clinical Trial Technology, which recorded the fourth-highest funding in Q2, did not reach the top five this quarter.

Funding movement of top five industries

• Next-gen Medical Devices also had the highest number of rounds during Q3 (45), followed by Hospital Management (32). Both industries also recorded the highest number of rounds, which raised under USD 2 million, jointly raising USD 12.3 million across 22 rounds.

• Next-gen Medical Devices startups predominantly consisted of companies that develop diagnostic devices (11 rounds) and implantable surgical devices (10 rounds). These companies collectively raised an aggregate of USD 397 million. However, the non-implantable surgical devices segment recorded the highest in dollar terms, with USD 319 million across six rounds. Only one of these was a small round (less than USD 2 million), while the lowest fundraising among the remaining rounds was recorded at USD 20 million, which came from Radical Catheter Technologies.

Next-gen Medical Devices startups that raised funding in Q3 2024

Number of rounds vs. average deal size by industry

Total funding vs. number of rounds by series

Mega deals: Next-gen Medical Devices startups collectively raise USD 432 million

• We recorded 11 mega deals (rounds that raised USD 100 million or more) that totaled USD 1.6 billion (~37% of all rounds). 

• PayZen, a healthcare-focused FinTech company that provides customized, interest-free payment plans based on patient affordability and regardless of credit score, dominated mega deals for the quarter, with a USD 232 million investment (in equity and a credit warehouse facility) from New Enterprise Associates (NEA) and others. From an industry perspective, Next-gen Medical Devices topped mega rounds with USD 432 million in funding, which included Caresyntax.

Mega Digital Health deals in Q3 2024

Quarterly Digital Health funding by industry

• AI Drug Discovery and Next-gen Medical Devices have maintained steady funding over the past four quarters and held the top five positions since Q3 2023 despite varying levels of investor interest in most industries. Similarly, sectors like Mental Health Tech, Preventive Healthcare, and Health Benefits Platforms have consistently ranked in the top 10 since Q1 2023. In contrast, Clinical Trial Technology, Precision Medicine, Telehealth, and Functional Nutrition were in the top 10 for funding in Q2 2024 but were dropped from the list in Q3 2024.

Quarterly funding comparison among industries

Product updates: AI-powered drug development solutions take center stage; Apple sharpens focus on healthcare tech solutions

Analyst Take: Digital Health product launches and updates dropped by ~20% in Q3 compared with the previous quarter, in which drug discovery and development remained the most important and AI played a key role in accelerating clinical development. Notably, Insilico Medicine, the first company to test an AI-discovered drug candidate in humans, is set to advance its second preclinical candidate to clinical trials, marking significant industry progress. Tech giant Apple introduced new features targeting sleep apnea detection and hearing loss solutions, intensifying its healthcare focus. 

• In Q3, there were 30 new product launches and 10 product updates, including new features and upgraded versions. Most of these launches were driven by companies in Precision Medicine, along with notable contributions from AI Drug Discovery and Preventive Healthcare firms.

• Big Tech players continued to roll out healthcare-focused solutions
  • Apple enhanced its healthcare offerings by introducing sleep apnea detection capabilities in its latest Apple Watch models: Series 9, Series 10, and Ultra 2. Additionally, it launched a new hearing health feature for the AirPods Pro 2, delivering an integrated experience that includes a clinically validated hearing test and an over-the-counter hearing aid function for users with mild to moderate hearing loss. Both innovations received FDA approval during the quarter.
  • Samsung Electronics introduced its Galaxy Ring, a wearable health monitoring device, and two new smartwatches, the Galaxy Watch 7 and Galaxy Watch Ultra, to enhance health and fitness tracking. 

• Big Pharma players introduced integrated platforms to reach consumers directly
  • Pfizer launched its PfizerForAll platform in the US, providing patients with a centralized hub for healthcare services, enabling them to schedule doctor’s appointments, access vaccines, and order tests and treatments. This follows Eli Lilly's introduction of its LillyDirect platform in January, which connects patients with telehealth providers and pharmacies for virtual care while streamlining access to its treatments.

• AI remained a major feature in new product launches, while updates focused on drug discovery and clinical development solutions
  • In Q3 2024, 18 AI-powered product developments were recorded, most from AI Drug Discovery and Precision Medicine companies, alongside contributions from Clinical Trial Technology firms. These innovations were primarily focused on advancing drug development and optimizing the clinical development process.
  • This included AI Drug Discovery companies unveiling new drug candidates, such as DeepCure’s first development candidate, DC-9476, to treat inflammation and immune diseases and Biolexis Therapeutics identifying a candidate for neuroinflammation. Additionally, some companies provided updates on the progress of their drug programs. For example, Insilico Medicine, in collaboration with Fosun Pharma, completed its second preclinical candidate compound (PCC) targeting solid tumors through a synthetic lethal approach. The pre-IND application for this candidate is expected to be submitted by Q4 2024.

• New product launches decelerated in the primary care space
  • Primary care players' share of product developments dropped to 33% from 40% in Q2. Telehealth and Preventive Healthcare players unveiled some new products, including Prevounce Health’s Pylo OX1-LTE pulse oximeter for remote patient monitoring and Elation Health’s AI-powered ambient note-generation tool, Note Assist, which is embedded in its Electronic Health Record (EHR) platform.

• New product features added to existing offerings focused on enhancing user experiences
  • XR-based fitness platform FitXR introduced several new updates to its mobile app, including an AI assistant, a new home menu, and a new scoring system, to simplify user experience and improve individual skill tracking.
  • Biosimulation and intelligence solutions provider Simulations Plus unveiled a new version of its ML platform, ADMET Predictor: Version 12.0, to accelerate drug discovery, design, and optimization.

Partnerships: AI Drug Discovery startups dominate; Alphabet tops Big Tech activity

Analyst Take: Partnership activity during Q3 followed similar themes as last quarter, where most deals were driven by startups focused on advancing drug discovery and clinical development through AI. These collaborations primarily involved companies in AI Drug Discovery, Clinical Trial Technology, and Precision Medicine. Notably, despite exiting its telehealth business last quarter, Walmart signaled a continued interest in the Telehealth sector through a strategic partnership with MISTR, demonstrating its indirect involvement in the industry.

• We recorded 110 Digital Health partnerships in Q3 2024, up 20% from the previous quarter. AI Drug Discovery continued to hold the top spot for the fifth consecutive quarter with 24 partnerships (22% of all partnerships). This was very closely followed by Telehealth, with 22 partnerships (20% of all partnerships), up ~47% from Q2.

• Incumbent share of partnership activity in Digital Health stood at 30% (up from 28% in Q2) of all partnerships in Q3 2024. We recorded 34 Digital Health partnerships involving healthcare and non-healthcare incumbents, such as in Big Tech. Like the past two quarters, AI Drug Discovery accounted for the highest incumbent activity (20% of total incumbent partnerships), focusing on developing drugs by leveraging each other’s AI capabilities or AI tools to accelerate drug design and discovery.

• This quarter, Big Pharma activity was spread across AI Drug Discovery and Precision Medicine, most of which focused on developing drugs. This included
  • Merck & Co.’s partnership with AI drug discovery company Evaxion Biotech to license two of Evaxion's preclinical vaccine candidates for up to USD 592 million in milestone payments per product. The candidates were identified using Evaxion’s AI-powered EDEN platform.
  • Eli Lillypartnership with Genetic Leap to develop novel RNA-based medicines by leveraging the latter’s proprietary AI platform. Genetic Leap can receive up to USD 409 million from Eli Lilly in upfront and milestone payments as part of the deal.
  • Novartis’ deal with Generate Medicines aims to leverage the latter’s GenAI-powered drug discovery platform to expedite the development of novel targets across undisclosed disease areas. Generate will receive USD 65 million upfront (including USD 15 million in equity) and up to USD 1 billion in milestone payments.

• Big Tech partnerships, dominated by Alphabet, continued to lead overall incumbent activity 
  • Unlike the previous quarter, where most deals were concentrated in AI-driven drug discovery, Q3 exhibited a more diversified range of Big Tech partnerships, spanning AI Drug Discovery, Hospital Interoperability, Hospital Management, and Clinical Trial Technology. Nearly half of all Big Tech partnerships were led by Alphabet, followed by Oracle. Alphabet’s investments were spread across multiple industries, while Oracle primarily concentrated on hospital interoperability solutions. 
  • Examples of Alphabet's partnerships include its collaboration with health insurer Humana, leveraging Google Cloud's GenAI to improve member experiences, and Mendel.ai, an AI clinical data analytics firm, to offer the Hypercube platform on the Google Cloud Marketplace.
  • Microsoft's activity slowed this quarter, with only two partnerships, down from five in Q2: 1) Microsoft’s conversational AI company, Nuance, and NetSfere partnered to provide healthcare organizations with secure, compliant communication solutions and 2) its partnership with Mass General Brigham, the University of Wisconsin School of Medicine and Public Health, and UW Health to accelerate AI advancements for radiology. 

• Other incumbents also inked partnerships in Digital Health, such as
  • Retail giant Walmart partnering with telemedicine provider MISTR to offer free at-home HIV testing kits in select Walmart stores in Georgia. MISTR will also provide free treatment and follow-up care through its telehealth platform. This partnership follows Walmart’s divestment of its telehealth business, MeMD, last quarter
  • EHR provider Epic and Mayo Clinic’s partnership with AI medical documentation company Abridge to develop a GenAI-powered documentation platform, incorporating its AI transcription and documentation tools with Epic’s EHR workflow to streamline documentation for Mayo’s nurses.

Incumbent partnerships in Digital Health

M&As: Primary care consolidation persists; Fabric continues acquisition streak

Analyst Take: Like Q2, M&A activity in Q3 was largely driven by primary care companies, despite some companies finding it difficult to survive in the market, such as Walmart’s divestment of MeMD last quarter. Additionally, CloudMD completed a go-private transaction with CPS Capital, having previously sold off its CloudMD Cloud Practice, which included its EMR and billing software, suggesting a potential shift in focus away from telehealth. This trend also underscores the efforts of existing players to expand and streamline operations, enhancing care services by leveraging synergies. For example, Fabric, which acquired MeMD from Walmart last quarter, continued its expansion with the acquisition of TeamHealth VirtualCare, marking its fourth acquisition in 18 months.

• The quarter saw 20 mergers and acquisitions compared with 23 last quarter. This included initial announcements and transaction closures. Telehealth, AI Drug Discovery, and Age Tech recorded four transactions each during the quarter, followed by Next-gen Medical Devices (3). Clinical Trial Technology, Digital Wellness, Fertility Tech, Health Benefits Platforms, and Clinical Decision Support Systems recorded one transaction each. 

• Incumbents’ M&A activity recovered from last quarter
  • Compared with the previous quarter, during which we observed only one incumbent-involved M&A transaction, Q3 saw five. This included Big Pharma Johnson & Johnson’s acquisition of implantable surgical devices company V-Wave for USD 1.6 billion (USD 600 million in upfront payment and USD 1.1 billion in potential milestone payments) and GE Healthcare’s acquisition of Intelligent Ultrasound’s AI-powered clinical software business for USD 51 million.

• Like Q2, Telehealth companies maintained momentum, with four M&A transactions recorded in Q3. Three of them focused on expanding care offerings.
  • Pomelo Care acquired the Doula Network (a network of credentialed doulas in the US) for an undisclosed sum to offer a hybrid maternity care model, with virtual care combined with in-person doula support.
  • Telehealth technology service provider Fabric acquired TeamHealth VirtualCare for an undisclosed sum to expand its virtual care service offerings. This follows Fabric’s notable purchase of Walmart’s telehealth business, MeMD, last quarter, which intended to expand Fabric’s employer-focused offerings.
  • Video remote interpretation services company Cloudbreak Health acquired peer company Voyce, resulting in Cloudbreak rebranding as “Equiti.” The transaction intends to synergize and expand language access offerings to the healthcare sector.

• AI Drug Discovery companies also recorded four transactions in Q3, all focusing on advancing capabilities and enhancing the drug development process. Notable transactions included
  • The proposed merger between key AI Drug Discovery players Recursion Pharmaceuticals and Exscientia, coming after a bumpy year for Exscientia, which saw job cuts and a CEO departure. The combined entity will work on 10 programs and expect milestone payments totaling USD 200 million in the next two years.
  • The proposed acquisition of Hepion Pharmaceuticals by Israeli pharma company Pharma Two B—the latter intending to go public—which is expected to close in Q4 2024.

Focus areas: R&D activity dominates Digital Health activity

Analyst Take: In Q3, Digital Health saw an increase in overall activity (a 12% increase from last quarter), mainly driven by an increase in partnership and product updates activity in Prevention & Wellness, with ~2x QoQ growth driven by the increasing use of AI/GenAI technologies in this area by Digital Health startups. Although the Treatment & Therapy space bagged the largest funding of USD 1.8 billion, mainly driven by Next-gen Medical Devices, it lagged in other activities. 

• 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 Q3 2024, Digital Health activity was mostly concentrated around R&D, accounting for 42% of all activities tracked (excluding funding). These activities mostly focused on AI Drug Discovery, Longevity Tech, 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 the previous quarter

Appendices

Appendix 1: Definitions of focus areas

Appendix 2: Product updates by industry