Key takeaways

• Funding

  • Next-gen Medical Devices led overall funding as levels returned 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.