Key takeaways

• Funding

  • Overall funding sees an uptick led by Telehealth and AI Drug Discovery: In Q1, the US Digital Health sector raised USD 3.9 billion across 22 rounds, up by 10% QoQ from the USD 3.6 billion raised in Q4 2023. Overall funds raised during this quarter marked the second highest in the last four quarters, nearing Q3 2023 levels of USD 4.1 billion. 
  • Telehealth startups led the pack this quarter with an aggregate of nearly USD 800 million across 22 rounds, with an average deal size of USD 36 million. The rise in investor interest can be attributed to growing efforts by the US Government to expand healthcare access across the US, especially in rural America. 
  • AI Drug Discovery came in second with USD 509 million across 15 rounds, up by 41% QoQ from USD 360 million raised in Q4 2023, as AI-discovered drugs showed rapid clinical progress.

• Product updates

  • Shift of attention toward seniors and pets; GenAI-related developments continued: Q1 recorded 17 new product launches and updates, mostly from Age Tech and Pet Care Tech companies. Many of these were GenAI- and AI-powered solutions, including fall detection devices from Cherish Health and Zoe Care to enable immediate care for elders if a fall occurs and pet location and health monitoring devices from Petcube and Invoxia. 
  • We also observed product updates that combine AI and robotics with the launch of AI-powered robotic companions from Intuition Robotics and Ogmen Robotics to accompany seniors and pets, respectively.

• Partnerships

  • AI drug discovery alliances continued to be a key theme: Around 30% of the partnerships in AI Drug Discovery focused on jointly developing drugs or leveraging the technologies of both parties to enhance AI-powered drug discovery capabilities. 
  • Incumbents occupied more than half of all partnerships recorded for the quarter, with Alphabet (14) dominating this subset. This included partnerships such as those with Novartis and Eli Lilly to develop novel small-molecule treatments and multiple targets using AI (via its subsidiary, Isomorphic Labs). Amazon followed with several partnerships , particularly in Hospital Management. 

• M&As

  • Cigna sold Medicare Advantage business; Gingko expanded pharma involvement: We witnessed 13 M&A transactions in Q1, four of which were in AI Drug Discovery. The most notable transaction was the divestment by Cigna of some of its businesses, including its Medicare Advantage operations to Health Care Service Corporation (HCSC) for nearly USD 4 billion. Additionally, Ginko Bioworks acquired two AI drug discovery companies, Reverie Labs and Patch Biosciences, expanding its involvement in the space.

• Outlook

  • Policy support to drive telehealth adoption: The US Government is actively looking at promoting telehealth across the nation by offering grants to healthcare providers in rural areas to be able to afford broadband costs and other eligible services. In addition, the Government also extended telehealth flexibilities for two years until the end of 2024, following the expiry of the Public Health Emergency (PHE) in May 2023, indicating positive government support for the industry. 
  • GenAI adoption across administrative use cases is expected to continue in the near term: While product updates were relatively low during Q1 2024, the adoption of GenAI across healthcare applications continues. GenAI has especially shown promise in administrative and clinical workflows while supporting other areas, such as clinical note-taking and virtual assistants. Developments in this area are expected to continue in the near term, with further potential to disrupt patient-facing roles, as the technology’s governance and security frameworks in this sector mature.