7 September 2022
New survey finds three-quarters of digital health leaders believe industry is at saturation point for wellness solutions and a new revolution is necessary.
After conquering the wellness space, digital health is on the cusp of revolutionising acute medical care – but will face challenges. Our new survey has identified the three main obstacles for digital health businesses to overcome so they can thrive in the shifting economic landscape.
We asked 250 digital health leaders about their thoughts on the future of the industry, with the findings showing transformation of digital health is set to take place in the next five years. Over three-quarters (76%) say the wellness market, which the likes of Apple, Nike and Fitbit have dominated in recent years, is oversaturated; 74% believe to remain competitive in the long term, they plan to develop products that target acute and urgent medical needs.
Our experts say funding, regulation and competition are the biggest threats to achieving dominance in the acute market, and for these digital health start-ups aiming to scale up.
Alison Dennis, partner and co-head of the international life sciences and healthcare sector said: "Digital health is on the precipice of moving from general wellbeing to addressing some of the major healthcare concerns we're facing across the globe.
"We've passed the stage of counting steps and calories, and products are growing in ambition, complexity, and sophistication. It's a massively exciting time for the industry that will completely change the way everyone interacts with the healthcare system, improving medical access across the world and bringing cutting-edge scientific developments into everyday technology.
"The pandemic showed healthcare needs to harness existing technology to reach more people. New digital health start-ups are arriving on the scene each day to take on this new challenge, but the industry should have its eyes wide open about three key obstacles impacting rapid growth: funding, regulation and competition."
A huge amount of investment has been poured into digital health start-ups since 2020, signalling the market's skyrocketing trajectory. Survey participants have raised an average of £128 million per company, while VC fund Rock Health found 2021’s total funding among US-based digital health start-ups amounted to $29.1 billion across 729 deals, with an average deal size of $39.9m, nearly double of 2020’s $14.9bn former record haul.
The Breakthrough Digital Health survey found that while over half (56%) of digital health leaders need more capital to expand their business, nearly three-quarters (74%) believe rising inflation, interest rates and geopolitical tension will reduce investors’ risk appetite.
This could reshape the industry's corporate growth strategies. While 44% of digital health innovators have built joint ventures into their growth plans, only a quarter (26%) surveyed are looking at M&A as part of their growth strategy – something legal experts say could change as the financial climate shifts.
Digital health products face increasing regulation, especially with data privacy and AI. This is an unwelcome development, with half of respondents seeing regulation as a serious threat. Only a third (33%) have an aligned regulatory and commercial approach, and 32% say that protecting against regulation isn't a priority. Key areas that could topple start-ups are marketing and advertising, data compliance and suppliers.
If digital health start-ups want to get ahead of the regulatory race, our experts say a watertight approach to regulation will be crucial to keep up with the market and investors' expectations – and crucially, to avoid hitting roadblocks early on in a start-up's life cycle. A solid regulatory strategy also gives companies competitive edge – something that is important in an increasingly crowded market.
The future of digital health looks bright: 50% of respondents plan on targeting new markets, while 44% are looking for new partnerships and 40% are after new buyers. With the HIMSS finding almost every US and international healthcare system intends to be in a stage of digital transformation in five years' time, the opportunities for digital health start-ups to help shape the future of healthcare are abundant.
But with the shifting economic landscape and a shrinking pool of investment, fiercer competition could shift the balance in favour of investors – leaving digital health start-ups facing unfavourable terms. 44% of digital health leaders surveyed found agreeing to reasonable terms with investors was their biggest challenge in raising capital.
Even those who benefited from the pandemic funding boom are feeling the pressure. Nearly three-quarters (72%) of digital health leaders surveyed are concerned about delivering for investors, while 78% said they felt pressure to accept terms in investor negotiations that they are uncomfortable with and that may be difficult to manage.
With all these concerns facing digital health start-ups, legal specialists are keen to point out the benefits of tackling these early on to ensure growth in a difficult market.
Alison continued: "These three challenges facing the industry could make or break the success of a digital health start-up looking to move into acute healthcare needs, and all need to be addressed, by the digital health industry in the coming five years and beyond as they represent both an opportunity and a threat.
"It's crucial to understand that none of these issues are insurmountable. With careful consideration and advance planning to tackle these obstacles, digital health start-ups can flourish and succeed in a competitive landscape so they can achieve their ambition to revolutionise the delivery of healthcare."