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PRESENTATION © 2015 ROCK HEALTH
Jan
DIGITAL
HEALTH
FUNDING
Year In Review
2014
January 1, 2015
PRESENTATION © 2015 ROCK HEALTH
Rock Health is powering the future of the digital health
ecosystem, bringing together the brightest minds across
disciplines to build better solutions. Rock Health funds
and supports startups building the next generation of
technologies transforming healthcare.
Our partners include AARP, Abbott, Blue Shield of
California, Boehringer Ingelheim, Deloitte, GE,
Genentech, Harvard Medical School, Kaiser Permanente,
Mayo Clinic, UnitedHealth Group and UCSF.
Learn more at rockhealth.com
DIGITAL HEALTH FUNDING YEAR IN REVIEW (2014)
January 1, 2015
espite this being our fourth full year of tracking digital health funding and our eighth report on
the subject, we were still surprised when venture funding exceeded $4B. The figure is staggering
in many contexts—125% growth over 2013, four times the total from just three
years ago, and nearly exceeding the sum of the last three years together.
For the record, we don’t believe there is a bubble. We are fortunate to work with world-class entrepreneurs
building sustainable companies in healthcare and see growth in funding as a reflection not only of their
early success but also of the long, capital-intensive road ahead. As we begin 2015, it is obvious that our
healthcare system is undergoing a technology-based transformation, with health reform serving as a
massive tailwind. Entrepreneurs (and investors) are taking note (and advantage).
With the growth in venture funding comes the obvious question of exits. We tracked 95 overall M&A deals
and about $20B in disclosed M&A activity over the year, and another $10B in market cap created through
IPOs. Public market performance both in new offerings and existing was weak in 2014, and the sector
needs name brand companies that have taken on significant venture capital to find their way to an exit.
It’s likely that 2015 will be an even bigger year than 2014. More deals, more exits. Stay tuned.
D
MALAY GANDHI
@mgxtro
TERESA WANG
@teresawang6
AUTHORED BY WITH HELP FROM
Lauren DeVos
Sarah Jacobson
Emily King
Charu Raghu
Sheila Shah
Halle Tecco
PRESENTATION © 2015 ROCK HEALTH
Table of contents
3
SECTION KEY FIGURES
Dollars and deals Venture funding of digital health companies (2011-2014)
Growth in venture funding (2013 vs. 2012 and TTM Q3 2014 vs. 2013)
Average deal size and count (2011-2014)
Funding of top 6 categories (2011-2014)
Fastest growing categories (2013-2014)
Distribution of deals (2011-2014)
Investors Distribution of investors by deal count (2011-2014)
Most active investors by deal count (2011-2014)
Geographies Deals by geography (2011-2014)
Alternative funding Campaigns and dollars raised on crowdfunding platforms (2013-2014)
Exits and public markets Digital health acquirers by category and notable transactions (2014)
2014 IPO price change relative to offering price
2015 IPO outlook survey
Performance of publicly-traded digital health companies (2014)
Summary
4
12
14
15
16
19
PRESENTATION © 2015 ROCK HEALTH
$0B
$1B
$2B
$3B
$4B
$5B
With a fast start in January, venture
funding for digital health companies
was set to reach new heights. By the
end of the second quarter. it had
already surpassed the entire 2013
funding total.
Year-over-year growth in funding
accelerated to 125% after slowing
last year to 30%. With this latest
year, compound annual growth
(CAGR) from 2011-2014 hit 45%.
2014 also produced the largest four
individual quarters ever for digital
health funding, with Q2 alone
exceeding the entire 2012 total.
Source: Rock Health Funding Database
Note: Only includes U.S. deals >$2M
Venture funding of digital health companies surpassed $4B in 2014, nearly equivalent to
the prior three years (2011-2013) combined.
4
DIGITAL HEALTH VENTURE FUNDING
2011-2014
2014
$
4.1B
2011-
2013
2014
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC
2011
$0.9B
2012
$1.4B
2013
$1.8B
PRESENTATION © 2015 ROCK HEALTH
21%
29%
127%
77%
61%
-17%
10%
29%30%
9%
Source: PwC MoneyTree; digital health data based on Rock Health analysis
Note: Digital health only includes U.S. deals >$2M
Digital health is the bellwether of venture funding, outgrowing both traditional
healthcare and technology sectors.
5
There is no question that venture markets are hot, with
overall funding exceeding $48B in a single year for the
first time since the dot-com era.
Within that context, digital health funding has
demonstrated differentiated growth, outpacing overall
funding, the software sector, and traditional healthcare
sectors—biotech and medical devices.
With this growth, digital health accounted for nearly 9%
of all venture funding in 2014, a record that nearly triples
its contribution to overall funding in 2011.
With the continued pressure on funding for medical
device companies, digital health has for the first time
overtaken medical devices in aggregate venture funding.
GROWTH IN VENTURE FUNDING
2013 vs. 2012 and 2014 vs. 2013
ALL VENTURE FUNDING SOFTWARE DIGITAL HEALTH BIOTECH
MED DEVICE
2013 vs. 2012 2014 vs. 2013
LEGEND
in 2014
258digital health companies each raised more than
$
2 million
PRESENTATION © 2015 ROCK HEALTH
Source: Rock Health Funding Database
Note: Only includes U.S. deals >$2M
The average deal size and the total number of deals increased significantly in 2014,
leading to a record-breaking year for digital health funding.
7
For the prior three years (2011-2013),
average deal size has been steadily
declining against significantly increasing
deal count, falling under $10M in 2013.
2014 brought a sharp reversal to this
trend, with average deal size up nearly
43% over 2013 to $14M. This increase in
average deal size was combined with
record deal growth of 56%, leading to to
an overall record year for digital health
funding.
AVERAGE DEAL SIZE AND DEAL COUNT
2011-2014
AVERAGEDEALSIZE
2011
$0.9B 2012
$1.4B
2013
$1.8B
2014
$
4.1B
NUMBER OF DEALS
86 138 189 295
$15M
$10M
$5M
PRESENTATION © 2015 ROCK HEALTH
The six largest rounds of the year total to more than $1B, representing nearly 25% of all
2014 funding.
8
LARGEST VENTURE ROUNDS
2014
The largest deal of the year, funding NantHealth, was led
by a sovereign wealth fund, the Kuwait Investment
Authority.
Flatiron Health was the third largest and perhaps most
remarkable deal of the year, raising $130M in a Series B
(with an undisclosed amount going towards the
acquisition of Altos Clinical, an oncology EHR provider).
Corporate investors were the most active type of investor
in the largest deals.
Five of the top six categories of the year were influenced
by these outsize venture deals (personalized medicine,
population health management, digital medical devices,
telemedicine, and analytics/big data).
Source: Company websites
Note: NantHealth and Proteus raised in two rounds ($250M + $125M for NantHealth and $120M + $52M for Proteus)
Converging biomolecular medicine and
bioinformatics with technology services to
empower physicians, patients, payers
$
375M
Series B
Creating new pharmaceuticals that integrate
medicines with ingestible, wearable, mobile
and cloud computing
$
172M
Series G
Aggregates and transforms clinical and
financial data from EMR and billing systems
in real-time for oncology intelligence
$
130M
Series B
Provides partners with a continuous care
program, including care coordination, risk
management, and IT enablement
$
125M
Growth
Brings genetic information into routine
medical practice to improve the quality of
healthcare for billions of people
$
120M
Series F
Offers software, services, and access to
clinical services to anyone who wants to
offer a complete telehealth service
$
81M
Series C
PRESENTATION © 2015 ROCK HEALTHNote: Rock Health tracks funding across 24 separate categories
The top six categories accounted for 44% of all digital health funding in 2014, with
software-driven personalized medicine entering the rankings for the first time.
9
FUNDING OF TOP SIX 2014 CATEGORIES
2011-2014
1 Healthcare consumer engagement* Healthcare consumer engagement* EHR and clinical workflow
2 Analytics and big data* EHR and clinical workflow Analytics and big data*
3 Digital diagnostics Personal health tools and tracking Digital medical devices*
4 EHR and clinical workflow Care coordination Population health management*
5 Post-acute solutions Wearables and biosensing Wearables and biosensing
6 Hospital administration Telemedicine* Healthcare consumer engagement*
TOP 6
FUNDING
CATEGORIES
2011-2013
*Also a top 6
category in 2014
1 Analytics and big data
Data aggregation and analysis to support a
wide range of healthcare use cases
$
393M
2 Healthcareconsumerengagement
Consumer tools for the purchasing of
healthcare services or health insurance
$
323M
3 Digital medical devices
Software/hardware designed to treat a
specific disease or condition
$
312M
4 Telemedicine
Delivery of healthcare services through
virtual channels (e.g., phone, video, text)
$
285M
5 Personalized medicine
Software to support the practice of medicine
customized to an individual’s genetics
$
268M
6 Population health management
Platforms for managing population health
under the shift to risk-based payment models
$
225M
Analytics / big data
Healthcare consumer engagement
Digital medical devices
Telemedicine
Personalized medicine
Population health management
$2.0B
$1.5B
$1.0B
$0.5B
VENTURE
FUNDING
2011 2012 2013 2014
PRESENTATION © 2015 ROCK HEALTH
TELEMEDICINE PAYER ADMINISTRATION DIGITAL THERAPIES
Three categories experienced breakout growth in 2014, suggesting transformational
changes in the way healthcare will be defined, delivered, and administered.
10
Telemedicine was the fastest growing category of 2014,
fueled by mega deals in both established and new
entrants. As both licensing and reimbursement turn
favorably towards the sector, we expect telemedicine to
be a mainstay of the top category list.
Health insurers continue to face significant
administrative cost pressures, largely due to MLR caps
and are investing in technology-enabled operational
efficiencies, leading to rapid growth of companies in
the payer administration space.
Finally, digital therapy companies that raised seed
capital 2-3 years ago have demonstrated their
effectiveness through initial studies—leading not only
to commercial traction, but also significant fundraising.
With more addressable diseases and more evidence,
digital therapies are just getting started.
FASTEST GROWING CATEGORIES
2013-2014 overall funding and year-over-year (YoY) growth
2013 funding
LEGEND
2014 funding 2013-2014 YoY growth
SIGNATURE
DEALS OF
2014
315%
269%
266%
%
$300M
$200M
$100M
Source: Rock Health Funding Database
Note: Only includes U.S. deals >$2M
PRESENTATION © 2015 ROCK HEALTH
Digital health deal volume has tripled over the last three years, primarily driven by the
growth of early deals in the Seed and Series A stages.
11
2011 2012 2013 2014
Excluding small deals (under $2M, representing less
than $200M in annual activity) allows for a clearer
picture of the growth in early stage companies,
which dominate digital health funding and have
been the primary driver of increased deal volume.
Multiple companies advanced through the funding
funnel in 2014. Twelve companies progressed from
Series A to B, five from B to C, one from C to D, two
from D to beyond, and finally one company (Vivify
Health), raised both a Series A and B in 2014
following its seed in early 2013.
At the early stage, round sizes have increased
dramatically, with Series A and Series B up 38% and
61%, respectively.
DEAL DISTRIBUTION
2011-2014 (total deals and % of deals by stage)
86
134
185
295
100%
75%
50%
25%
LEGEND
D+
C
B
SEED
& A
Deal
volume
Source: Rock Health Funding Database
Note: Only includes U.S. deals >$2M; 52 of the 295 deals were not classifiable by stage
PRESENTATION © 2015 ROCK HEALTH
While the number of investors dabbling in digital health continues to climb, serial
investors are growing even faster, with 35 firms doing three or more deals apiece in 2014.
12
One Two Three > Four
1718
61
283
8
21
28
200
53
27
121
43
18
103
Each year since 2011, the number of investors entering
the digital health space has climbed. Funds doing only a
single digital health deal in a year (the “dabblers”) have
nearly tripled over that time period, while those who do
three or more deals (“serial” investors) has grown by five
times over the same period.
Serial investors tend to stick, with slightly more than half
of those from 2013 doing 3+ deals in 2014 as well. On
the other side, dabblers show moderate persistence,
with 35% of the 2013 group doing at least one deal in
2014 as well.
New digital health investors drive the increase in
dabblers, with 216 of the 2014 group appearing for the
first time in our database.
DISTRIBUTION OF INVESTORS BY DEAL COUNT
2011-2014
NUMBER OF DIGITAL HEALTH INVESTMENTS
# of investors in each year
LEGEND
2011 2012 2013 2014
Source: Rock Health Funding Database
Note: Only includes U.S. deals >$2M
PRESENTATION © 2015 ROCK HEALTH
5
5
5
10
The most active investors in digital health represent a broad cross section of corporate,
healthcare, technology, and sector-agnostic venture funds.
13
The top of the most active investor list
has remained remarkably stable over
the 2011-2014 time period, with both
KPCB and Qualcomm amongst the most
active funds each year.
Thirty-nine separate funds did at least
six deals over the 2011-2014 period,
representing a nearly equal mix of
healthcare-focused, tech-focused,
sector-agnostic, and corporate venture
funds.
Digital health has benefited from having
a diverse base of investors with widely
varying investment theses, with many of
the most active firms not having done
any co-investments.
MOST ACTIVE FUNDS
Deals in 2014 & cumulative deals 2011-2014
4
4
4
4
4
4
4
5
5
6
6
7
7 21
20
11
8
17
15
10
8
10
10
7
16
14
11
8
VENTURE CORPORATE
# of deals
LEGEND
2014 2011-2014 cumulative
2014 2011-2014 cumulative
Source: Rock Health Funding Database
Note: Only includes U.S. deals >$2M
7
PRESENTATION © 2015 ROCK HEALTH
Digital health companies from over 30 states received funding in 2014, with Bay Area-
based companies accounting for 25% of all 2014 funding.
14
DEALS BY GEOGRAPHY
2011-2014
In 2014, California-based companies
raised $1.8B, nearly as much as total
funding in all of 2013.
Boston and New York metro areas
experienced rapid growth in dollars
raised since 2011 (303% and 136%,
respectively).
Over the past four years, the top three
states that saw the most growth in deal
volume were Illinois, Pennsylvania, and
Tennessee.
2011
2012
2013
Source: Rock Health Funding Database
Note: Only includes U.S. deals >$2M
2014
83
12
11
26
26
10
9
9
$0-10M
LEGEND
$10-50M $50-100M $100-500M $500M+> # of deals in metro area
PRESENTATION © 2015 ROCK HEALTH
...................................................................................................................................
31%
23%
2014
...........................................................................................2013
$7.8M $5.0M
Source: Crowdfunding platform websites
Note: Only includes deals ending in 2014
Although the total number of campaigns on crowdfunding platforms has increased by
over 60%, successful campaigns and total dollars raised are in decline.
15
Failed
LEGEND
Successful
CROWDFUNDING PLATFORMS
2013 vs. 2014
.........
....................................2013 2014
67%
47%
$0.9M $4.5M
................
15%
....................2013 2014
75%
$0.4M $0.1M
Across all three major crowdfunding
platforms, a total of 187 campaigns
were tracked in 2014.
Despite the growth in number of
campaigns, success rates have
declined across all platforms.
In June, Kickstarter changed its policies
to lower barriers for health and medical
product campaigns. Since then, 33
campaigns have closed with half of
those ending successfully. One
campaign alone accounted for 53% of
total dollars raised on Kickstarter
(Hello’s Sense).
# of campaigns
2013
Funds raised
2014
PRESENTATION © 2015 ROCK HEALTH
Source: Rock Health tracking and analysis based on news reports
Note: M&A transactions totals and lists are not meant to be comprehensive
We tracked 95 M&A deals throughout 2014, representing over $20B in disclosed
transactions.
16
Health tech
Med device
Payer
Biopharma
Provider
Other healthcare
Tech
Other 6
3
2
1
4
3
4
11 47
8
6
6
4
4
7
13
Other
healthcare
Aggregate
transaction
value
Per
disclosed
deal
$2.3B $210M
$670M $168M
$1.0B $344M
$322M $80M
$17M $17M
$12.2B $6.1B
$126M $42M
$3.4B $567M
$20.1B $591MTOTAL
# of M&A deals
LEGEND
With
disclosed
transaction
value
2014 total
Target Acquirer Amount
CareFusion BD $12.2B
TriZetto Cognizant $2.7B
Siemens Health Cerner $1.3B
Alere Optum $600M
bswift Aetna $400M
Privia Brighton Health $400M
API Healthcare GE $340M
Change Healthcare Emdeon $185M
Corventis Medtronic $150M
Definiens AstraZeneca $150M
Basis Intel $100M
Medico.com Everyday Health $100M
RxAnte Millenium Labs $70M
CardioMEMS St. Jude Medical $60M
Citrus Lane Care.com $49M
HealthPost Advisory Board Co. $25M
Wello Weight Watchers $9M
Meddius Premier $8M
Target Acquirer
Altos Solutions Flatiron Health
AmeriDoc Teladoc
Archimedes Evidera
Audax Optum
Bina Technologies Roche
Breakthrough MDLive
CareInSync Hearst Health
ClarusHealth Cambia Health
eCardio Merck
Lift Labs Google
MedSynergies UnitedHealth Group
MindBloom WellTok
PatientKeeper HCA
ProtoGeo (Moves) Facebook
Sense4Baby AirStrip Wireless
Sessions MyFitnessPal
TheraSim WebMD
Zephyr Technologies Covidien
DISCLOSED UNDISCLOSEDDIGITAL HEALTH ACQUIRERS BY SECTOR
2014 (notable transactions listed at right)
PRESENTATION © 2015 ROCK HEALTH
Five digital health companies went public in 2014, all of which are currently trading
below their highs.
17
69%
149%
37% 41%
11%
-51%
-27%
5%
28%
-13%
IPO Baseline
CRCM CSLT EVDY IMS IMPR 2014 total
IPO RAISE $91M $177M $115M $1.3B $66M $1.7B
MARKET CAP $0.26B $1.06B $0.45B $8.5B $0.31B $10.6B
LEGEND
Price change
relative to IPO
2014 high
Dec. 31 2014
Three out of the five companies are
down from their debut, with Castlight
Health experiencing the largest sell-
off, losing nearly 75% of its peak
value.
IMS Health—a company making its
second IPO after being taken private
in 2010—is showing the biggest gain
since its offering.
Without any offerings in the second
half of 2014, digital health has pent
up demand for exits in 2015, with our
readers identifying the largest names
in the space as most likely to IPO.
IPO LANDSCAPE
2014 IPO performance & 2015 survey
2
3
9
10
11
11
13
14
16
19
19
38
38
47
WHO WILL IPO IN 2015?
Source: 2014 performance from NASDAQ and Google Finance as of market close on December 31, 2014
2015 IPO outlook based on Rock Health survey of Rock Weekly readers (n = 100; 60% entrepreneurs and investors)
0%
PRESENTATION © 2015 ROCK HEALTH
Source: The Digital Health Public Company Index by Rock Health (as of market close on December 31, 2014);
Available from: https://www.motifinvesting.com/motifs/the-digital-health-index-by-roc-O7xghiOF#/
Publicly-traded digital health companies did not fare well in a year when the public
markets demonstrated strong overall performance.
18
PERFORMANCE OF PUBLIC DIGITAL HEALTH COMPANIES
2014
0%
10%
20%
-20%
-10%
S&P 500
13.7%
Digital health public
company index
-5.4%
1/1/2014-12/31/2014
The digital health public company index, comprised of 19 companies
and now exceeding $53B in aggregate value (BenefitFocus was removed
due to its broadening focus on general HR software) launched earlier
this year.
PRESENTATION © 2015 ROCK HEALTH
Venture funding for digital health companies in 2014 surpassed $4.1B, nearly equivalent to all three prior years (2011-2013)
combined. This represents more than 125% YoY growth in funding compared to 2013. 293 deals, across 258 companies, closed with
an average deal size of $14.1M.
Summary of findings
19
FUNDING AND DEAL VOLUME
The top six themes of the year that received 44% of all funding included: analytics and big data, healthcare consumer engagement,
digital medical devices, telemedicine, personalized medicine, and population health management. Personalized medicine joined the
top six for the very first time this year.
MAJOR THEMES
In 2014 alone, 379 distinct investors funded digital health companies, 35 of which made 3+ deals (the serial investors) and 216 of
which were investing in digital health for the first time since we began tracking in 2011. The most active digital health investors have
remained stable—and diverse—over the past four years.
PROLIFIC INVESTORS
2014 saw a lot of exits. There were 95 M&A transactions tracked and disclosed deals were valued at over $20B. Health tech
companies were still the most active acquirers. Beyond private exits, the public markets welcomed five digital health companies with
a total current market capitalization of $10.6B.
EXIT ACTIVITY
Three categories received significant growth in funding: telemedicine, payer administration, and digital therapies. Telemedicine and
digital therapies are new ways of delivering care that can help improve care and reduce costs. As healthcare reform uncertainty and
changes persist, payer administration tools will be essential for efficiently and effectively navigating the healthcare industry.
GROWTH CATEGORIES
PRESENTATION © 2015 ROCK HEALTH
Rock Health defines digital health as the intersection of healthcare and
technology. This means that the venture funding tracked only includes
technology-enabled health-related companies, whether they focus on the
administration of healthcare, the delivery of healthcare, or the process of
bringing breakthrough new healthcare products to market (both R&D and
commercialization).
Healthcare companies that aren’t digital. Health insurance companies, such as
Oscar, or healthcare providers, such as One Medical, are pure services
companies (that employ technology, certainly, as does every company). This is in
direct contrast to a technology-enabled services business such as telemedicine,
that simply could not exist without digital. Molecular diagnostic companies, such
as Guardant Health, that perform testing and render a definitive diagnosis to
physicians are also excluded. Similar to biopharma companies, molecular
diagnostic companies are significantly more capital intensive than software-
based companies and would skew funding.
Technology companies that aren’t healthcare. Companies diversified across
industries are not included. Software companies focused across human
resources (and not solely health benefits), such as Zenefits, are not included.
Methodologies
Rock Health funding data only includes disclosed US deals over $2M. Deals under $2M
would be impossible to track comprehensively since companies often do not file their
small seed rounds with the SEC or disclose to press. We also believe that deals under
$2M generate noise in key statistics, including deal count and average deal size.
Disclosed deals under $2M represent less than 5% of the total we report, giving us
confidence in our overall figures.
In prior years, we have attempted to include international companies that were funded
by U.S. investors, monitoring the portfolios of hundreds of VCs. In reviewing this data,
we have concluded that it is challenging to track all international deals and beginning
with this 2014 year end report, we are no longer tracking or reporting any international
deals. All numbers in this report are for U.S.-based companies only.
Funding tracked includes debt, venture rounds, and growth equity but excludes lines
of credit (working capital) and cash/equity associated with merger or acquisition
activities.
Deals data is gathered based on publicly available resources (press releases, news
outlets, SEC filings, etc.) and supplemented with CapIQ’s venture data.
20
WHAT IS DIGITAL HEALTH? HOW WE TRACK DIGITAL HEALTH FUNDING
PRESENTATION © 2015 ROCK HEALTH
GET OUR DATA AND SUPPORT OUR WORK
Our Funding Database is available as part of a
subscription on our website. The subscription
includes a dataset encompassing individual deals
back to 2011, provides details on each of the
funded companies, and profiles investors based on
deal volume. The annual subscription includes
quarterly data updates and member-only webinars.
Please visit rockhealth.com/research to learn more.
research@rockhealth.org
@rock_health

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Digital Health Funding Year in Review 2014 by @Rock_Health

  • 1. PRESENTATION © 2015 ROCK HEALTH Jan DIGITAL HEALTH FUNDING Year In Review 2014 January 1, 2015
  • 2. PRESENTATION © 2015 ROCK HEALTH Rock Health is powering the future of the digital health ecosystem, bringing together the brightest minds across disciplines to build better solutions. Rock Health funds and supports startups building the next generation of technologies transforming healthcare. Our partners include AARP, Abbott, Blue Shield of California, Boehringer Ingelheim, Deloitte, GE, Genentech, Harvard Medical School, Kaiser Permanente, Mayo Clinic, UnitedHealth Group and UCSF. Learn more at rockhealth.com DIGITAL HEALTH FUNDING YEAR IN REVIEW (2014) January 1, 2015 espite this being our fourth full year of tracking digital health funding and our eighth report on the subject, we were still surprised when venture funding exceeded $4B. The figure is staggering in many contexts—125% growth over 2013, four times the total from just three years ago, and nearly exceeding the sum of the last three years together. For the record, we don’t believe there is a bubble. We are fortunate to work with world-class entrepreneurs building sustainable companies in healthcare and see growth in funding as a reflection not only of their early success but also of the long, capital-intensive road ahead. As we begin 2015, it is obvious that our healthcare system is undergoing a technology-based transformation, with health reform serving as a massive tailwind. Entrepreneurs (and investors) are taking note (and advantage). With the growth in venture funding comes the obvious question of exits. We tracked 95 overall M&A deals and about $20B in disclosed M&A activity over the year, and another $10B in market cap created through IPOs. Public market performance both in new offerings and existing was weak in 2014, and the sector needs name brand companies that have taken on significant venture capital to find their way to an exit. It’s likely that 2015 will be an even bigger year than 2014. More deals, more exits. Stay tuned. D MALAY GANDHI @mgxtro TERESA WANG @teresawang6 AUTHORED BY WITH HELP FROM Lauren DeVos Sarah Jacobson Emily King Charu Raghu Sheila Shah Halle Tecco
  • 3. PRESENTATION © 2015 ROCK HEALTH Table of contents 3 SECTION KEY FIGURES Dollars and deals Venture funding of digital health companies (2011-2014) Growth in venture funding (2013 vs. 2012 and TTM Q3 2014 vs. 2013) Average deal size and count (2011-2014) Funding of top 6 categories (2011-2014) Fastest growing categories (2013-2014) Distribution of deals (2011-2014) Investors Distribution of investors by deal count (2011-2014) Most active investors by deal count (2011-2014) Geographies Deals by geography (2011-2014) Alternative funding Campaigns and dollars raised on crowdfunding platforms (2013-2014) Exits and public markets Digital health acquirers by category and notable transactions (2014) 2014 IPO price change relative to offering price 2015 IPO outlook survey Performance of publicly-traded digital health companies (2014) Summary 4 12 14 15 16 19
  • 4. PRESENTATION © 2015 ROCK HEALTH $0B $1B $2B $3B $4B $5B With a fast start in January, venture funding for digital health companies was set to reach new heights. By the end of the second quarter. it had already surpassed the entire 2013 funding total. Year-over-year growth in funding accelerated to 125% after slowing last year to 30%. With this latest year, compound annual growth (CAGR) from 2011-2014 hit 45%. 2014 also produced the largest four individual quarters ever for digital health funding, with Q2 alone exceeding the entire 2012 total. Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M Venture funding of digital health companies surpassed $4B in 2014, nearly equivalent to the prior three years (2011-2013) combined. 4 DIGITAL HEALTH VENTURE FUNDING 2011-2014 2014 $ 4.1B 2011- 2013 2014 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC 2011 $0.9B 2012 $1.4B 2013 $1.8B
  • 5. PRESENTATION © 2015 ROCK HEALTH 21% 29% 127% 77% 61% -17% 10% 29%30% 9% Source: PwC MoneyTree; digital health data based on Rock Health analysis Note: Digital health only includes U.S. deals >$2M Digital health is the bellwether of venture funding, outgrowing both traditional healthcare and technology sectors. 5 There is no question that venture markets are hot, with overall funding exceeding $48B in a single year for the first time since the dot-com era. Within that context, digital health funding has demonstrated differentiated growth, outpacing overall funding, the software sector, and traditional healthcare sectors—biotech and medical devices. With this growth, digital health accounted for nearly 9% of all venture funding in 2014, a record that nearly triples its contribution to overall funding in 2011. With the continued pressure on funding for medical device companies, digital health has for the first time overtaken medical devices in aggregate venture funding. GROWTH IN VENTURE FUNDING 2013 vs. 2012 and 2014 vs. 2013 ALL VENTURE FUNDING SOFTWARE DIGITAL HEALTH BIOTECH MED DEVICE 2013 vs. 2012 2014 vs. 2013 LEGEND
  • 6. in 2014 258digital health companies each raised more than $ 2 million
  • 7. PRESENTATION © 2015 ROCK HEALTH Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M The average deal size and the total number of deals increased significantly in 2014, leading to a record-breaking year for digital health funding. 7 For the prior three years (2011-2013), average deal size has been steadily declining against significantly increasing deal count, falling under $10M in 2013. 2014 brought a sharp reversal to this trend, with average deal size up nearly 43% over 2013 to $14M. This increase in average deal size was combined with record deal growth of 56%, leading to to an overall record year for digital health funding. AVERAGE DEAL SIZE AND DEAL COUNT 2011-2014 AVERAGEDEALSIZE 2011 $0.9B 2012 $1.4B 2013 $1.8B 2014 $ 4.1B NUMBER OF DEALS 86 138 189 295 $15M $10M $5M
  • 8. PRESENTATION © 2015 ROCK HEALTH The six largest rounds of the year total to more than $1B, representing nearly 25% of all 2014 funding. 8 LARGEST VENTURE ROUNDS 2014 The largest deal of the year, funding NantHealth, was led by a sovereign wealth fund, the Kuwait Investment Authority. Flatiron Health was the third largest and perhaps most remarkable deal of the year, raising $130M in a Series B (with an undisclosed amount going towards the acquisition of Altos Clinical, an oncology EHR provider). Corporate investors were the most active type of investor in the largest deals. Five of the top six categories of the year were influenced by these outsize venture deals (personalized medicine, population health management, digital medical devices, telemedicine, and analytics/big data). Source: Company websites Note: NantHealth and Proteus raised in two rounds ($250M + $125M for NantHealth and $120M + $52M for Proteus) Converging biomolecular medicine and bioinformatics with technology services to empower physicians, patients, payers $ 375M Series B Creating new pharmaceuticals that integrate medicines with ingestible, wearable, mobile and cloud computing $ 172M Series G Aggregates and transforms clinical and financial data from EMR and billing systems in real-time for oncology intelligence $ 130M Series B Provides partners with a continuous care program, including care coordination, risk management, and IT enablement $ 125M Growth Brings genetic information into routine medical practice to improve the quality of healthcare for billions of people $ 120M Series F Offers software, services, and access to clinical services to anyone who wants to offer a complete telehealth service $ 81M Series C
  • 9. PRESENTATION © 2015 ROCK HEALTHNote: Rock Health tracks funding across 24 separate categories The top six categories accounted for 44% of all digital health funding in 2014, with software-driven personalized medicine entering the rankings for the first time. 9 FUNDING OF TOP SIX 2014 CATEGORIES 2011-2014 1 Healthcare consumer engagement* Healthcare consumer engagement* EHR and clinical workflow 2 Analytics and big data* EHR and clinical workflow Analytics and big data* 3 Digital diagnostics Personal health tools and tracking Digital medical devices* 4 EHR and clinical workflow Care coordination Population health management* 5 Post-acute solutions Wearables and biosensing Wearables and biosensing 6 Hospital administration Telemedicine* Healthcare consumer engagement* TOP 6 FUNDING CATEGORIES 2011-2013 *Also a top 6 category in 2014 1 Analytics and big data Data aggregation and analysis to support a wide range of healthcare use cases $ 393M 2 Healthcareconsumerengagement Consumer tools for the purchasing of healthcare services or health insurance $ 323M 3 Digital medical devices Software/hardware designed to treat a specific disease or condition $ 312M 4 Telemedicine Delivery of healthcare services through virtual channels (e.g., phone, video, text) $ 285M 5 Personalized medicine Software to support the practice of medicine customized to an individual’s genetics $ 268M 6 Population health management Platforms for managing population health under the shift to risk-based payment models $ 225M Analytics / big data Healthcare consumer engagement Digital medical devices Telemedicine Personalized medicine Population health management $2.0B $1.5B $1.0B $0.5B VENTURE FUNDING 2011 2012 2013 2014
  • 10. PRESENTATION © 2015 ROCK HEALTH TELEMEDICINE PAYER ADMINISTRATION DIGITAL THERAPIES Three categories experienced breakout growth in 2014, suggesting transformational changes in the way healthcare will be defined, delivered, and administered. 10 Telemedicine was the fastest growing category of 2014, fueled by mega deals in both established and new entrants. As both licensing and reimbursement turn favorably towards the sector, we expect telemedicine to be a mainstay of the top category list. Health insurers continue to face significant administrative cost pressures, largely due to MLR caps and are investing in technology-enabled operational efficiencies, leading to rapid growth of companies in the payer administration space. Finally, digital therapy companies that raised seed capital 2-3 years ago have demonstrated their effectiveness through initial studies—leading not only to commercial traction, but also significant fundraising. With more addressable diseases and more evidence, digital therapies are just getting started. FASTEST GROWING CATEGORIES 2013-2014 overall funding and year-over-year (YoY) growth 2013 funding LEGEND 2014 funding 2013-2014 YoY growth SIGNATURE DEALS OF 2014 315% 269% 266% % $300M $200M $100M Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M
  • 11. PRESENTATION © 2015 ROCK HEALTH Digital health deal volume has tripled over the last three years, primarily driven by the growth of early deals in the Seed and Series A stages. 11 2011 2012 2013 2014 Excluding small deals (under $2M, representing less than $200M in annual activity) allows for a clearer picture of the growth in early stage companies, which dominate digital health funding and have been the primary driver of increased deal volume. Multiple companies advanced through the funding funnel in 2014. Twelve companies progressed from Series A to B, five from B to C, one from C to D, two from D to beyond, and finally one company (Vivify Health), raised both a Series A and B in 2014 following its seed in early 2013. At the early stage, round sizes have increased dramatically, with Series A and Series B up 38% and 61%, respectively. DEAL DISTRIBUTION 2011-2014 (total deals and % of deals by stage) 86 134 185 295 100% 75% 50% 25% LEGEND D+ C B SEED & A Deal volume Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M; 52 of the 295 deals were not classifiable by stage
  • 12. PRESENTATION © 2015 ROCK HEALTH While the number of investors dabbling in digital health continues to climb, serial investors are growing even faster, with 35 firms doing three or more deals apiece in 2014. 12 One Two Three > Four 1718 61 283 8 21 28 200 53 27 121 43 18 103 Each year since 2011, the number of investors entering the digital health space has climbed. Funds doing only a single digital health deal in a year (the “dabblers”) have nearly tripled over that time period, while those who do three or more deals (“serial” investors) has grown by five times over the same period. Serial investors tend to stick, with slightly more than half of those from 2013 doing 3+ deals in 2014 as well. On the other side, dabblers show moderate persistence, with 35% of the 2013 group doing at least one deal in 2014 as well. New digital health investors drive the increase in dabblers, with 216 of the 2014 group appearing for the first time in our database. DISTRIBUTION OF INVESTORS BY DEAL COUNT 2011-2014 NUMBER OF DIGITAL HEALTH INVESTMENTS # of investors in each year LEGEND 2011 2012 2013 2014 Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M
  • 13. PRESENTATION © 2015 ROCK HEALTH 5 5 5 10 The most active investors in digital health represent a broad cross section of corporate, healthcare, technology, and sector-agnostic venture funds. 13 The top of the most active investor list has remained remarkably stable over the 2011-2014 time period, with both KPCB and Qualcomm amongst the most active funds each year. Thirty-nine separate funds did at least six deals over the 2011-2014 period, representing a nearly equal mix of healthcare-focused, tech-focused, sector-agnostic, and corporate venture funds. Digital health has benefited from having a diverse base of investors with widely varying investment theses, with many of the most active firms not having done any co-investments. MOST ACTIVE FUNDS Deals in 2014 & cumulative deals 2011-2014 4 4 4 4 4 4 4 5 5 6 6 7 7 21 20 11 8 17 15 10 8 10 10 7 16 14 11 8 VENTURE CORPORATE # of deals LEGEND 2014 2011-2014 cumulative 2014 2011-2014 cumulative Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M 7
  • 14. PRESENTATION © 2015 ROCK HEALTH Digital health companies from over 30 states received funding in 2014, with Bay Area- based companies accounting for 25% of all 2014 funding. 14 DEALS BY GEOGRAPHY 2011-2014 In 2014, California-based companies raised $1.8B, nearly as much as total funding in all of 2013. Boston and New York metro areas experienced rapid growth in dollars raised since 2011 (303% and 136%, respectively). Over the past four years, the top three states that saw the most growth in deal volume were Illinois, Pennsylvania, and Tennessee. 2011 2012 2013 Source: Rock Health Funding Database Note: Only includes U.S. deals >$2M 2014 83 12 11 26 26 10 9 9 $0-10M LEGEND $10-50M $50-100M $100-500M $500M+> # of deals in metro area
  • 15. PRESENTATION © 2015 ROCK HEALTH ................................................................................................................................... 31% 23% 2014 ...........................................................................................2013 $7.8M $5.0M Source: Crowdfunding platform websites Note: Only includes deals ending in 2014 Although the total number of campaigns on crowdfunding platforms has increased by over 60%, successful campaigns and total dollars raised are in decline. 15 Failed LEGEND Successful CROWDFUNDING PLATFORMS 2013 vs. 2014 ......... ....................................2013 2014 67% 47% $0.9M $4.5M ................ 15% ....................2013 2014 75% $0.4M $0.1M Across all three major crowdfunding platforms, a total of 187 campaigns were tracked in 2014. Despite the growth in number of campaigns, success rates have declined across all platforms. In June, Kickstarter changed its policies to lower barriers for health and medical product campaigns. Since then, 33 campaigns have closed with half of those ending successfully. One campaign alone accounted for 53% of total dollars raised on Kickstarter (Hello’s Sense). # of campaigns 2013 Funds raised 2014
  • 16. PRESENTATION © 2015 ROCK HEALTH Source: Rock Health tracking and analysis based on news reports Note: M&A transactions totals and lists are not meant to be comprehensive We tracked 95 M&A deals throughout 2014, representing over $20B in disclosed transactions. 16 Health tech Med device Payer Biopharma Provider Other healthcare Tech Other 6 3 2 1 4 3 4 11 47 8 6 6 4 4 7 13 Other healthcare Aggregate transaction value Per disclosed deal $2.3B $210M $670M $168M $1.0B $344M $322M $80M $17M $17M $12.2B $6.1B $126M $42M $3.4B $567M $20.1B $591MTOTAL # of M&A deals LEGEND With disclosed transaction value 2014 total Target Acquirer Amount CareFusion BD $12.2B TriZetto Cognizant $2.7B Siemens Health Cerner $1.3B Alere Optum $600M bswift Aetna $400M Privia Brighton Health $400M API Healthcare GE $340M Change Healthcare Emdeon $185M Corventis Medtronic $150M Definiens AstraZeneca $150M Basis Intel $100M Medico.com Everyday Health $100M RxAnte Millenium Labs $70M CardioMEMS St. Jude Medical $60M Citrus Lane Care.com $49M HealthPost Advisory Board Co. $25M Wello Weight Watchers $9M Meddius Premier $8M Target Acquirer Altos Solutions Flatiron Health AmeriDoc Teladoc Archimedes Evidera Audax Optum Bina Technologies Roche Breakthrough MDLive CareInSync Hearst Health ClarusHealth Cambia Health eCardio Merck Lift Labs Google MedSynergies UnitedHealth Group MindBloom WellTok PatientKeeper HCA ProtoGeo (Moves) Facebook Sense4Baby AirStrip Wireless Sessions MyFitnessPal TheraSim WebMD Zephyr Technologies Covidien DISCLOSED UNDISCLOSEDDIGITAL HEALTH ACQUIRERS BY SECTOR 2014 (notable transactions listed at right)
  • 17. PRESENTATION © 2015 ROCK HEALTH Five digital health companies went public in 2014, all of which are currently trading below their highs. 17 69% 149% 37% 41% 11% -51% -27% 5% 28% -13% IPO Baseline CRCM CSLT EVDY IMS IMPR 2014 total IPO RAISE $91M $177M $115M $1.3B $66M $1.7B MARKET CAP $0.26B $1.06B $0.45B $8.5B $0.31B $10.6B LEGEND Price change relative to IPO 2014 high Dec. 31 2014 Three out of the five companies are down from their debut, with Castlight Health experiencing the largest sell- off, losing nearly 75% of its peak value. IMS Health—a company making its second IPO after being taken private in 2010—is showing the biggest gain since its offering. Without any offerings in the second half of 2014, digital health has pent up demand for exits in 2015, with our readers identifying the largest names in the space as most likely to IPO. IPO LANDSCAPE 2014 IPO performance & 2015 survey 2 3 9 10 11 11 13 14 16 19 19 38 38 47 WHO WILL IPO IN 2015? Source: 2014 performance from NASDAQ and Google Finance as of market close on December 31, 2014 2015 IPO outlook based on Rock Health survey of Rock Weekly readers (n = 100; 60% entrepreneurs and investors) 0%
  • 18. PRESENTATION © 2015 ROCK HEALTH Source: The Digital Health Public Company Index by Rock Health (as of market close on December 31, 2014); Available from: https://www.motifinvesting.com/motifs/the-digital-health-index-by-roc-O7xghiOF#/ Publicly-traded digital health companies did not fare well in a year when the public markets demonstrated strong overall performance. 18 PERFORMANCE OF PUBLIC DIGITAL HEALTH COMPANIES 2014 0% 10% 20% -20% -10% S&P 500 13.7% Digital health public company index -5.4% 1/1/2014-12/31/2014 The digital health public company index, comprised of 19 companies and now exceeding $53B in aggregate value (BenefitFocus was removed due to its broadening focus on general HR software) launched earlier this year.
  • 19. PRESENTATION © 2015 ROCK HEALTH Venture funding for digital health companies in 2014 surpassed $4.1B, nearly equivalent to all three prior years (2011-2013) combined. This represents more than 125% YoY growth in funding compared to 2013. 293 deals, across 258 companies, closed with an average deal size of $14.1M. Summary of findings 19 FUNDING AND DEAL VOLUME The top six themes of the year that received 44% of all funding included: analytics and big data, healthcare consumer engagement, digital medical devices, telemedicine, personalized medicine, and population health management. Personalized medicine joined the top six for the very first time this year. MAJOR THEMES In 2014 alone, 379 distinct investors funded digital health companies, 35 of which made 3+ deals (the serial investors) and 216 of which were investing in digital health for the first time since we began tracking in 2011. The most active digital health investors have remained stable—and diverse—over the past four years. PROLIFIC INVESTORS 2014 saw a lot of exits. There were 95 M&A transactions tracked and disclosed deals were valued at over $20B. Health tech companies were still the most active acquirers. Beyond private exits, the public markets welcomed five digital health companies with a total current market capitalization of $10.6B. EXIT ACTIVITY Three categories received significant growth in funding: telemedicine, payer administration, and digital therapies. Telemedicine and digital therapies are new ways of delivering care that can help improve care and reduce costs. As healthcare reform uncertainty and changes persist, payer administration tools will be essential for efficiently and effectively navigating the healthcare industry. GROWTH CATEGORIES
  • 20. PRESENTATION © 2015 ROCK HEALTH Rock Health defines digital health as the intersection of healthcare and technology. This means that the venture funding tracked only includes technology-enabled health-related companies, whether they focus on the administration of healthcare, the delivery of healthcare, or the process of bringing breakthrough new healthcare products to market (both R&D and commercialization). Healthcare companies that aren’t digital. Health insurance companies, such as Oscar, or healthcare providers, such as One Medical, are pure services companies (that employ technology, certainly, as does every company). This is in direct contrast to a technology-enabled services business such as telemedicine, that simply could not exist without digital. Molecular diagnostic companies, such as Guardant Health, that perform testing and render a definitive diagnosis to physicians are also excluded. Similar to biopharma companies, molecular diagnostic companies are significantly more capital intensive than software- based companies and would skew funding. Technology companies that aren’t healthcare. Companies diversified across industries are not included. Software companies focused across human resources (and not solely health benefits), such as Zenefits, are not included. Methodologies Rock Health funding data only includes disclosed US deals over $2M. Deals under $2M would be impossible to track comprehensively since companies often do not file their small seed rounds with the SEC or disclose to press. We also believe that deals under $2M generate noise in key statistics, including deal count and average deal size. Disclosed deals under $2M represent less than 5% of the total we report, giving us confidence in our overall figures. In prior years, we have attempted to include international companies that were funded by U.S. investors, monitoring the portfolios of hundreds of VCs. In reviewing this data, we have concluded that it is challenging to track all international deals and beginning with this 2014 year end report, we are no longer tracking or reporting any international deals. All numbers in this report are for U.S.-based companies only. Funding tracked includes debt, venture rounds, and growth equity but excludes lines of credit (working capital) and cash/equity associated with merger or acquisition activities. Deals data is gathered based on publicly available resources (press releases, news outlets, SEC filings, etc.) and supplemented with CapIQ’s venture data. 20 WHAT IS DIGITAL HEALTH? HOW WE TRACK DIGITAL HEALTH FUNDING
  • 21. PRESENTATION © 2015 ROCK HEALTH GET OUR DATA AND SUPPORT OUR WORK Our Funding Database is available as part of a subscription on our website. The subscription includes a dataset encompassing individual deals back to 2011, provides details on each of the funded companies, and profiles investors based on deal volume. The annual subscription includes quarterly data updates and member-only webinars. Please visit rockhealth.com/research to learn more. research@rockhealth.org @rock_health