from LexBlog – May 18, 2020

Despite the changes and uncertainty rippling across the entire venture-backed startup ecosystem, the digital health sector saw its best first quarter since analysts began tracking its performance more than a decade ago, logging $3.1 billion across 107 deals, according to Rock Health. StartUp Health put the figure even higher, reporting $4.5 billion raised in health innovation funding.

But these record-breaking numbers are not expected to hold up for the rest of 2020, researchers said. Supply chain disruptions, market upheaval, hiring slowdowns and reduced growth projections are roiling the healthcare sector, and 67% of digital health investors surveyed by Rock Health say startups will likely have a tougher-than-usual time raising capital this year.

A strong start followed quickly by a pullback aligns with larger trends from the wider startup ecosystem, where investors in January backed a record 126 privately held companies headquartered in the Silicon Valley before cooling down to 60 in February and 44 in March, according to Fenwick’s Silicon Valley Venture Capital Flash Report on investment activity in the first quarter of this year.

But even with all of the economic uncertainties the pandemic has brought, digital health—which saw $8.2 billion in investment in 2018 and $7.4 billion last year—is expected to remain strong as the country’s healthcare needs change and as patient-consumers become ever more comfortable engaging with digital health technologies going forward.

Average deal sizes for digital health startups spiked in Q1 at $29 million—which compares to $19.5 million in 2019 and $21.5 million in 2018—Rock Health said. In normal times, this would indicate an open IPO window and lively M&A dealflow ahead. But these exits could be more elusive in 2020 as a global recession takes hold.

Top Venture Deals of Q1 2020

The largest digital health financings in the first quarter of 2020 include the following:

• ClassPass, based in New York, provides access to fitness classes, yoga, strength training and other programs, as well as use of health clubs, via its flat-rate monthly subscription billing service. The company raised a $285 million Series E funding round led by L Catterton and Apax Digital, with participation from existing investor Temasek.
• EQRx, a biotech company whose goal is to create less expensive medicines, raised a $200 million Series A round from GV, ARCH Venture Partners, Andreessen Horowitz, Casdin Capital, Section 32, Nextech and Arboretum Ventures, among others.
• Karius, based in Redwood City, is developing liquid biopsy tests for infectious diseases. The company raised a $165 million Series B round led by SoftBank Vision Fund 2, with additional participation from General Catalyst, HBM Healthcare Investments, and existing investors Khosla Ventures and Lightspeed Venture Partners.
• Immunocore, an immunotherapy drug developer based in Oxford, England, raised a $168 million Series B round led by General Atlantic, with participation from additional investors including CCB International, JDRF T1D Fund, Rock Springs Capital, Terra Magnum Capital Partners and WuXi AppTec’s Corporate Venture Fund. Five existing shareholders in the company, including Eli Lilly and Company and RTW Investments, also participated, as well as the Bill & Melinda Gates Foundation.
• KRY is a Stockholm, Sweden-based developer of a digital health application designed to provide video consultation with doctors. The company raised a $155 million Series C round led by Ontario Teachers’ Pension Plan’s Teachers’ Innovation Platform, with participation from existing investors Index Ventures, Creandum and Accel.
• Concerto HealthAI is based in Boston and develops artificial intelligence programs for precision oncology. The company raised a $150 million Series B round led by Declaration Partners LP with participation from Maverick Ventures, AllianceBernstein PCI and SymphonyAI Group.
• Element Science is a company based in San Francisco developing a digital wearable platform focused on high-risk cardiovascular patients transitioning from the hospital to the home. The company raised $145 million Series C round led by Deerfield Healthcare and Qiming Venture Partners USA. Investors also included Cormorant Asset Management and Invus Opportunities, and the round also saw participation from existing investors Third Rock Ventures and GV.
• Iora Health is a Boston-based company that operates primary care clinics for Medicare patients. The company raised a $126 million Series F round from Premji Invest, the investment group of Wipro Ltd chair Azim Premji; Cox Enterprises; Temasek Holdings; F-Prime Capital; Devonshire Investors; .406 Ventures; Flare Capital Partners; Polaris Partners and Khosla Ventures.
• Kallyope is based in New York, and is working on a broad pipeline of medicines that work exclusively in the gut to treat various ailments including metabolic diseases, gastrointestinal diseases and central nervous system disorders. The company raised a $112 million Series C round from The Column Group, Lux Capital, Polaris Partners, Euclidean Capital, Two Sigma Ventures, Illumina Ventures, Alexandria Venture Investments and Bill Gates, joining new investors including Casdin Capital and Greenspring Associates.