Investments in digital health surged 79 per cent in 2021, according to a report from Hampleton Partners.

Mental health and wellness; medical imaging and AI-based diagnostic software; and clinical trials technology proved the most attractive to investors.

The report highlights how the Covid-19 pandemic revealed the inadequacies and opportunities in the world’s healthcare systems and how venture and growth capital poured into digital health companies, raising a total of $57.2bn in funding in 2021, an increase of 79 per cent from 2020.

“Though the new investment has been significantly concentrated around telemedicine due to the pandemic, venture capital is increasingly diversifying its healthtech targets, with AI-based clinical decision software and digital therapeutics being key areas,” said David Bell, director of Hampleton Partners. “We also found that Europe was a hot spot for investment with funding rounds significantly exceeding the global average, with a 131 per cent increase to $6.7bn in total investment from 2020 to 2021. European digital health funding now accounts for around 12 per cent of global investment, up from nine per cent in 2020.”

In terms of M&A, across the whole healthtech sector, there were 601 acquisitions in 2021, up 13 per cent from 2020 and up 40 per cent from 2019. Ten healthtech deals closed at over $1bn during 2021.

The impact of the pandemic on individual mental health has been felt across the world. During this period, investment in mental health-related technologies reached $5.5bn in 2021, rising 139 per cent since 2020.

Illustrative deals in Europe include UK-based Ieso’s $53m series B raise in November 2021 from VCs and CVCs including Morningside Technology Ventures, Molten Ventures and Sony Innovation Fund. Ieso provides online cognitive behavioural therapy (CBT).

In March 2021, US-based Ginger, a provider of on-demand mental health therapy, raised a $100m series E round led by Blackstone, before merging with guided meditation app Headspace.

Advancements in artificial intelligence (AI) and machine learning (ML) have an increasingly broad application to productivity and diagnostics, including staffing productivity and imaging interpretation efficiency. Investment from VCs and CVCs has more than doubled from under $300m in 2017 to $700m in 2021.

PathAI, a provider of AI-powered technology tools to diagnose patients rapidly and accurately through biomarker analysis, as well as drug development, raised $255m between its seed round in December 2016 and its latest series C round in May 2021.

The pandemic massively disrupted the traditional clinical trial model, in turn stalling drug development. This catalysed the need for innovation within the clinical trials process and investors have responded by targeting technologies that improve recruitment and participation.

This sub-sector has seen a rise in investment of 53 per cent from $1.8bn in 2020 to $2.7bn in 2021. Examples include California-based Medable, which provides a platform aimed at simplifying the clinical trial process, raised funds twice in 2021; a $78m series C and $304m series D, taking total investment to $507m since 2015.

Meanwhile, Teckro, an Irish platform provider aiming to improve clinical trial participant enrolment, raised $25m in a series D round in November 2021. The firm has raised a total of $66m, with investment from Northpond Ventures and Sands Capital.

Hampleton Partners anticipates that on the clinical side, companies specialising in disease tracking and testing, biopharmaceutical research, and medical supplies are increasing their technology-based preparedness to take advantage of interoperability, virtual health, cloud-based platforms, artificial intelligence and other emerging technologies.

On the patient side, a growing number of healthtech companies are focused on telemedicine, fitness, wellness, mental health, smart foods and personalised at-home health monitoring. While using telemedicine may have once been a niche personal preference, Covid-19 has made this mainstream.

“This backdrop has led to increasingly significant capital raising and M&A consolidation, especially as the enterprise healthtech market alone is projected to reach $1.3tn by 2025 and is showing no signs of slowing down,” said Bell. “We anticipate overall sector volumes to be sustained during 2022, with valuations metrics in vertical software and precision medicine and online health to retain current levels due to their increasing importance within healthcare productivity and diagnosis.”

Given the surge in European health tech funding during 2021, year-on-year growth in funding for 2022 is likely, he said, to be lower than 2021, but he anticipates deal volume will increase.

“Ultimately, healthtech is benefitting from adoption and digitisation during Covid,” he said. “In Europe and the USA, it is an increasingly important investor asset class.”

The top three deals by disclosed deal value in 2021 were:

• $30.0bn: Data to Decision acquired Mediqon, a provider of software to manage and analyse data for making informed healthcare sector decisions
• $28.3bn: Oracle acquired Cerner, a provider of healthcare practice management software and SaaS
• $19.7bn: Microsoft acquired Nuance Communications, a provider of AI-enabled desktop and mobile interactive voice response and automation SaaS

Hampleton Partners has offices in London, Frankfurt, Stockholm and San Francisco.