Personal, Convenient, Powerful: the Future of the European Digital Health Market 

Written by: Scott Springall

The European Market

Half a decade of blistering innovation has turned digital health into one of biotech’s most remunerative and rapidly changing frontiers. The field’s promise drew investors in record numbers last year, as early companies hit their stride and new waves of startups diversified and expanded the range of services and technologies on offer.

Since then, the first half of 2022 has seen some slowdowns in the growth of digital health companies globally, with European markets fairing slightly better than average but still seeing a decline in growth. This pattern reflects broader trends across biotech and its adjacent sectors. And because the contraction comes after a record-breaking 2021—and because development in digital health remains so strong—it is best understood as a modest market correction rather than a significant loss of momentum. For instance, in the German-speaking countries of central Europe, digital health companies raised almost $950 million between 2010 and 2020. They raised the same amount in 2021 alone. That kind of growth is typically not sustainable, as infrastructure and public perception need to catch up to the pace of technological innovation.

Leading projections for VC investment, for instance, place the full-year 2022 market just above year-end totals for 2020 ($36 billion globally against the 2020s $35.6 billion). They also look ahead to steady growth over the next decade. Estimates of market size justify those numbers, with Precedence Research predicting the sector’s 10-year compound annual growth rate at 27.9% in the decade leading up to 2030. Growth at that pace would quintuple the market during that period, from $270 billion in 2021 to $1.36 trillion in 2030. Even conservative predictions paint a hopeful picture: SkyQuest Consulting, for instance, estimates a CAGR of 16.5% and a market share of $551 billion by 2027.

Positive Pressures

Major drivers of growth include aging populations in need of at-home treatment and monitoring, widespread adoption of smartphones and other mobile digital devices, the commercial accessibility of big data and corresponding analytics, the rapid development of digital infrastructure in low- and middle-income countries, and the persistent need to drive down the costs of care. All of this is not to mention the Covid-19 pandemic and its restrictions on travel, which transformed hundreds of thousands of clinics and doctors’ offices into telehealth and telemedicine services. In many places, those systems have remained in place in response to consumer demand and the obvious advantages for accessibility, especially for less-mobile patients. The pandemic also caused a huge surge in employee wellness programs to support at-home workers and reduce burnout under intensely stressful conditions. Many of those programs, too, have become permanent.

Regulation has also been a major factor, as policymakers have slowly caught up to the new realities of digital health services. Clear regulation for markets like online prescriptions and digital care applications allows for reliable insurance reimbursement and predictable revenue streams.

The result of these positive pressures is a thriving sector populated by hundreds of fast-growing companies with promising technologies. There are more than 600 active digital health companies in Europe now, with the largest clusters in workplace wellness, research and clinical development, diagnostics, and treatment and monitoring.

The VC Perspective

Investors in biotech and biopharma have helped power these trends, but more recently—especially over the last 18 months—specialized investment firms have emerged that are focused solely on digital health. And by both headcount and engagement, the pace of investment is rising faster in Europe than in other major regions. VC interest is growing rapidly, with 54 new funds investing in at least three digital health companies just in the first quarter of 2022. To help our readers and clients understand this quickly changing field, LifeSci Search has conducted an original analysis to augment the publicly available information.

We started by identifying the 114 most active and best-resourced digital health companies operating in Europe right now, of which 40 are still early-phase while fully 74 have completed a Series B or C funding round. Then, we broke those companies by investor type to obtain a clearer picture of where interest in digital health comes from. There are three core groups: funds specializing in the life sciences, funds focused on digital health and medtech more narrowly, and broader-interest technology investors. The majority of the companies we examined—59%—are funded by investors in more than one group. Life sciences investors are behind 18% of companies, closely followed by digital health VCs at 15%. Tech investors account for just 6% of active digital health companies.

Our next step was to break down series B fundings by those same categories of investors. For smaller deals under €20 million, the breakdown corresponds roughly to each fund type’s overall representation: of the 40 deals below €10 million, for instance, 23 involved multiple investor groups, with smaller portions backed by life sciences (7), digital health (80, and tech investors (2).

At larger deal sizes, however, most companies were turning to mixed groups of investors—as we expect, especially for the largest category of deals over €100 million.

The final piece of our analysis covered the geography of Europe’s recent flood of investment in digital health. Across all investor groups, the UK is the largest source of funds, accounting for roughly one-quarter of all investments. Unsurprisingly, the US is another major contributor to many companies, accounting for between 15% and 20% of each investor category. Other nations with heavy investment in the sector include traditional sources (France, Germany) and some surprises. Belgium accounts for almost 12% of mixed and medtech investment, Switzerland hovers around 10% across categories, and the Nordic countries only stand out in the life sciences category, where they supplied 13.5% of funds.

It’s worth highlighting a few headline deals that have helped define this wave of interest in the space. Crucially, progress spans the full spectrum of digital health. In February, Ada Health Closed a $110 million Series B funding round for their mobile app, which leverages powerful AI and medical databases to help users assess their symptoms. A diet-coaching app from their fellow German firm Oviva raised $80 million in late 2021, and similarly sized funding rounds have helped launch products ranging from insulin delivery systems (CeQur) to at-home app-based clinical monitoring (Huma), a platform for users to get diagnoses from dentists online (DentalMonitoring), and virtual physical therapy (SWORD Health).

The fast pace of growth means that average company maturity is increasing rapidly, leading to higher average valuations and making Europe’s digital health sphere more attractive to leading global firms. For these reasons—as well as those outlined above—we are confident that digital health will remain a red-hot area of growth, and will continue to define the cutting edge of biotech’s transformation of public health.

 

Scott is a trusted advisor for leadership talent across digital health. To discuss your executive hiring requirements, to hear about senior-level opportunities or discuss the research above further, we invite you to contact Scott Springall directly.