Medical Design Briefs - July 2022 - 4

Spurred by Post-COVID Slump,
Digital Health Firms Dive Into M&A
A
s global markets cool, there are signs
that a new round of consolidation may
be starting in the digital health sector, according
to Richard Zall, chair of law firm
King & Spalding's healthcare transactional
and regulatory practice.
Zall says that the digital health sector -
which includes mobile health apps, wearable
devices, telehealth technologies, and
electronic health records - has slumped
this year after a robust period during the
height of the COVID-19 pandemic. That
slump, he says, is spurring a trend of smaller
digital health companies seeking M&A opportunities
with larger players.
" During the height of the pandemic,
there was a lot of investment in biotech
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and digital health technologies, which
were viewed as being very important when
people couldn't go to a doctor's office or
hospital due to COVID, " says Zall. " That
led to a wave of innovation - the use of
telehealth, for example, dramatically increased.
Many digital health companies
were raising money easily, growing quickly,
and spending their money quickly. "
But in 2022, he says, those valuations
have come back down to earth, and " a lot
of companies and investors are pleased to
see it because some of the valuations
weren't realistic. While there is still a lot of
activity and interest in digital health technology,
the capital investment environment
has been impacted, so that the sources
of capital - the public markets or
private equity or venture capital - have
definitely slowed, both in the number of
deals and the amount of investments. "
Zall says that smaller digital companies
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are saying, " let's cut our burn rate or we
may not get the capital we need to continue
or expand. Or rather than expand to 10
markets, let's go out to three markets, or
let's perfect 2.0 of this product and not go
so fast to 3.0 because we don't have the
money to go to market and hire people,
and the like. " The cooling market hasn't
led to these companies going out of business,
but it has led to there being a slower
growth and more M&A, says Zall. The
companies that are well funded are being
approached by the smaller companies that
might have a product or two but only
raised $5 million or $10 million and are
running out of money and may not have a
runway to be cash-flow positive and commercialize
their product. They are starting
to look to join forces as they're not sure
they'll make it through 2022. That is spurring
some smaller digital health companies,
as they burn through cash, to seek alliances
with larger players in the field.
Despite this, Zall says interest in this sector
remains. " There are many start-ups and
growth companies sprouting up offering
new digital technologies. And there's still a
fundamental belief that digitizing is a welcome
development in healthcare. It is
viewed as a way to reduce costs, make
healthcare more accessible, and give consumers
more information and more sway
in deciding what works for them, " he says.
Sherrie Trigg
4
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Medical Design Briefs, July 2022
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Medical Design Briefs - July 2022

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