2023 is a year that many in the pharma market will be happy to see the back of, and the digital health ecosystem is no exception. Some of this can be attributed to the growing pains of a young-ish market and some to the macroeconomic climate resulting in a scarcity of funding. Whatever the causes, 2023 saw a 36% decline in the number of investors participating in a digital health deal last year and a 37% decline in global venture funding, with levels falling to $22bn. Challenging times.

The latest report from Galen Growth, our 2023 Year End Report, digs into the key themes behind these numbers, and looks at what those themes mean for the industry’s future. In this post, I’ll share a few highlights around those themes which reveal the drivers of an ecosystem undergoing significant transformation.

1. The evolution in digital health investment: the digital health landscape as a whole saw huge shifts in 2023. The “sugar high” of Covid, which boosted the whole biopharma industry, crashed back down, with fewer ventures raising funds. A huge 96% of exits in digital health were via M&A, with IPOs being even rarer in this vertical than in biopharma generally – and that was a low bar last year.
2. A complex environment: digital health is vast, and it is also central to the transformation of the healthcare ecosystem. But that is not currently translating into funding; only 35% of digital health ventures secured funding in the last 18 months, representing a decline in investor support. That said, there is excitement around generative AI (GenAI) across the health sphere and it will be an area that investors continue to focus on in 2024 and beyond.
3. Partnerships and technological integration: AI, GenAI and ChatGPT are the bright spots in partnerships, with a 3% year-on-year increase in the number of partnerships, taking the proportion of private ventures leveraging AI or GenAI to 39%. Naturally, this has attracted some of the big guns from the technology world – Google, Microsoft and Amazon to name a few – as they add health-specific AI platforms to their portfolios.
4. Disrupting clinical research: 20% of the total funding last year was within research solutions, which, given the focus on R&D efficiencies for biotech and biopharma, is not surprising. Any efforts to reduce costs and to “fail fast” are welcome, and the ability to use digital tools to target drug discovery efforts better and improve clinical trial design is a key focus for many.

The report delves into these themes in much more detail, and we investigate the funding challenges, big tech partnerships and the role of clinical evidence in securing financial backing.

While it is a look back at a tough year, the report also provides some fascinating insights into corners of the market that offer promise, and what digital health ventures and investors need to focus on for 2024 and beyond. The data in the report is drawn from HealthTech Alpha, our digital health platform, and the team would be delighted to share more details on the unrivalled capabilities of the solution. Meanwhile, take a look at the full report and I look forward to sharing highlights of our next report very soon.