World Reimagined

What Investors Need to Know About the Growing Digital Health Space

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Credit: Photo by National Cancer Institute on Unsplash

As the world continues to shift towards digitalization, a revolutionary transformation is happening in healthcare. Patients and providers are increasingly adopting digital solutions to improve delivery and patient outcomes while reducing costs. Given the demographic challenges facing much of the developed world, this shift could not come at a better time.

In this piece, we will look at how big the digital health space is, as well as who the major players are.

What is Digital Health?

Digital healthcare is the application of technology to healthcare services, making them more accessible and efficient. Digital health companies use a wide range of technologies, including electronic health records (EHRs), telemedicine, artificial intelligence (AI), mobile health (mHealth) and wearable devices, to enhance patient care. Smartphones and connected devices can improve communication and create innovative ways to monitor health better. These technologies can help diagnose earlier, possibly even prevent disease and improve chronic condition management.

Demographic Tailwinds

The good news is that life expectancy is rising. The bad news is that with falling fertility rates, populations are skewing older. By 2030, every Baby Boomer will be 65 or older, putting 20% of the U.S. population at retirement age. Europe is already there. In 2022, 21.1% of EU citizens were 65 or older, and there were just over three working-age persons for every person over 65. 

Aside from the challenges for the labor pool, healthcare spending increases dramatically with age. In the U.S. in 2019, 35% of total health spending was for those 65+ (which accounted for just 17% of the population) and 21% for the 55-64 years of age (13% of the population). Less than one-third (30%) of the population accounted for well over half (56%) of healthcare costs.

With an aging population, demand for healthcare is growing as the working-age population shrinks as a percent of the total. We need to do more with less, a strong tailwind for digital healthcare.

The Growing Digital Health Market 

The digital health market is estimated to be growing at a compound annual growth rate of around 25% from 2019 to 2025. Investor funding in the total digital health industry worldwide has rapidly risen from $1.1 billion in 2010 to $22.9 billion in 2020. The pandemic led to a massive boost in 2021 to $44.8 billion in funding. Even with the steep decline to $23.3 billion, 2022 remains the second-highest annual investment level in history, leaving the growth trend intact outside the 2021 bubble.

Mobile health apps are becoming ubiquitous.

  • In Q3 2022, there were 41,517 healthcare apps on the Apple Appstore, up from 36,949 in Q3 2015.
  • In Q3 2022, there were 54,546 healthcare apps on the Android Appstore, up from 27,417 in Q3 2015.
  • In Q3 2022, there were 2,380 healthcare apps on the Amazon Appstore, up from 15 in Q3 2015.

The most downloaded health and fitness app in 2022 was Sweatcoin, with 52 million downloads, followed by the Blood Pressure App at 51 million.

The global telemedicine market has also experienced incredible growth rates from $49.9 billion in 2019 to a projected $149.1 billion in 2023 and is expected to reach $459.8 billion by 2030.

The electronic health records (EHR) market worldwide was estimated to be $29.16 billion in 2020 and is expected to grow to $27.25 billion by 2027.

According to data from Statista, artificial intelligence (AI) in the healthcare market reached around $11.1 billion worldwide in 2021 and is forecasted to grow at a compound annual growth rate of 37% from 2022 to 2030, reaching $188 billion. 

Global smartwatch shipments have grown from 37 million in 2016 to 232 million in 2021 and are expected to reach 402 million by 2026. Digital Fitness & Wellbeing Devices are expected to reach $68 billion in 2023, with revenue growing at a compound annual growth rate of 9.9%, they will reach $99.1 billion by 2027. 

Big Tech and Retailers Moving Into Digital Healthcare 

Some of the major players in the digital health revolution are unsurprisingly big tech leaders or major consumer brands. Given the current economic climate with high interest rates and tightening credit conditions, bigger companies will have an advantage over smaller ones, which means further tailwinds for the big guys and an increased likelihood of acquisitions.

Amazon (AMZN) has spent years and made considerable investments in healthcare and recently announced that it will be working with JP Morgan (JPM) and Berkshire Hathaway (BRK.A) to cut healthcare costs. Here are just a few examples of its activity in the sector.

  • In 2018, Amazon acquired PillPack using the provider to launch a pharmacy service. AWS joined the National Institutes of Health’s Science and Technology to help researchers worldwide work together more effectively.
  • In 2019, it launched an app-based health service for employees that it later offered to other companies.
  • In 2019, Amazon rolled out the first HIPAA-compliant Alexa skills.
  • In 2021, it announced two new programs for its Alexa device focused on healthcare and retirement homes, and its Alexa Fund invested in Cognixion. Its headset users will be able to interface directly with Alexa from anywhere to control smart devices, access news, or for those with severe speech impediments, use Alexa to speak for them.
  • In February 2023, Amazon completed its acquisition of One Medical and its parent in a $3.9 billion deal, launching its digital health platform. The deal gives the e-commerce behemoth over 200 brick-and-mortar doctors’ offices and around 815,000 One Medical members.
  • In January 2023, the company launched RxPass, a $5 prescription subscription service for Prime members who take multiple medications in addition to its existing pharmacy service.

Alphabet (GOOG) has been busy in the healthcare space as well.

  • In the AI space, Google announced earlier this month a new open-source program called Open Health Stack for developers to build health-related apps. It has been working with the Mayo Clinic on how AI can help radiotherapy. For consumers, Google’s conversation AI technology, Duplex, can confirm if providers receive specific Medicaid plans in their state. It is also making Medicaid re-enrollment information easier to find on Search since a pandemic-induced break on re-enrolling expires March 2023. It will also surface neighborhood health centers that offer free or low-cost healthcare.
  • In January, Google and DeepMind launched MedPaLM, an open-source large language model designed to generate safe and helpful answers in the medical field. The current iteration, med-PaLM 2, consistently performed at an “expert” doctor level on medical exam questions, scoring 85%, surpassing similar AI models.
  • The company has invested in or partnered with various AI-related healthcare companies including BenchSci, Dyno, Insitro, Temaya, Sonofi, Hyperfine, Varian, Infinitus and Klara.
  • In addition, it has also acquired Drug R&D firms such as SignalPath and invested in Encodia, EQRx and InstaDeep. It has also invested in multiple companies working on gene therapy solutions, genomics, reproductive health and healthcare supply chain solutions.

Apple (AAPL)’s watch is already one of the most widely used health monitoring devices with over 100 million users, and its Airpods could be the company’s next health monitoring device.

  • In late February, Bloomberg’s Mark Gurman reported that Apple had recently hit some significant milestones in its E5 project to provide noninvasive continuous blood glucose monitoring through its watch using laser spectrometry. The company has worked on the CGM system for over 12 years and is considered at the proof-of-concept stage.
  • The market for this is massive. According to the CDC, 10% of adult Americans have diabetes, and 20% of those who have it don’t know they do. Over one-third of adult Americans have prediabetes, and 80% are not aware they do.
  • An estimated 10.5% or 536.6 million of the world’s population (20 to 79 years of age) have diabetes, with more than half unaware.
  • Apple Watch can currently take electrocardiograms, monitor blood oxygen levels, assist in elder care with issues like fall detection and provide hearing assistance, sleep monitoring and body temperature for women’s health tracking.
  • Third parties have been developing apps for the watch to address various health conditions, including neurological problems.
  • In June 2022, Rune Lab’s Apple Watch-based Parkinson’s disease tracker received FDA clearance. It automatically tracks tremors and lets patients report symptoms and medication usage.
  • NightWare developed an app for the watch to help those suffering from post-traumatic stress-related nightmares. It is the first and only digital therapeutic developed to treat nightmares that is cleared by the FDA.
  • There are also over 150 million Airpod owners and given the number of patents Apple has been filing for sensors in the devices, they could very well be the next consumer wellness device.

Microsoft (MSFTis involved in a wide range of healthcare offerings, many of which leverage its investment in OpenAI and ChatGPT.

  • 2013 study in the Journal of Graduate Medical Education found that over a two month timeframe, 92% of healthcare providers reported that documentation obligations are excessive, 90% reported that it compromises the amount of time spent with patients and 73% reported the amount of documentation negatively impacts patient care. Earlier this month, Nuance Communications, a Microsoft company, announced Dragon Ambient eXperience (DAXTM) Express, which will use OpenAI’s newest model, GPT-4, to reduce the time providers spend taking notes by using generative AI to summarize medical conversations. DAX Express automatically and securely creates draft clinical notes in seconds for immediate review and completion after each patient visit, physical or virtual.
  • Data supports the profound impact AI can have on provider care. For example, a MedTech Europe survey in 2020 found that the time physicians in Europe spent with patients rose from 50% to 67% with the implementation of AI, and consequently time spent on administrative tasks dropped from 50% to 33%.

Microsoft platforms are being used across a wide range of healthcare providers.

  • Teladoc (TDOC) software as a service solution is built in Microsoft Azure, and healthcare organizations are using Microsoft Teams to improve care, provide virtual visits, cut costs and improve efficiency.
  • Walmart (WMT) currently has 32 in-store clinics with plans to grow to over 75 by the end of next year and potentially 4,000 primary care centers by 2031, which would make them the nation’s largest provider. The clinics are powered by Microsoft’s cloud service and VMWare (VMW) to access its Epic electronic medical record system. 

Walmart isn’t alone in its quest to expand into healthcare. In February 2023, Albertsons Companies (ACI) launched Sincerely Health, a digital health and wellness platform, now available on its grocery apps and websites of 16 of its brands, including Albertsons, Safeway, Vons, Shaw’s, Jewel-Osco, Acme and Tom Thumb.

In 2022, Oracle (ORCL) made a big move into healthcare when it closed its $28 billion acquisition of Cerner Corporation, a healthcare IT systems provider.

Other Major Players

American Well Corp (AMWLis an enterprise software company enabling digital care virtual primary care, post-discharge follow-up, chronic condition management and remote patient monitoring and aligns them into a single digital care operating system that aggregates all of the data from these care experiences to provide real-time insight. 

Dexcom Inc (DXCMdesigns and commercializes continuous glucose monitoring systems (CGM), an alternative to the traditional blood glucose meter process. Its CGM systems currently integrate with insulin pumps from Insulet (PODDand Tandem (TNDM), amongst others. Its 2022 revenue rose 19% YoY, with a 28% growth in international revenue. 

Tandem develops products for people with insulin-dependent diabetes and has three key insulin pump products, which account for most of its revenue. In 2022, its worldwide install base grew 29% YoY to around 420,000 customers worldwide, and renewal pump shipments in the U.S. grew 60% while non-U.S. sales rose 19%.

Insulet has developed the Omnipod system, which consists of a small disposable insulin infusion device that can be operated through a smartphone to control dosage. The Omnipod was approved by the FDA in 2005 and has around 360,000 users worldwide. In 2022 Omnipod revenue grew 27% YoY, the seventh consecutive year of 20%+ revenue growth. Last year, rumors circulated that Dexcom was considering acquiring Insulet, which Dexcom denied.

In February 2023, GE HealthCare Technologies (GEHC) announced it was acquiring Caption Health, which uses AI to assist with ultrasound scans of the heart for early disease detection. Caption Health was recognized as one of TIME’s 100 Best Inventions and a winner of Fast Company’s Next Big Things in Tech for health in 2021.

The Bottom Line

We are living longer, and a larger portion of the population than ever before will be 65+ in the coming years, which means that greater demands will be placed on healthcare with a relatively smaller labor force to provide services. Leveraging advances in digital health technologies can help people to live longer and have higher-quality lives.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Lenore Elle Hawkins

Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.

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