Healthtech vs traditional spaces: how they stack up

Healthtech is still catching up on the amount raised, but is already producing bigger exits

Healthtech is a cool space, simply because one it's ripe for innovation and disruption, and because it's also one that is currently seeing tons of investment as $4.1 billion was invested in VC-backed startups last year. There is a lot to be excited about, and it's happening now.

Like any other space, though, there are still traditional companies to deal with. And as quickly as the newer types of innovation come, the entrenched side will continue to make a lot of money, and often win for years to come.

In healthcare, those traditional companies are represented by biotech and pharma. So let's take a look, based on information from CB Insights, on how each side is stacking up.

Amount raised

In terms of amount raised, traditional spaces still rule, but the gap is closing. In 2014, biotech/pharma companies raised $4.6 billion through the first three quarters of the year, while digital health companies raised $3 billion.

Biotech/pharma will likely hit a six-year high by the time the number come in for all of 2014. While biotech/pharma may win in absolute numbers, though, the digital health industry has had enormous growth since 2009.

Digital health is expected to exceed $4 billion in funding. In 2013, biotech/pharma raised $4.8 billion and digital health raised only $2.1 billion. That is a 987% for digital health increase since 2009, and a 91% increase since 2013. 

What was a $3.4 billion gap in 2009, became  a $2.7 billion gap by 2013, and is now expected to shrink to $2 billion. Like I said, the gap is closing and quickly. 

Point: digital health

Deals

If there is one area where digital health has stumbled its on the number of deals. 

They had increased significantly every year between 2009 and 2013, eventually even passing biotech/pharma in 2013, with 492 deals, which represented 51% year-to-year growth, compared to only 478 for biotech/pharma.

Something happened in 2014, though, as the number of deals in digital health dropped rapidly to just 295 through the first three quarters. Biotech/pharma, meanwhile, had 475 in that same time period, almost meeting its entire 2013 number.

Point: Biotech/pharma

Exits

Once again, as with the number of deals, digital health saw a severe drop-off in 2014 after years of growth. They went from 82 in 2013 to only 50 through the first three quarters of 2014.

Exits in the biotech/pharma industry, meanwhile continue to increase. By the end of the third quarter it had already surpassed its 2013 number, reaching a high of 157, up from 118.

Largest exits – digital health wins the IPO battle

By now, you're probably saying to yourself, "digital health needs a win." And sure enough its got one with the size of its exits. Sure, biotech/pharma had more, but the numbers can't even compare.

The biggest biotech/pharma deal through the first three quarters of 2014 was Intrexon, a synthetic biology and genetics company, whose IPO valued it at over $2.3 billion 

The biggest exit on the digital health side was Veeva Systems, which IPOed to a market cap of $4.5 billion. According to CB Insights, Veeva was the most capital efficient exit of a VC-backed company in the last 2 years, even ahead of WhatsApp, which was purchased for $22 billion.

In all, the digital health companies amassed a valuation of more than $10 billion, compared to the $6.3 billion on the biotech/pharma side.

Point: Digital health.

Digital health is rising fast, and while it has a long way to  go before it will be able to catch up to traditional sectors in terms of amount raised, and  probably number of exits, its also giving biotech/pharma a run for its money.

On February 12th, Vator will be holding its first ever Splash Health event in Oakland, where speakers such as Tom Lee, Founder & CEO of One Medical, and Ryan Howard, Founder & CEO of Practice Fusion, will be talking about the state of the healthtech space, and where they think it is going (get your tickets here).

(Image source: kpcb.com)