A Market In Search of a King

Hundreds of millions of dollars have been poured into the telemedicine industry, yet no clear frontrunner has emerged. Will there be another FitBit windfall, or is the hyperactive telemedicine market at risk of being the next tech bubble to burst? by Editorial Director Bill Gordon


According to the MERCOM Q1 2015 Healthcare IT Funding and M&A Report an astonishing $437 million across 98 deals was invested in just the first quarter of this year in consumer centric companies focusing on mobile healthcare, telehealth, scheduling/rating/shopping and personal health. That is an amazing amount of money for a sector that has yet to fully realize its potential. Many of the companies are start-ups who are still trying to create the perfect app or groundbreaking solution that will drive user adoption levels into the millions. So my question is, where is all the money going? Where are the widely publicized successes? Why are VCs still investing billions of dollars in a market that has yet to produce it’s all-star?

The answer is because it takes just one win to justify the investments being made. Fitbit is an example of one of those big winners. Fitbit raised $66 million over four rounds of investment starting in 2008. With its recent IPO the company has achieved a valuation of over $6.6 billion (as of this writing). This is a huge win for those VCs who took a chance on a wearable fitness device and app which is now integrated with many of the top telemedicine and mHealth solutions. But I would call this the exception and not the rule. Where is the rest of the money?

Fitbit’s venture capital raise was considerable but many others have raised far more and produced much less stellar results. Take Telcare for example. Telcare has what is said to be the worlds first FDA 510K-cleared cellular-enabled blood glucose meter and a robust platform supporting both clinicians and end users/consumers. This is a well-developed and tested solution. I should know; I used to work for the company. Telcare has raised over $63 million in venture capital yet there has been no big market splash to date. If you Google “Telcare” you will find a few articles about trials or investments in the company but not much else. One of Telcare’s competitors, Livongo (formerly EOS) has a cellular driven blood glucose meter and an application/platform for end user and clinician access to data as well, and they too have raised significant venture capital. They have raised $30 million in less than one year driven by Glen Tullman the former CEO of Allscripts. Another player in the diabetes management space, Glooko, has raised an additional $16.5 million in venture capital. That is close to $110 million in venture capital across three companies in the diabetes management arena. All three companies state that they have customers or corporate partners yet none of them have reported significant revenue. Their investors are betting that one of these companies will crack the code and become the next Fitbit, making their multimillion dollar investments worth their while. Diabetes management costs increase year over year – in 2012 over $245 billion was spent on diabetes management and care in the United States. There is a lot of money to be made in this market and the investors see a path to capturing market share with their investments. Is one of these companies the next big winner?

The concept of “doc in a box” or a true telemedicine visit is another of the all-star markets in venture capital investment. Companies like American Well, Teladoc and MDLive have raised millions of dollars in venture capital. Teladoc has raised over $74 million since 2009; MDLive has raised over $23 million and American Well has raised over $128 million since inception. That is over $220 million in venture capital across these three companies. Now Teladoc is in the middle of a patent infringement suit with American Well, but they have also filed for their IPO. This could be the “one” out of this group or it could be a bust, only time and the market will tell. This may be the most important and revenue generating of all the telemedicine or mHealth categories due to its acceptance and adoption by both CMS for ACO Advantage plans starting in 2016 and large payers like United Healthcare who will reimburse for telemedicine visits at the same rate as face-to-face visits in the near future. To date, no one telemedicine visit company has shown over-the-top performance yet there are millions (approaching billions) of dollars to be made in this market.

The last category I will touch on is what I call the fantasy product category. These are devices or solutions that seem farfetched but should one become a reality, will be true disruptors and game changers. An example is SCANADU who is developing a Tricorder (the Star Trek medical device that hovers and scans for issues and vitals) device that will perform multiple tests/ functions. They are competing for the X Prize and have raised over $49 million in investment and venture capital to date. This is a huge amount of money for something literally out of a TV/Movie. If successful it could very easily be a billion dollar product and company. On the opposite side of the spectrum you have a company called Cloud DX which is a true start-up and has raised $2.6 million in angel investment to date. They too are pursuing the X-Prize for the creation of a Tricorder along with their core heart rate, blood pressure and heart anomaly detection device. An interesting side note, the CEO of Cloud DX, Robert Kaul, coined the phrase “Cloud Diagnostics®” and owns the trademark to it.

And then there is the monster (my terminology) of the group, Proteus Digital Health. They have raised an astonishing $309 million in capital since 2003 with the majority coming since 2009. They have a system based on an ingestible sensor that patients take with their daily medications that syncs to a patch worn on the abdomen. Bluetooth connects the device to a smartphone or tablet and transmits valuable data on medication adherence and effectiveness to the cloud for clinician use. This is the stuff that science fiction writers have been talking about for decades and it exists today, just waiting for mass adoption.

With all of this investment and all of the moderate successes being achieved, you would think there would be much more fanfare and notoriety amongst the players in the telemedicine or mHealth world, yet there isn’t. Not yet. It will take billions more in capital investment and mass adoption from players such as CMS and the large private payers before we see a “Fitbit” success story in telemedicine. I have listed approximately $690 million in venture capital investments in this article, yet all it takes is the next “one” to justify all of these investments. To answer my own question from the opening paragraph: “Where is all the money going?” It is going out on large corporate bets that one of the companies developing these technologies will turn a 10% ownership stake acquired via venture capital investment into a Fitbit-sized return.