The COVID-19 pandemic has spurred investment in telehealth and digital health companies, pushing the healthcare sector as a whole to raise more than $13 billion in initial public offerings in this year's third quarter, according to a new report.
Healthcare companies raised a cumulative $13.44 billion in IPOs during the third quarter. In total, healthcare companies have raised roughly $29.45 billion from IPO activity so far this year—more than full-year IPO funding raised for each of the past five years, respectively, according to the report from S&P Global Market Intelligence.
GoodRx's $944.3 million IPO and Amwell's $853.3 million IPO in September topped the third quarter activity, according to the report from S&P Global Market Intelligence. Amwell at the same time entered into a stock purchase agreement with Google, under which Google invested $100 million into the company.
These companies and others are capitalizing on recent momentum as telemedicine and virtual care use has soared amid the COVID-19 pandemic.
"When you take a step back, across the space there's a bit of an arms race happening," RBC Capital analyst Sean Dodge told S&P Global Market Intelligence. There (are) lots of small Teladoc and Livongo look-alikes out right now raising money as fast as they can to broaden their platforms and scale-up."
Teladoc Health, which went public in 2015, in August unveiled plans to merge with Livongo, a digital health company that helps users manage chronic conditions, in a $18.5 billion deal. The newly combined company will operate under the name Teladoc Health, maintain Teladoc's headquarters in Purchase, N.Y., and primarily be led by Teladoc's leadership team.
Livongo's CEO Zane Burke and President Dr. Jennifer Schneider, among other executives, will leave the combined company after the transaction closes, according to an announcement Teladoc filed with the Securities and Exchange Commission.
Last year Health Catalyst, Livongo and Phreesia began public trading within a week of one another in July, ending a nearly three-year drought since the last IPO of a digital health company. So far in 2020, GoodRx is already the sixth digital health company to go public, according to a report from Rock Health, an early-stage venture fund focused on digital health.
The number of telehealth companies going public could continue to grow throughout the year.
SOC Telemed, a telemedicine company formerly known as Specialists On Call, in July announced plans to go public through a merger with Healthcare Merger Corp., a special purpose acquisition company. SOC Telemed on Friday said Bon Secours Mercy Health plans to make a private investment into the company that will close concurrently with the proposed merger.
Private telehealth companies have been scooping up investments, too.
Digital health startups globally raised $4 billion in venture-capital funding during the third quarter, up 100% year-over-year from $2 billion in last year's third quarter, according to a report from market research firm Mercom Capital Group. That includes a record $1.4 billion in VC funding that went to telehealth startups.
VC funding into telehealth startups increased 118% year-over-year, compared to just $653 million raised during the same period in 2019.
"Digital health and especially telehealth, has taken off amid COVID-19," Raj Prabhu, CEO of Mercom Capital Group, said in a statement. "This level of activity may not be sustainable as we come out of the pandemic," he added, noting telehealth visits have dropped in recent months.
Recent research has indicated telehealth visits are declining as hospitals reopen; however, telehealth utilization in the summer still sat at a notably higher rate than before the pandemic.
So far this year, healthcare is the third-highest industry in terms of IPOs, following the industrial and technology sectors, according to a report from Ernst & Young.