J.P. Morgan health conference points toward a hot year in digital health

After having spent a few days at the International CES gadget show in Las Vegas and then attending J.P. Morgan’s annual health care conference in San Francisco, I’m feeling pretty bullish on health technology.

Wearables were easily the main storyline at this year’s CES. Fitness wearables and apps dominated a huge hall at the Sands in Vegas.

The J.P. Morgan event was a very different scene, of course, and much smaller, but the same energy for health tech was palpable there, too. This conference usually focuses on biotech and medical device companies. But this year, the number of digital health companies was decidedly larger and more visible.

Just before the start of the conference, Qualcomm Ventures announced that it will create a joint investment company with Novartis Pharmaceuticals to “spur digital health innovation.” The company intends to raise about $100 million to invest in digital health companies.

On Monday at the St. Francis Hotel on Union Square in San Francisco, Bryan Roberts of prolific digital health investor Venrock Capital spoke to a packed house in the Colonial Ballroom about the “liquidity” of health data. Roberts was referring to how analytics data is becoming increasingly important to health care providers who are charged with managing the care of whole populations of people under new Medicare reimbursement models.

The digital health seed fund Rock Health, together with Box and the Canvas Venture Fund, threw a big party at Rock Health’s headquarters in San Francisco.

Consumer genomics company 23andMe CEO Anne Wojcicki spoke at the St. Francis on Wednesday to a standing-only room with people (including me) flowing out the door into the hallway trying to hear.

And some digital health companies were visibly trying to get attention, similar to the way small companies do at SXSW. One company that had just raised $10 million in venture capital was walking around giving out Starbucks gift cards with their name on them to anyone even near the conference.

But more important, you could feel the buzz in the air inside the cramped hallways of the St. Francis. Deals were being made.

Digital health is hot on Wall Street

One digital health entrepreneur told me that Wall Street (including J.P. Morgan) is hot on digital health companies right now for a few different reasons.

Some of the reasons are pragmatic. Investors made money off the high-profile IPOs last year of digital health companies like Castlight Health, Veeva Systems, and Everyday Health.

Veeva Systems, which acts like a Salesforce CRM platform for the life-sciences industry, is the very definition of the vertical enterprise SaaS model that seems to be resonating with investors.

The capital markets are looking positive, with interest rates near zero. Thompson Reuters reports that equity underwriting deals worth more than $890 billion went through in 2014, making it the biggest year since 2007 by global equity underwriting volume.

Also, investors are aware that health care is a recession-proof industry. During the 2008-2009 economic crisis, the economy lost around 8 million jobs. But jobs in the health care industry grew by 7 percent in that same period, according to Bureau of Labor Statistics.

In less pragmatic terms, health has become a sexy topic in tech circles. Talented coders and entrepreneurs who previously spent their time building things like photo-sharing apps are now becoming interested in lending their talents to improving the health care system. This energy shift is now making its way to hallowed halls of big investment banks like J.P. Morgan.

It’s reasonable to expect at least five large IPOs emanating from the digital health space in 2015, including Evolent Health and HealthGrades.

Venture capital funding is likely to continue its impressive growth as well. Rock Health recently reported that digital health funding exceeded $4.1 billion in 2014, a total greater than that of the past three years combined. The $4.1 billion total represents a growth of 124 percent over 2013’s investment total.

“The digitization of the healthcare industry is following the same disruptive patterns that have happened historically in other sectors like manufacturing, telecommunications, and finance,” says Silicon Valley Bank VP JC Simbana in an email message to VentureBeat.

“The convergence of globalization, healthcare reform, and the urgency of managing the costs of chronic diseases and aging have set the perfect conditions for an epic decade in digital health,” Simbana said.

Health care reform has pushed digital health into the limelight

One of the reasons digital health has come into vogue in the tech world is a new awareness of health care as a daunting social problem, not just a trivial technical one like a new photo sharing app. Digital health is not only a business opportunity but a thing worth doing, as pretty much any professional in the space will tell you.

The need for new technology approaches in health has been brought into sharp focus by the Affordable Care Act. In short, the government and, increasingly, private payors, want to pay providers to deliver positive outcomes (value) and wellness, not just a big bill for long lists of (necessary or unnecessary) services rendered (tests, materials, facilities charges, professional fees, etc.).

In that new kind of world, providers are going to have to get much smarter about delivering just the right services at just the right times by just the right caregivers to keep people healthy at the least amount of cost. And that’s the huge pain point that tech companies can help address.

“Entrepreneurs view enormous problems as enormous opportunities, and it is hard to fathom a bigger problem than healthcare under the status quo,” said David Sabow, the managing director and head of national life sciences and healthcare at Silicon Valley Bank.

The sheer size and breadth of the troubled U.S. health care delivery system has given rise to all sorts of new tech approaches and business types. Inefficiency and waste can be seen pretty much everywhere.

“The scope of what we define as digital health is continuously expanding, as the confluence of technology and healthcare percolates across all areas of the system, including patient/consumer engagement, drug development, wearables, and the genomics revolution,” Sabow said. “Despite the significant growth we have seen in digital health, I believe we are just getting started.”

For more information: Read our report on the five health-tech companies (plus one) most likely to IPO this year.