The CB Insights report noted there are currently 37 health care unicorns, with a total value of over $92 billion. (Photo: Shutterstock)

Investment in med-tech startups grew at a strong pace in the third quarter of 2019, according to a new report from CB Insights. The consulting firm's "Global Healthcare Report Q3 2019" highlighted record-breaking growth in deals, skyrocketing investment in AI firms, and significant developments in areas such as cannabis companies, virtual primary care partnerships, and investments in microbiome and women's health startups.

Record number of deals

According to the report, 2019 is on pace to set a record for startup funding deals. "Health care companies globally have raised over 3,400 rounds this year and are on pace to exceed 4,500 annually for the first time. Companies have raised over $37.5 billion through the first 9 months of 2019," the report said.

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And the funding deals can be big: health care "unicorns," startup companies valued at $1 billion or more, are no longer as rare as the term suggests: the CB Insights report noted there are currently 37 health care unicorns, with a total value of over $92 billion.

The report said European investments were very active in 3Q. The analysis found that European health care companies raised $2.88 billion in the third quarter, which represents a 129 percent increase from the year's second quarter.

Digital health sees a mix of results

Funding for one of the biggest venture capital sectors, digital health, was down globally in Q3. The sector recorded $3.2B in deals, down 22 percent versus Q2'19. Digital health deals hit 328, down from 372 in the second quarter. The sector overall represents nearly one-third (31 percent) of all health care investment deals.

In this area, European deals were down, as were deals in China, and there was some volatility in the U.S.

New York state climbed to No. #2 in deals, at 24, Massachusetts dropped to third place with 16, and California remained the top state for deals in the digital health space at 54 deals. But this was a sharp drop from Q2, when California companies saw 85 deals.

The report overall is bullish on the U.S. Northeast, saying that this area is emerging as a digital health hub; while describing New York City as the "hottest metro area for digital health."

Other sectors seeing different levels of investment

Not surprisingly, the various sectors of health care startups can see swings in investment from quarter to quarter. The CB Insights report outlined some current trends, including:

Growth in microbiome companies—this area totaled $87 million in investments across 13 deals. "From partnerships with major health systems to new areas of microbiome exploration, the health care industry continues to see opportunity in this space," the report said.

Women's health—although funding was down slightly in Q3, several companies drew funding in areas such as menopause services via telehealth, urinary tract infection treatment via microbiome platforms, and new diagnostics for breast cancer detection.

Cannabis—2019 funding was also down in this area, but still higher than in any quarter for 2018. The report noted that over-hype may have led to a correction; with factors such as vaping safety concerns and regulatory uncertainty also playing a role. "Since the beginning of Q3 19, publicly-traded cannabis stocks have lost about 40 percent of their market cap," the report said.

Other areas of growth: Funding for health care startups in artificial intelligence reached a new high in Q3, the report said, with companies raising almost $1.6 billion in funding. Funding for virtual primary care also saw strong growth, after weaker numbers in Q1 and Q2 of this year. And pharma supply chain startups surpassed $1 billion in funding, a sharp increase from Q2. Overall this area saw the largest number of deals and the highest amount of funding for the past two years in Q3 19.

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