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Sofinnova launches digital medicine fund

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Illustration: Gabriella Turrisi/Axios

European VC Sofinnova Partners' new digital medicine fund will back at least 15 startups in the coming year, partner Edward Kliphuis tells Axios.

Why it's the BFD: Investor interest in digital health is spreading from the U.S. into Europe, where favorable regulatory shifts are creating a foundation for explosive growth among virtual care companies.

Details: Sofinnova Digital Medicine raised €150 million ($162 million) at its first close, as reported by Bloomberg and confirmed by Axios. It has made three lead investments thus far:

  • A €12 million Series A round for deepc, an artificial intelligence platform that integrates disparate technology for radiologists.
  • A €13.8 million Series A round for Kiro, which uses natural language processing to read and analyze biomarkers on blood tests.
  • A $5 million seed round in BioCorteX, which uses AI to simulate microbiota interacting with drugs in order to predict adverse events and make clinical studies safer.

By the numbers: Kliphuis declined to comment on the fund's amount beyond noting its triple-digit size.

  • Sofinnova writes checks in the €2 million to €8 million range, but can go slightly higher, Kliphuis says.
  • About 70% of the company's dealflow will be European-based, but Kliphuis says Sofinnova has U.S. plans as well.
  • The digital medicine fund debuts following Apollo Global's minority equity investment in Sofinnova last May, committing as much as €1 billion in managed capital.

Be smart: It's arguably not the best time, market-wise, to launch a fund. But Kliphuis is confident tailwinds surrounding the sector will persist.

  • "The 'why now' is we've seen the expenditure on health care's proportion of GDP triple over the last 50 years in the U.S. and double in Europe," Kliphuis says.
  • "There’s a maturing interest in digital health investment among strategics and focused funds in the EU," Rock Health Capital founder and general partner Bill Evans tells Axios.

The big picture: Investments in prescription digital therapeutics — defined as evidence-based therapeutic interventions via software that replace or complement existing treatment — have ballooned in recent years, but several leading companies have seen hurdles.

  • Players like Pear Therapeutics and Better Therapeutics have struggled after frothy fundraises during the 2021 digital health frenzy.
  • "Prescription digital therapeutics hold the highest aspirations for patient- and health system-wide outcomes," says Evans, citing their intention to offer better outcomes with fewer side effects at a lower cost.
  • "But that makes them among the most challenging solutions to engineer — so they are the most exciting but also the most challenging of investments."
  • Kliphuis, who sat on the board of digital therapeutics darling Akili Interactive at a prior firm, says the marketing channels for digital therapeutics can't be modeled off how pharma companies commercialize drugs.
  • "I think the challenge that happened with Pear and Akili is that we as a society took the assumption that digital therapies will be the same as existing therapies," he says. "It turns out pharma struggles pushing code."

What's next: Sofinnova's investments will be early-stage, but Kliphuis says the fund is reserving capital to continue supporting portfolio companies.

  • "We purposely designed the strategy to keep supporting founders all the way through," he says.
  • "We know what product market fit looks like. We also know what the larger investors require in order to write a check in that crossover round and bring the company to NASDAQ," he adds.

The bottom line: "We’re in a 2.0 moment in digital health right now," says Evans. "There are a fair number of very solid precedents for what works in this industry and a rapidly growing number of tools on which to build them. There’s another step function about to happen."

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