2024 was the reckoning if the Covid era was a period of prosperity for digital health firms.
Health tech companies suffered greatly in a year when the Nasdaq jumped 32% and crossed the 20,000 mark for the first time this month. About two-thirds of the 39 public digital health companies that CNBC examined are experiencing year-over-year declines. Some are currently out of business.
There were some standout performers, such as Hims & Hers Health, which benefited from the popularity of its new weight reduction product and its involvement in the GLP-1 frenzy. However, that was an anomaly.
According to Scott Schoenhaus, an analyst at KeyBanc Capital Markets that focuses on health-care IT companies, the year was one of inflection overall, despite some company-specific difficulties. Companies have had to shift their focus back to profitability and a more restrained growth environment as a result of business concepts that seemed ready to take off during the pandemic not working out as expected.
“We’re facing those tough, challenging comps, and the pandemic was a huge pull forward in demand,” Schoenhaus told CNBC in an interview. The majority of my names have obviously seen a slowdown in growth, and I believe that employers, payers, providers, and even pharmaceutical firms are becoming more picky about the digital health businesses they work with.
According to a research by Rock Health, digital health entrepreneurs raised $29.1 billion in 2021, smashing all prior financing records. The number of digital health startups that went public through an IPO or special purpose acquisition company (SPAC) increased from the previous record of eight in 2020 to nearly two dozen that year. As investors searched for growth with interest rates locked close to zero, money was flooding into themes that played into remote work and remote health.
However, as the pandemic’s deadliest waves passed, so did the unquenchable need for new digital health resources. The sector has experienced a rude awakening.
What we re still going through is an understanding of the best ways to address digital health needs and capabilities, and the push and pull of the current business models and how successful they may be,Michael Cherny, an analyst at Leerink Partners, told CNBC. After COVID, we are in a period of transition.
Progyny, which provides family planning and fertility treatments, has seen a decline of almost 60% so far this year.Once the industry leader in virtual care, Teladoc Health has fallen 58% and is 96% below its peak in 2021.
The aggregate enterprise value of the businesses was $37 billion when Teladoc purchased Livongo in 2020. The current market value of Teladoc is less than $1.6 billion.
GoodRx, which offers price transparency tools for medications, is down 33% year to date.
According to Schoenhaus, many businesses’ projections for this year were excessively high.
Progyny cut its full-year revenue guidance in every earnings report in 2024. In February, Progyny was predicting $1.29 billion to $1.32 billion in annual revenue. By November, therangewas down to $1.14 billion to $1.15 billion.
GoodRx also repeatedly slashed its full-year guidance for 2024. Whatwas $800 million to $810 millionin May shrank to $794 million by theNovember.
In Teladoc sfirst-quarter report, the company said it expected full-year revenue of $2.64 billion to $2.74 billion. The companywithdrew its outlookin its second quarter, and reported consecutive year-over year declines.
This has been a year of coming to terms with the growth outlook for many of my companies, and so I think we can finally look at 2025 as maybe a better year in terms of the setups, Schoenhaus said.
While overzealous forecasting tells part of the digital health story this year, there were some notable stumbles at particular companies.
Dexcom, which makes devices for diabetes and glucose management, is down more than 35% year to date. The stocktumbled more than 40%in July its steepest decline ever after the company reported disappointing second-quarter results and issued weak full-year guidance.
CEO Kevin Sayer attributed the challenges to a restructuring of the sales team, fewer new customers than expected and lower revenue per user. Following the report, JPMorgan Chase analysts marveled at the magnitude of the downside and the fact that it appears to mostly be self-inflicted.
Genetic testing company23andMehad a particularly rough year. The company went public via a SPAC in 2021, valuing the business at $3.5 billion, after its at-home DNA testing kits skyrocketed in popularity. The company is now worth less than $100 million and CEO Anne Wojcicki is trying to keep it afloat.
In September, all seven independent directors resigned from 23andMe s board, citing disagreements with Wojcicki about the strategic direction for the company. Two months later, 23andMe said it planned to cut 40% of its workforce and shutter its therapeutics business as part of arestructuringplan.
Wojcicki has repeatedly said she intends to take 23andMe private. The stock is down more than 80% year to date.
Digital health’s bright spots
Investors in Hims & Hers had a much better year.
Shares of the direct-to-consumer marketplace are up more than 200% year to date, pushing the company s market cap to $6 billion, thanks to soaring demand for GLP-1s.
Hims & Hers began prescribingcompounded semaglutidethrough its platform in May after launching a new weight loss program late last year. Semaglutide is the active ingredient inNovo Nordisks blockbuster medications Ozempic and Wegovy, which can cost around $1,000 a month without insurance. Compounded semaglutide is a cheaper, custom-made alternative to the brand drugs and can be produced when the brand-name treatments are inshortage.
Hims & Hers will likely have to contend with dynamic supply and regulatory environments next year, but even before adding compounded GLP-1s to its portfolio, the company said in itsFebruary earningscall that it expects its weight loss program to bring in more than $100 million in revenue by the end of 2025.
Doximity, a digital platform for medical professionals, also had a strong 2024, with its stock price more than doubling. The company s platform, which for years has been likened to aLinkedIn for doctors, allows clinicians to stay current on medical news, manage paperwork, find referrals and carry out telehealth appointments with patients.
Doximity primarily generates revenue through its hiring solutions, telehealth tools and marketing offerings for clients like pharmaceutical companies.
Leerink s Cherny said Doximity s success can be attributed to its lean operating model, as well as the differentiated mousetrap it s created because of its reach into the physician network.
DOCS is a rare company in healthcare IT as it is already profitable, generates strong incremental margins, and is a steady grower, Leerink analysts, including Cherny, wrote in a November note. The firm raised its price target on the stock to $60 from $35.
Another standout this year wasOscar Health, the tech-enabled insurance company co-founded by Thrive Capital Management s Joshua Kushner. Its shares are up nearly 50% year to date. The company supports roughly 1.65 million members and plans to expand to around4 millionby 2027.
Oscar showed strong revenue growth in itsthird-quarter reportin November. Sales climbed 68% from a year earlier to $2.4 billion.
Additionally, two digital health companies,WaystarandTempus AI, took the leap and went public in 2024.
The IPO market has been largely dormant since late 2021, when soaring inflation and rising interest rates pushed investors out of risk. Few technology companies have gone public since then, and no digital health companies held IPOs in 2023, according to areportfrom Rock Health.
Waystar, a health-care payment software vendor, has seen its stock jump to $36.93 from itsIPO priceof $21.50 in June. Tempus, a precision medicine company, hasn t fared as well. It s stock has slipped to $34.91 from itsIPO price of $37, also in June.
Hopefully, the valuations are more supportive of opportunities for other companies that have been lingering in the background as private companies for the last several years. Schoenhaus said.
Out with the old
Several digital health companies exited the public markets entirely this year.
Cue Health, which made Covid tests and countedGoogle as an early customer, and Better Therapeutics, which used digital therapeutics to treat cardiometabolic conditions, bothshuttered operationsand delisted from the Nasdaq.
Revenue cycle management company R1 RCM wasacquiredby TowerBrook Capital Partners and Clayton, Dubilier & Rice in an $8.9 billion deal. Similarly,Altaris bought Sharecare, which runs a virtual health platform, for roughly $540 million.
Commure, a private company that offers tools for simplifying clinicians workflows,acquiredmedical AI scribing company Augmedix for about $139 million.
There was a lot of competition that entered the marketplace during the pandemic years, and we ve seen some of that being flushed out of the markets, which is a good thing, Schoenhaus said.
Cherny said the sector is adjusting to a post-pandemic period, and digital health companies are figuring out their role.
We re still cycling through what could be almost termed digital health 1.1 business models, he said. It s great to say we do things digitally, but it only matters if it has some approach toward impacting the triple aim of health care: better care, more convenient, lower cost.
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