Digital well being corporations acquired pummeled by Wall Street in 2024 as business adapts to post-Covid slowdown

If the Covid period marked a increase time for digital well being corporations, 2024 was the reckoning.

In a 12 months that noticed the Nasdaq bounce 32%, surpassing 20,000 for the primary time this month, well being tech suppliers largely suffered. Of 39 public digital well being corporations analyzed by CNBC, roughly two-thirds are down for the 12 months. Others at the moment are out of enterprise.

There had been some breakout stars, like Hims & Hers Health, which was buoyed by the success of its fashionable new weight reduction providing and its place within the GLP-1 craze. But that was an exception.

While there have been some company-specific challenges within the business, total it was a “12 months of inflection,” in accordance with Scott Schoenhaus, an analyst at KeyBanc Capital Markets overlaying health-care IT corporations. Business fashions that appeared poised to interrupt out in the course of the pandemic have not all labored as deliberate, and corporations have needed to refocus on profitability and a extra muted progress atmosphere.

“The pandemic was an enormous pull ahead in demand, and we’re dealing with these robust, difficult comps,” Schoenhaus informed CNBC in an interview. “Growth clearly slowed for many of my names, and I believe employers, payers, suppliers and even pharma are extra selective and extra discerning on digital well being corporations that they partnered with.” 

In 2021, digital well being startups raised $29.1 billion, blowing previous all earlier funding data, in accordance with a report from Rock Health. Almost two dozen digital well being corporations went public via an preliminary public providing or particular function acquisition firm, or SPAC, that 12 months, up from the earlier report of eight in 2020. Money was pouring into themes that performed into distant work and distant well being as buyers regarded for progress with rates of interest caught close to zero.

But because the worst waves of the pandemic subsided, so did the insatiable demand for brand new digital well being instruments. It’s been a impolite awakening for the sector.  

“What we’re nonetheless going via is an understanding of the perfect methods to handle digital well being wants and capabilities, and the push and pull of the present enterprise fashions and the way profitable they could be,” Michael Cherny, an analyst at Leerink Partners, informed CNBC. “We’re in a settling out interval publish Covid.”

Progyny, which affords advantages options for fertility and household planning, is down greater than 60% 12 months so far. Teladoc Health, which as soon as dominated the virtual-care area, has dropped 58% and is 96% off its 2021 excessive.

When Teladoc acquired Livongo in 2020, the businesses had a combined enterprise value of $37 billion. Teladoc’s market cap now sits at underneath $1.6 billion.

GoodRx, which affords value transparency instruments for medicines, is down 33% 12 months so far. 

Schoenhaus says many corporations’ estimates had been too excessive this 12 months.

Progyny reduce its full-year income steerage in each earnings report in 2024. In February, Progyny was predicting $1.29 billion to $1.32 billion in annual income. By November, the range was all the way down to $1.14 billion to $1.15 billion.

GoodRx additionally repeatedly slashed its full-year steerage for 2024. What was $800 million to $810 million in May shrank to $794 million by the November.

In Teladoc’s first-quarter report, the corporate stated it anticipated full-year income of $2.64 billion to $2.74 billion. The firm withdrew its outlook in its second quarter, and reported consecutive year-over 12 months declines.

“This has been a 12 months of coming to phrases with the expansion outlook for a lot of of my corporations, and so I believe we are able to lastly take a look at 2025 as possibly a greater 12 months when it comes to the setups,” Schoenhaus stated.  

While overzealous forecasting tells a part of the digital well being story this 12 months, there have been some notable stumbles at explicit corporations. 

Dexcom, which makes gadgets for diabetes and glucose administration, is down greater than 35% 12 months so far. The inventory tumbled more than 40% in July – its steepest decline ever – after the corporate reported disappointing second-quarter outcomes and issued weak full-year steerage. 

CEO Kevin Sayer attributed the challenges to a restructuring of the gross sales group, fewer new prospects than anticipated and decrease income per person. Following the report, JPMorgan Chase analysts marveled at “the magnitude of the draw back” and the truth that it “seems to largely be self-inflicted.” 

Genetic testing firm 23andMe had a very tough 12 months. The firm went public by way of a SPAC in 2021, valuing the enterprise at $3.5 billion, after its at-home DNA testing kits skyrocketed in recognition. The firm is now value lower than $100 million and CEO Anne Wojcicki is attempting to maintain it afloat.

In September, all seven impartial administrators resigned from 23andMe’s board, citing disagreements with Wojcicki in regards to the “strategic path for the corporate.” Two months later, 23andMe stated it deliberate to chop 40% of its workforce and shutter its therapeutics enterprise as a part of a restructuring plan. 

Wojcicki has repeatedly stated she intends to take 23andMe personal. The inventory is down greater than 80% 12 months so far. 

Digital well being’s vibrant spots

Investors in Hims & Hers had a significantly better 12 months.

Shares of the direct-to-consumer market are up greater than 200% 12 months so far, pushing the corporate’s market cap to $6 billion, because of hovering demand for GLP-1s. 

Hims & Hers started prescribing compounded semaglutide via its platform in May after launching a brand new weight reduction program late final 12 months. Semaglutide is the energetic ingredient in Novo Nordisk‘s blockbuster medicines Ozempic and Wegovy, which may price round $1,000 a month with out insurance coverage. Compounded semaglutide is a less expensive, custom-made various to the model medicine and will be produced when the brand-name remedies are in shortage.

Hims & Hers will seemingly must deal with dynamic provide and regulatory environments subsequent 12 months, however even earlier than including compounded GLP-1s to its portfolio, the corporate stated in its February earnings name that it expects its weight reduction program to herald greater than $100 million in income by the tip of 2025. 

Doximity, a digital platform for medical professionals, additionally had a robust 2024, with its inventory value greater than doubling. The firm’s platform, which for years has been likened to a LinkedIn for doctors, permits clinicians to remain present on medical information, handle paperwork, discover referrals and perform telehealth appointments with sufferers. 

Doximity primarily generates income via its hiring options, telehealth instruments and advertising and marketing choices for purchasers like pharmaceutical corporations.

Leerink’s Cherny stated Doximity’s success will be attributed to its lean working mannequin, in addition to the “differentiated mousetrap” it is created due to its attain into the doctor community. 

“DOCS is a uncommon firm in healthcare IT as it’s already worthwhile, generates sturdy incremental margins, and is a gradual grower,” Leerink analysts, together with Cherny, wrote in a November observe. The agency raised its value goal on the inventory to $60 from $35. 

Another standout this 12 months was Oscar Health, the tech-enabled insurance coverage firm co-founded by Thrive Capital Management’s Joshua Kushner. Its shares are up practically 50% 12 months so far. The firm helps roughly 1.65 million members and plans to increase to round 4 million by 2027. 

Oscar confirmed sturdy income progress in its third-quarter report in November. Sales climbed 68% from a 12 months earlier to $2.4 billion.

Additionally, two digital well being corporations, Waystar and Tempus AI, took the leap and went public in 2024. 

The IPO market has been largely dormant since late 2021, when hovering inflation and rising rates of interest pushed buyers out of danger. Few know-how corporations have gone public since then, and no digital well being corporations held IPOs in 2023, in accordance with a report from Rock Health. 

Waystar, a health-care cost software program vendor, has seen its inventory bounce to $36.93 from its IPO price of $21.50 in June. Tempus, a precision medication firm, hasn’t fared as effectively. It’s inventory has slipped to $34.91 from its IPO price of $37, additionally in June.

“Hopefully, the valuations are extra supportive of alternatives for different corporations which have been lingering within the background as personal corporations for the final a number of years.” Schoenhaus stated. 

Out with the outdated

Several digital well being corporations exited the general public markets solely this 12 months. 

Cue Health, which made Covid assessments and counted Google as an early customer, and Better Therapeutics, which used digital therapeutics to deal with cardiometabolic circumstances, each shuttered operations and delisted from the Nasdaq. 

Revenue cycle administration firm R1 RCM was acquired by TowerBrook Capital Partners and Clayton, Dubilier & Rice in an $8.9 billion deal. Similarly, Altaris bought Sharecare, which runs a digital well being platform, for roughly $540 million.

Commure, a personal firm that gives instruments for simplifying clinicians’ workflows, acquired medical AI scribing firm Augmedix for about $139 million.

“There was a whole lot of competitors that entered {the marketplace} in the course of the pandemic years, and we have seen a few of that being flushed out of the markets, which is an efficient factor,” Schoenhaus stated.

Cherny stated the sector is adjusting to a post-pandemic interval, and digital well being corporations are determining their position.

“We’re nonetheless biking via what could possibly be virtually termed digital well being 1.1 enterprise fashions,” he stated. “It’s nice to say we do issues digitally, but it surely solely issues if it has some strategy towards impacting the ‘triple goal’ of well being care: higher care, extra handy, decrease price.”