By MATTHEW HOLT
Impulsively we’re again in 2021.
You digital well being followers keep in mind that halcyon time. In 2019 a couple of digital well being corporations went public, after which in some way obtained conflated within the pandemic meme inventory increase, with the harbinger occasion being the August 2020 sale of Livongo to Teladoc that valued it at $19bn and early in 2021 relatively extra, as Teladoc itself obtained to a market cap of $44bn in February 2021
Enterprise cash poured into digital well being as a fin de siecle for the ZIRP, that had been going for a decade, mixed with the concept Covid meant we might by no means go away our homes. The vaccine that turned usually accessible in the beginning of the Biden Administration in 2021 put paid to the concept telehealth was nearly all of the way forward for care supply.
Nonetheless between mid 2021 and early 2022 Jess DaMassa and I had been reporting on VC funding in a present known as Health in 2 Point 00 (later Well being Tech Offers) and each week there have been a number of offers for $100m and up going into new well being tech corporations.
Issues don’t look so fairly now. Even whereas enterprise cash was flooding into digital well being, these public corporations, as exemplified by Teladoc, began to see their inventory worth fall. Whereas it was really a superb yr for the inventory market general, in 2021 the digital well being sector fell by round 60%. It saved happening. 2022 was worse and though one or two particular person corporations have recovered (Hello Oscar!), almost two years later the market cap of your entire sector stays in the bathroom.
Of the checklist that I’ve been following for years there’s solely 11 broadly outlined digital well being corporations with a market cap of greater than $1 billion–that’s solely 11 public unicorns
What’s worse is that just one firm on that checklist is decently worthwhile, and that’s Doximity. It remodeled $170m revenue on income of lower than $500m final yr and trades at 10 x income. However Doximity all the time was worthwhile, going manner again to 2014 (lengthy earlier than its IPO), and though it’s doing cool stuff with AI and telehealth, it’s principally an promoting platform for pharma.
There isn’t a such factor as a worthwhile public digital well being firm within the mainstream of care supply and even insurance coverage–except after all you depend Optum. Which implies there’s virtually actually no worthwhile VC-backed non-public firm both.
Which leads me to this month. You keep in mind these big rounds that Jess & I used to report on and make enjoyable of? They’re again.
I get it. The inventory market is scorching and all these pension funds try to place their winnings from Nvidia someplace. VC seems to be an inexpensive guess and there have been a couple of tech IPOs. In case you squint actually laborious, as STAT’s Mario Aguilar did, you possibly can faux that Waystar & Tempus are well being tech IPOs, though a funds/RCM firm and a diagnostics firm that are each shedding a ton of cash wouldn’t give me confidence as an investor.
However the quantities being thrown round should give anybody pause. Let’s take a couple of examples from the final month. Now these aren’t a knock on these corporations, which I’m positive are doing nice work, however let’s take a look at the mathematics.
Digital entrance door chatbot Okay-Well being raised at a $900m valuation. This spherical was a $50m top-up nevertheless it has raised almost $400m. It says it’ll be worthwhile in 2025, and has Elevance as its greatest consumer. Harmonycares is a housecall medical group, presumably pursuing the technique that Signify and others adopted. It raised $200m, so presumably has a $500m+ valuation–Centene bought an earlier model of the corporate for $200m a decade in the past and bought it to some traders two years again. Headway is a psychological well being supplier community that makes use of instruments to get suppliers on their system and markets them to insurers. It raised $200m at a reported $2.3bn valuation.
You’ll be able to take a look at that checklist of public corporations, together with ones taken private like Sharecare, and see that there are many telehealth chatbots, medical teams and psychological well being corporations on the checklist. Any of which most likely have comparable expertise buried inside them. I’m positive when you shook Sharecare laborious sufficient all these applied sciences would fall out given the number of companies it acquired over its decade plus of growth.
However let’s take psychological well being.
Amwell acquired a psychological well being firm known as Silvercloud, and a chatbot known as Conversa. Its market cap is bouncing round between $250m & $350m and it has greater than that in money–which suggests the corporate itself is value nothing! The VCs who put cash into Okay-Well being and Headway might actually might have purchased Amwell for about what they invested for a fraction of these corporations. Is Headway is doing greater than the $250m a yr in income Amwell is placing up? Headway’s worth is sort of 6 x the worth of Talkspace which is bringing in about $150m a yr in income. And when you contemplate BetterHelp to be 50% of Teladoc — which it roughly is — Headway is 3 x the worth of BetterHelp which is doing $1bn a year in revenue. Is there any likelihood that Headway is doing near these numbers? Perhaps somone who noticed the most recent pitch deck can let me know, however I extremely doubt it.
Now after all these new investments may very well be creating new expertise or new enterprise fashions which the earlier era of digital well being corporations couldn’t work out. They may even have discovered the right way to develop profitably–though so far as I do know Doximity stands alone as a worthwhile firm that took VC funding it by no means wanted and by no means used.
However isn’t it extra doubtless that they’re out there competing with the general public corporations and people non-public corporations that obtained funding in 2020-22, have comparable pitches, comparable tech and are equally shedding cash?
I’m a very long time proponent of digital well being and actually hope that expertise can change the sclerotic well being care sector. I would like all these corporations to do effectively and alter the world. Perhaps these VCs investing in these mega rounds are extra smart than they had been in 2022. However given the state of the digital well being sector on the present inventory market–which is in any other case in any respect time highs–I simply don’t know what the exit could be, and it pains me to say it.
Classes: Health Tech, Matthew Holt
