By MATTHEW HOLT
Abruptly we’re again in 2021.
You digital well being followers do not forget that halcyon time. In 2019 a couple of digital well being firms went public, after which someway received 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 somewhat extra, as Teladoc itself received 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 depart our homes. The vaccine that grew to become usually accessible initially 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 have been reporting on VC funding in a present known as Well being in 2 Level 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 firms.
Issues don’t look so fairly now. Even whereas enterprise cash was flooding into digital well being, these public firms, as exemplified by Teladoc, began to see their inventory value fall. Whereas it was truly an excellent 12 months for the inventory market general, in 2021 the digital well being sector fell by round 60%. It saved taking place. 2022 was worse and though one or two particular person firms have recovered (Hello Oscar!), practically 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 firms 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 12 months and trades at 10 x income. However Doximity all the time was worthwhile, going approach 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 is no such thing as a such factor as a worthwhile public digital well being firm within the mainstream of care supply and even insurance coverage–until in fact you rely Optum. Which implies there’s virtually actually no worthwhile VC-backed personal firm both.
Which leads me to this month. You keep in mind these enormous rounds that Jess & I used to report on and make enjoyable of? They’re again.
I get it. The inventory market is sizzling and all these pension funds try to place their winnings from Nvidia someplace. VC appears to be like an affordable guess and there have been a couple of tech IPOs. Should you squint actually exhausting, as STAT’s Mario Aguilar did, you may 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 firms, which I’m positive are doing nice work, however let’s take a look at the maths.
Digital entrance door chatbot Ok-Well being raised at a $900m valuation. This spherical was a $50m top-up nevertheless it has raised practically $400m. It says it’ll be worthwhile in 2025, and has Elevance as its largest shopper. 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 purchased an earlier model of the corporate for $200m a decade in the past and bought it to some buyers 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 firms, together with ones taken personal like Sharecare, and see that there are many telehealth chatbots, medical teams and psychological well being firms on the checklist. Any of which most likely have comparable know-how buried inside them. I’m positive if you happen to shook Sharecare exhausting sufficient all these applied sciences would fall out given the variety of firms 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 implies the corporate itself is value nothing! The VCs who put cash into Ok-Well being and Headway may actually may have purchased Amwell for about what they invested for a fraction of these firms. Is Headway is doing greater than the $250m a 12 months 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 12 months in income. And if you happen to contemplate BetterHelp to be 50% of Teladoc — which it roughly is — Headway is 3 x the worth of BetterHelp which is doing $1bn a 12 months in income. Is there any probability 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 in fact these new investments might be creating new know-how or new enterprise fashions which the earlier technology of digital well being firms couldn’t work out. They could 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 probably that they’re out there competing with the general public firms and people personal firms that received 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 know-how can change the sclerotic well being care sector. I would like all these firms to do nicely and alter the world. Perhaps these VCs investing in these mega rounds are extra wise than they have 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 will be, and it pains me to say it.
Classes: Well being Tech, Matthew Holt
