- Lloyd Price
Why do Digital Health companies struggle on the public markets?
Executive Summary
While there are some successful digital health companies that have gone public, many have struggled to maintain their valuations and generate sustained profitability. There are several reasons why this may be the case:
High costs of customer acquisition: Digital health companies often face significant costs to acquire and retain customers, particularly as the market becomes more crowded and competitive. This can impact profitability and make it more difficult to generate a positive return on investment.
Regulatory challenges: Digital health companies may face regulatory challenges, particularly if their products or services fall under the purview of the FDA or other regulatory agencies. The regulatory approval process can be lengthy and costly, and even after approval, ongoing compliance can be a burden.
Uncertain reimbursement models: Digital health companies may face uncertainty around reimbursement models, particularly if their products or services are not covered by traditional healthcare reimbursement structures. This can impact revenue streams and make it difficult to generate sustained profitability.
Limited adoption: While there is significant hype and excitement around digital health, adoption rates have been relatively slow in some cases. This may be due to a lack of awareness, education, or trust in new technologies and approaches.
Competition: The digital health market is becoming increasingly crowded and competitive, which can make it difficult for individual companies to stand out and differentiate themselves. This can impact valuations and make it more difficult to generate sustained profitability.
Overall, digital health companies face a range of challenges that can impact their ability to maintain valuations and generate sustained profitability on public markets. However, as the healthcare industry continues to evolve and adapt to new technologies and approaches, there may be opportunities for digital health companies to overcome these challenges and achieve success in the long term.
We explore 5 Case Studies: Teladoc, Babylon, Bright Health, 23andme, Hims&Hers Health to ascertain the common challenges to overcome and future growth opportunities for digital health companies post IPO.
Corporate Development for Healthcare Technology companies in EMEA
Healthcare Technology Thought Leadership from Nelson Advisors – Market Insights, Analysis & Predictions. Visit https://www.healthcare.digital
HealthTech Corporate Development - Buy Side, Sell Side, Growth & Strategy services for Founders, Owners and Investors. Email lloyd@nelsonadvisors.co.uk
HealthTech M&A Newsletter from Nelson Advisors - HealthTech, Health IT, Digital Health Insights and Analysis. Subscribe Today! https://lnkd.in/e5hTp_xb
HealthTech Corporate Development and M&A - Buy Side, Sell Side, Growth & Strategy services for companies in Europe, Middle East and Africa. Visit www.nelsonadvisors.co.uk
Which digital health companies have IPO'd?
There have been several digital health companies that have gone public through an initial public offering (IPO) in recent years. Some notable examples include:
Livongo Health: Livongo Health is a digital health company that offers remote monitoring and coaching services for people with chronic conditions such as diabetes and hypertension. The company went public in 2019 and was acquired by Teladoc Health in 2020 for $18.5 billion.
Health Catalyst: Health Catalyst is a data analytics and technology company that works with healthcare organizations to improve outcomes and reduce costs. The company went public in 2019.
Progyny: Progyny is a fertility benefits management company that offers employer-sponsored fertility services. The company went public in 2019.
Phreesia: Phreesia is a patient intake and engagement platform that streamlines the patient check-in process. The company went public in 2019.
One Medical: One Medical is a primary care and telehealth company that offers virtual visits and in-person care at its clinics. The company went public in 2020.
Amwell: Amwell is a telehealth company that offers virtual care services to patients and healthcare providers. The company went public in 2020.
Hims & Hers Health: Hims & Hers Health is a telehealth and wellness company that offers online consultations and prescriptions for a range of conditions. The company went public in 2021.
These are just a few examples of digital health companies that have gone public in recent years. As the healthcare industry continues to evolve and adapt to new technologies and approaches, we can expect to see more digital health companies pursue IPOs in the future.
What are the advantages of an IPO?
An initial public offering (IPO) can offer several advantages to a company, including:
Access to capital: One of the main advantages of an IPO is that it provides a company with access to significant amounts of capital that can be used to fund growth, research and development, and other strategic initiatives. By going public, a company can sell shares of its stock to a wide range of investors, including institutional investors, retail investors, and the general public.
Increased visibility and credibility: Going public can increase a company's visibility and credibility in the marketplace. An IPO can help a company to establish a brand identity, build relationships with investors and analysts, and enhance its reputation in the industry.
Liquidity for shareholders: Going public can provide liquidity for a company's shareholders, allowing them to sell their shares on public markets. This can be particularly beneficial for early investors, founders, and employees who may have a significant portion of their net worth tied up in the company.
Enhanced employee retention and recruitment: A successful IPO can provide a boost to a company's culture and help to attract and retain top talent. By going public, a company can offer its employees the potential for stock ownership and participation in the company's growth and success.
Opportunities for growth and expansion: Going public can open up new opportunities for growth and expansion, including mergers and acquisitions, partnerships, and new product development. The increased visibility and credibility that comes with an IPO can help a company to attract new customers, partners, and investors.
Overall, an IPO can be a significant milestone for a company, providing access to capital, increasing visibility and credibility, and offering opportunities for growth and expansion. However, going public also comes with significant regulatory and financial requirements, as well as increased scrutiny and accountability from investors and the public.
What are the disadvantages of an IPO?
While an initial public offering (IPO) can provide many benefits to a company, there are also several potential disadvantages to consider. These include:
Costs and regulatory requirements: Going public can be an expensive process that requires significant resources, including legal and accounting fees, underwriting costs, and compliance expenses. A public company is also subject to ongoing regulatory requirements, including financial reporting and disclosure requirements, that can be time-consuming and costly.
Loss of control: By going public, a company may need to give up some level of control to outside investors. Public companies are subject to greater scrutiny and oversight from shareholders, regulators, and the public, which can limit a company's ability to make strategic decisions or pursue certain initiatives.
Short-term focus: Public companies are often under pressure to deliver strong financial results on a quarterly basis, which can lead to a short-term focus on meeting earnings targets rather than investing in long-term growth and innovation. This can be particularly challenging for companies in the healthcare industry that may have longer development cycles and may need to make significant investments in research and development.
Market volatility: Public companies are subject to market forces that can be unpredictable and volatile. Changes in the economy, industry trends, or company-specific issues can cause a company's stock price to fluctuate, which can impact investor sentiment and future capital-raising efforts.
Disclosure requirements: Public companies are required to disclose significant amounts of information about their financial performance, operations, and management. This can make a company's proprietary information and strategic plans more widely available, which could be a disadvantage if competitors use that information to their advantage.
Overall, going public can be a complex and expensive process that requires careful consideration of the potential benefits and drawbacks. Companies should weigh these factors carefully and consult with experienced advisors before pursuing an IPO.
Case Study 1: Teladoc
Teladoc Health is a leading provider of virtual healthcare services and has been a major player in the digital health industry. The company's share price has experienced significant volatility over the past year, with a sharp decline in early 2021. There were several factors that contributed to the drop in Teladoc's share price:
Shift in investor sentiment: As the COVID-19 pandemic began to recede and vaccination rates increased, some investors may have become less optimistic about the long-term prospects for telehealth services. Teladoc was one of the biggest beneficiaries of the pandemic-driven surge in virtual healthcare demand, and some investors may have worried that the company's growth rate would slow as the pandemic waned.
Integration challenges: Teladoc's acquisition of Livongo Health, a leading digital health platform for chronic conditions management, in 2020 was a major strategic move for the company. However, integrating the two companies has proven to be a complex process, and some investors may have been concerned about the potential challenges and disruptions that could result from the merger.
Competitive pressures: The virtual healthcare market has become increasingly crowded in recent years, with new entrants and established players vying for market share. Teladoc faces competition from companies like Amwell, Doctor on Demand, and others, and investors may have been concerned about the company's ability to maintain its market leadership position.
Financial performance: Although Teladoc's revenue grew significantly in 2020, the company has faced challenges in achieving profitability. Investors may have been concerned about the company's ability to generate sustainable profits over the long term.
It's worth noting that Teladoc's share price has recovered somewhat in recent months, suggesting that investors may be more optimistic about the company's future prospects. However, the digital health industry remains highly competitive and rapidly evolving, and Teladoc will likely face continued challenges and uncertainties as it seeks to maintain its position as a leader in the space.
Case Study 2: Babylon
Babylon Health is a UK-based digital health company that offers virtual healthcare services, including online consultations with doctors and AI-powered symptom checking tools. The company's share price has experienced significant volatility since it went public through a SPAC merger in 2021, with a sharp decline in the months following its debut. There were several factors that contributed to the drop in Babylon's share price:
Regulatory concerns: In July 2021, the UK's healthcare regulator launched an investigation into Babylon's virtual healthcare services, citing concerns about patient safety and transparency. This announcement led to a significant drop in Babylon's share price, as investors worried about the potential impact of the investigation on the company's reputation and growth prospects.
Financial performance: Babylon has yet to achieve profitability, and the company's financial performance has been a source of concern for investors. In August 2021, the company reported a wider loss for the first half of the year than the same period in 2020, which may have further eroded investor confidence.
Competitive pressures: The virtual healthcare market in the UK is becoming increasingly crowded, with new entrants and established players vying for market share. Babylon faces competition from companies like Push Doctor, Livi, and others, and investors may have been concerned about the company's ability to maintain its position in the market.
Governance issues: Following the SPAC merger that took Babylon public, there were concerns raised about the company's corporate governance structure, particularly regarding the role of its founder and CEO, Ali Parsa. Some investors may have been worried that the company's governance issues could create challenges for its growth and profitability.
Babylon Health, a digital healthcare company, is set to be delisted from the New York Stock Exchange (NYSE) on August 17, 2023. The company received a notice from the NYSE on June 22, 2023, stating that it was not in compliance with the continued listing standards.
Specifically, Babylon's average total market capitalization over a consecutive 30 trading-day period was less than $50 million and, at the same time, its last reported shareholders' equity was less than $50 million. Additionally, the average closing price of Babylon's Class A ordinary shares on the NYSE was less than $1.00 over a consecutive 30 trading-day period.
Babylon has announced that it will merge with Swiss digital therapeutics firm MindMaze in a deal that will see it delisted from the NYSE. The merger is expected to close in July 2023.
Shareholders of Babylon will not receive any payment for their shares as part of the merger. Instead, AlbaCore, a debtholder of Babylon, will be exercising rights under its debt agreements with the company to transition the go-forward business by transferring core operating subsidiaries of the company to MindMaze.
The delisting of Babylon from the NYSE is a significant setback for the company. It had raised over $1 billion in funding from investors, including SoftBank and Alphabet's CapitalG, and was once valued at over $4 billion. However, the company has struggled to grow its business and has been hit by financial losses. The delisting will make it more difficult for Babylon to raise additional capital in the future.
It remains to be seen how the delisting will impact Babylon's operations. The company has said that it plans to continue to develop its digital healthcare platform and expand its reach into new markets. However, the delisting will likely make it more difficult for Babylon to compete with larger healthcare companies.
Case Study 3: Bright Health
Bright Health Group is a US-based health insurance company that went public through an IPO in June 2021. The company's share price has experienced significant volatility since its debut, with a sharp decline in the months following the IPO. There were several factors that contributed to the drop in Bright Health's share price:
Competitive pressures: The health insurance industry in the US is highly competitive, with many established players and new entrants vying for market share. Bright Health faces competition from companies like UnitedHealth Group, Anthem, and others, and investors may have been concerned about the company's ability to maintain its position in the market.
Financial performance: Although Bright Health has reported strong revenue growth, the company has yet to achieve profitability. In its Q2 2021 earnings report, the company reported a net loss of $78.2 million, which may have eroded investor confidence in the company's long-term prospects.
Regulatory concerns: The health insurance industry in the US is subject to a complex and ever-changing regulatory environment, which can create uncertainty and risk for companies operating in the space. Investors may have been worried about the potential impact of regulatory changes on Bright Health's business and profitability.
Lock-up period expiration: Following its IPO, Bright Health's insiders and early investors were subject to a lock-up period, during which they were prohibited from selling their shares. When the lock-up period expired in December 2021, some insiders and early investors began selling their shares, which may have contributed to the decline in the company's share price.
It's worth noting that Bright Health's share price has recovered somewhat in recent months, suggesting that investors may be more optimistic about the company's future prospects. However, the health insurance industry remains highly competitive and complex, and Bright Health will likely face continued challenges and uncertainties as it seeks to establish itself as a leader in the space.
Case Study 4: 23andme
23andMe is a US-based consumer genetics and research company that went public through a SPAC merger in June 2021. The company's share price has experienced significant volatility since its debut, with a sharp decline in the months following the merger. There were several factors that contributed to the drop in 23andMe's share price:
Competition: The consumer genetics industry in the US is becoming increasingly crowded, with new entrants and established players vying for market share. 23andMe faces competition from companies like Ancestry.com, MyHeritage, and others, and investors may have been concerned about the company's ability to maintain its position in the market.
Financial performance: Although 23andMe has reported strong revenue growth, the company has yet to achieve profitability. In its Q3 2021 earnings report, the company reported a net loss of $103.4 million, which may have eroded investor confidence in the company's long-term prospects.
Regulatory concerns: The consumer genetics industry in the US is subject to a complex and evolving regulatory environment, which can create uncertainty and risk for companies operating in the space. Investors may have been worried about the potential impact of regulatory changes on 23andMe's business and profitability.
Lock-up period expiration: Following its SPAC merger, 23andMe's insiders and early investors were subject to a lock-up period, during which they were prohibited from selling their shares. When the lock-up period expired in December 2021, some insiders and early investors began selling their shares, which may have contributed to the decline in the company's share price.
It's worth noting that 23andMe's share price has recovered somewhat in recent months, suggesting that investors may be more optimistic about the company's future prospects. However, the consumer genetics industry remains highly competitive and rapidly evolving, and 23andMe will likely face continued challenges and uncertainties as it seeks to establish itself as a leader in the space.
Case Study 5: Hims & Hers Health
Hims & Hers Health is a US-based telehealth company that went public through a SPAC merger in January 2021. The company's share price has experienced significant volatility since its debut, with a sharp decline in the months following the merger. There were several factors that contributed to the drop in Hims & Hers' share price:
Competition: The telehealth industry in the US is becoming increasingly crowded, with new entrants and established players vying for market share. Hims & Hers faces competition from companies like Teladoc Health, Amwell, and others, and investors may have been concerned about the company's ability to maintain its position in the market.
Financial performance: Although Hims & Hers has reported strong revenue growth, the company has yet to achieve profitability. In its Q3 2021 earnings report, the company reported a net loss of $48.3 million, which may have eroded investor confidence in the company's long-term prospects.
Regulatory concerns: The telehealth industry in the US is subject to a complex and evolving regulatory environment, which can create uncertainty and risk for companies operating in the space. Investors may have been worried about the potential impact of regulatory changes on Hims & Hers' business and profitability.
Lock-up period expiration: Following its SPAC merger, Hims & Hers' insiders and early investors were subject to a lock-up period, during which they were prohibited from selling their shares. When the lock-up period expired in July 2021, some insiders and early investors began selling their shares, which may have contributed to the decline in the company's share price.
It's worth noting that Hims & Hers' share price has recovered somewhat in recent months, suggesting that investors may be more optimistic about the company's future prospects. However, the telehealth industry remains highly competitive and rapidly evolving, and Hims & Hers will likely face continued challenges and uncertainties as it seeks to establish itself as a leader in the space.
What is the future of digital health IPO's?
The future of digital health IPOs is likely to be shaped by a range of factors, including market conditions, regulatory changes, and evolving investor sentiment. Here are some potential trends to watch for:
Continued interest from investors: Despite some recent setbacks for digital health companies, the sector remains an attractive area for investors, driven by the ongoing shift toward digital health solutions and the potential for significant market growth.
Increasing regulatory scrutiny: As digital health companies continue to expand and evolve, they are likely to face increasing regulatory scrutiny from government agencies and industry bodies. This could create additional challenges for companies seeking to go public, particularly if they are operating in a highly regulated area.
Focus on profitability: With some digital health companies struggling to achieve profitability, investors may become more focused on companies that can demonstrate a clear path to sustainable financial performance. This could put pressure on companies to prioritize profitability over rapid growth and expansion.
Emphasis on innovation: The digital health sector is characterized by rapid innovation and the emergence of new technologies and business models. As a result, companies that can demonstrate a strong track record of innovation and the ability to adapt to changing market conditions may be more attractive to investors.
Overall, the future of digital health IPOs is likely to be shaped by a complex and rapidly evolving set of factors. While the sector is likely to continue to generate significant interest from investors, companies seeking to go public will need to navigate a challenging and competitive landscape in order to achieve long-term success.
orporate Development for Healthcare Technology companies in EMEA
Healthcare Technology Thought Leadership from Nelson Advisors – Market Insights, Analysis & Predictions. Visit https://www.healthcare.digital
HealthTech Corporate Development - Buy Side, Sell Side, Growth & Strategy services for Founders, Owners and Investors. Email lloyd@nelsonadvisors.co.uk
HealthTech M&A Newsletter from Nelson Advisors - HealthTech, Health IT, Digital Health Insights and Analysis. Subscribe Today! https://lnkd.in/e5hTp_xb
HealthTech Corporate Development and M&A - Buy Side, Sell Side, Growth & Strategy services for companies in Europe, Middle East and Africa. Visit www.nelsonadvisors.co.uk
