Digital health stocks hit by Wall Street in 2024, but Hims jumps

If the Covid era marked a boom period for digital health companies, 2024 was the deadline.

In a year that saw the Nasdaq jump 32%, surpassing 20,000 for the first time this month, healthcare technology providers have largely suffered. Of the 39 public digital health companies analyzed by CNBC, about two-thirds are down for the year. Others are now bankrupt.

There were some stars, like His health and that of himwhich was boosted by the success of its popular new weight loss offering and its position in the GLP-1 craze. But that was an exception.

Although there were some specific challenges for companies in the sector, overall it was an “inflection year,” according to Scott Schoenhaus, an analyst at KeyBanc Capital Markets who covers healthcare IT companies. Not all business models that seemed poised to collapse during the pandemic performed as expected, and companies had to refocus on profitability and a more moderate growth environment.

“The pandemic has led to a huge surge in demand, and we’re facing some tough, tough competition,” Schoenhaus told CNBC in an interview. “Growth has clearly slowed for most of my names, and I think employers, payers, providers and even pharma are more selective and discerning about the digital health companies they have partnered with .”

In 2021, digital health startups raised $29.1 billion, surpassing all previous funding records, according to a report from Rock Health. Nearly two dozen digital health companies went public through an IPO or special purpose acquisition company, or SPAC, that year, up from the previous record of eight in 2020 Money was flowing into themes that played a role in remote work and remote health as investors. They sought growth with interest rates near zero.

But as the worst waves of the pandemic have subsided, so has the insatiable demand for new digital health tools. It was a rude awakening for the sector.

“What we are still figuring out is how best to address digital health needs and capabilities, as well as the pressures and pulls of current business models and their success,” said Michael Cherny, an analyst at Leerink Partners. told CNBC. “We are in a period of post-Covid stabilization.”

Progynywhich offers fertility and family planning benefit solutions, is down more than 60% since the start of the year. Teladoc Healthwhich once dominated the virtual care space, has fallen 58% and is 96% off its 2021 peak.

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

BonRxwhich offers drug price transparency tools, is down 33% since the start of the year.

Schoenhaus believes many companies’ estimates were too high this year.

Progyny has reduced its full-year revenue forecast in every earnings report in 2024. In February, Progyny forecast annual revenue of $1.29 billion to $1.32 billion. By November, the range had fallen to between $1.14 billion and $1.15 billion.

GoodRx also repeatedly cut its guidance for full year 2024. What was $800 million to $810 million in May fell to $794 million in November.

In Teladoc’s first quarter report, the company said it expects annual revenue to be between $2.64 billion and $2.74 billion. The company withdrew its second-quarter outlook and reported consecutive year-over-year declines.

“It’s been a year of coming to terms with the growth prospects of a lot of my companies, and so I think we can finally look at 2025 as maybe a better year in terms of installations,” Schoenhaus said.

Although overzealous forecasting tells part of the digital health story this year, some companies have had some notable struggles.

Dexcomwhich makes devices for diabetes and blood sugar management, is down more than 35% year to date. The stock fell more than 40% in July – its biggest drop on record – after the company reported disappointing second-quarter results and issued weak guidance for the full year.

CEO Kevin Sayer attributed the challenges to a restructuring of the sales team, fewer new customers than expected and a decline in revenue per user. Following the report, JPMorgan Chase analysts marveled at the “scale of the decline” and the fact that it “appears to be largely self-inflicted.”

Genetic testing company 23andMe had a particularly difficult year. The company went public via a SPAC in 2021, valuing the company at $3.5 billion, after the popularity of its at-home DNA testing kits skyrocketed. The company is now worth less than $100 million, and its CEO, Anne Wojcicki, is trying to keep it afloat.

In September, all seven independent directors resigned from 23andMe’s board, citing disagreements with Wojcicki over the company’s “strategic direction.” Two months later, 23andMe announced plans to cut 40% of its workforce and close its therapy business as part of a restructuring plan.

Wojcicki has repeatedly stated that she intends to make 23andMe private. The stock is down more than 80% since the start of the year.

The strengths of digital health

Investors in Hims & Hers have 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 capitalization to $6 billion, driven by growing demand for GLP-1s.

Hims & Hers began prescribing compounded semaglutide through its platform in May after launching a new weight loss program late last year. Semaglutide is the active ingredient in Novo NordiskBlockbuster drugs Ozempic and Wegovy, which can cost around $1,000 a month without insurance. Compounded semaglutide is a cheaper, tailored alternative to brand-name drugs and can be produced when brand-name treatments are in short supply.

Hims & Hers will likely face a dynamic supply and regulatory environment next year, but even before adding GLP-1 compounds to its portfolio, the company said on its February earnings call that She expects her weight loss program to bring in more than $100. million dollars in turnover by the end of 2025.

Doximitya digital platform for healthcare professionals, also had a strong 2024, with its share price more than doubling. The company’s platform, which for years has been compared to a LinkedIn for doctors, allows clinicians to stay up-to-date on medical news, manage paperwork, find referrals and schedule appointments. you telehealth with patients.

Doximity primarily generates revenue through its recruiting solutions, telehealth tools and marketing offerings to clients such as pharmaceutical companies.

Leerink’s Cherny said Doximity’s success can be attributed to its lean operating model, as well as the “differentiated mousetrap” it created because of its reach into the physician network.

“DOCS is a rare company in the healthcare IT sector because it is already profitable, generates strong incremental margins, and is experiencing consistent growth,” Leerink analysts, including Cherny, wrote in a November note. The company raised its price target on the stock from $35 to $60.

Another highlight this year was Oscar Healththe tech insurance company co-founded by Joshua Kushner of Thrive Capital Management. Its shares are up nearly 50% year to date. The company has around 1.65 million members and plans to expand to around 4 million by 2027.

Oscar showed strong revenue growth in its third-quarter report in November. Sales soared 68% from the previous year to $2.4 billion.

Additionally, two digital health companies, Path Star And Tempus AItook the plunge 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 tech companies have gone public since then, and no digital health companies have held an IPO in 2023, according to a Rock Health report.

Waystar, a healthcare payment software provider, saw its stock rise to $36.93 from its IPO price of $21.50 in June. Tempus, a precision medicine company, isn’t faring as well. Its stock fell to $34.91 from its IPO price of $37, also in June.

“Hopefully, valuations further support opportunities for other companies that have lagged behind as private companies in recent years.” » said Schönhaus.

Hang out with the old man

Several digital health companies have left the public markets entirely this year.

Cue Health, which ran Covid tests and counted Google among its first customers, and Better Therapeutics, which used digital therapies to treat cardiometabolic conditions, both shuttered their operations and delisted from Nasdaq.

Revenue cycle management company R1 RCM has been acquired by TowerBrook Capital Partners and Clayton, Dubilier & Rice in an $8.9 billion deal. Similarly, Altaris purchased Sharecare, which runs a virtual health platform, for around $540 million.

Commure, a private company that offers tools to simplify clinician workflows, has acquired medical AI engraving company Augmedix for approximately $139 million.

“There was a lot of competition that came into the market during the pandemic years, and we saw some of that competition disappear from the markets, which is a good thing,” Schoenhaus said.

Cherny said the industry is adapting to a post-pandemic period and digital health companies are figuring out their role.

“We’re still navigating what you could almost call digital health 1.1 business models,” he said. “It’s nice to say we do things digitally, but that only matters if we take an approach aimed at achieving the ‘triple aim’ of health care: better, more convenient, less expensive care .”