Digital well being shares pummeled by Wall Road in 2024, however Hims surges

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

In a 12 months that noticed the Nasdaq leap 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 are actually out of enterprise.

There have been some breakout stars, like Hims & Hers Well being, which was buoyed by the success of its standard new weight reduction providing and its place within the GLP-1 craze. However that was an exception.

Whereas there have been some company-specific challenges within the business, total it was a “12 months of inflection,” based on Scott Schoenhaus, an analyst at KeyBanc Capital Markets protecting health-care IT corporations. Enterprise fashions that appeared poised to interrupt out through the pandemic have not all labored as deliberate, and corporations have needed to refocus on profitability and a extra muted development setting.

“The pandemic was an enormous pull ahead in demand, and we’re dealing with these robust, difficult comps,” Schoenhaus advised CNBC in an interview. “Development clearly slowed for many of my names, and I feel 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, based on a report from Rock Well being. Nearly two dozen digital well being corporations went public via an preliminary public providing or particular goal acquisition firm, or SPAC, that 12 months, up from the earlier report of eight in 2020. Cash was pouring into themes that performed into distant work and distant well being as buyers regarded for development with rates of interest caught close to zero.

However because the worst waves of the pandemic subsided, so did the insatiable demand for brand new digital well being instruments. It has 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 Companions, advised CNBC. “We’re in a settling out interval publish Covid.”

Progyny, which presents advantages options for fertility and household planning, is down greater than 60% 12 months so far. Teladoc Well being, 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 mixed enterprise worth of $37 billion. Teladoc’s market cap now sits at beneath $1.6 billion.

GoodRx, which presents worth 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 vary was right 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 Might shrank to $794 million by the November.

In Teladoc’s first-quarter report, the corporate mentioned it anticipated full-year income of $2.64 billion to $2.74 billion. The corporate 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 feel we are able to lastly have a look at 2025 as possibly a greater 12 months by way of the setups,” Schoenhaus mentioned.  

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

Dexcom, which makes units for diabetes and glucose administration, is down greater than 35% 12 months so far. The inventory tumbled greater 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 workforce, fewer new prospects than anticipated and decrease income per consumer. Following the report, JPMorgan Chase analysts marveled at “the magnitude of the draw back” and the truth that it “seems to principally be self-inflicted.” 

Genetic testing firm 23andMe had a very tough 12 months. The corporate 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 corporate is now price lower than $100 million and CEO Anne Wojcicki is making an attempt to maintain it afloat.

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

Wojcicki has repeatedly mentioned she intends to take 23andMe non-public. The inventory is down greater than 80% 12 months so far. 

Digital well being’s vivid spots

Buyers 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, due to hovering demand for GLP-1s. 

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

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

Doximity, a digital platform for medical professionals, additionally had a robust 2024, with its inventory worth greater than doubling. The corporate’s platform, which for years has been likened to a LinkedIn for docs, 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 choices for purchasers like pharmaceutical corporations.

Leerink’s Cherny mentioned Doximity’s success may 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 notice. The agency raised its worth goal on the inventory to $60 from $35. 

One other standout this 12 months was Oscar Well being, the tech-enabled insurance coverage firm co-founded by Thrive Capital Administration’s Joshua Kushner. Its shares are up almost 50% 12 months so far. The corporate helps roughly 1.65 million members and plans to develop to round 4 million by 2027. 

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

Moreover, 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 expertise corporations have gone public since then, and no digital well being corporations held IPOs in 2023, based on a report from Rock Well being. 

Waystar, a health-care fee software program vendor, has seen its inventory leap to $36.93 from its IPO worth of $21.50 in June. Tempus, a precision drugs firm, hasn’t fared as effectively. It is inventory has slipped to $34.91 from its IPO worth of $37, additionally in June.

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

Out with the previous

A number of digital well being corporations exited the general public markets fully this 12 months. 

Cue Well being, which made Covid checks and counted Google as an early buyer, and Higher Therapeutics, which used digital therapeutics to deal with cardiometabolic situations, each shuttered operations and delisted from the Nasdaq. 

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

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

“There was a variety of competitors that entered {the marketplace} through the pandemic years, and we have seen a few of that being flushed out of the markets, which is an effective factor,” Schoenhaus mentioned.

Cherny mentioned 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 nearly termed digital well being 1.1 enterprise fashions,” he mentioned. “It is nice to say we do issues digitally, however it solely issues if it has some strategy towards impacting the ‘triple intention’ of well being care: higher care, extra handy, decrease price.”