Digital healthcare stocks came under pressure on Wall Street in 2024, but Hims is booming
Doximity listed on the New York Stock Exchange for its initial public offering on June 24, 2021.
Source: NYSE
If the Covid era marked a boom time for digital health companies, then 2024 was the year of reckoning.
In a year in which the Nasdaq rose 32% and topped 20,000 for the first time this month, health technology providers largely suffered. Of 39 public digital health companies analyzed by CNBC, about two-thirds reported losses for the year. Others are now out of business.
There were some breakout stars Health for him and herwhich has been boosted by the success of its popular new weight loss offering and its position in the GLP-1 trend. But that was an exception.
Although there were some company-specific challenges in the industry, overall it was a “year of change,” said Scott Schoenhaus, an analyst at KeyBanc Capital Markets who covers healthcare IT companies. Business models that seemed poised to take off during the pandemic did not all work as planned, and companies had to refocus on profitability and a more subdued growth environment.
“The pandemic has driven demand tremendously, and we are facing these tough, challenging competitions,” Schoenhaus said in an interview with CNBC. “Most of my names have seen growth slow significantly, and I think employers, payers, providers and even pharmaceutical companies are becoming more selective and demanding about the digital health companies they work with.”
According to a report from Rock Health, digital health startups raised $29.1 billion in 2021, surpassing all previous funding records. Nearly two dozen digital health companies went public via an initial public offering or special purpose acquisition company (SPAC) this year, up from the previous record of eight in 2020. Money flowed as investors sought to play into themes that played remote work and remote health for growth with interest rates close to zero.
But as the worst waves of the pandemic subsided, so did the insatiable demand for new digital health tools. It was a rude awakening for the industry.
“What we're still doing is understanding how best to address digital health needs and capabilities, and the push and pull of current business models and how successful they can be,” says Michael Cherny, analyst at Leerink Partners. said CNBC. “We are in a post-Covid calming phase.”
GoodRx signage on the exterior of the Nasdaq on IPO day, September 23, 2020.
Source: GoodRx
Progynywhich provides fertility and family planning benefit solutions, has declined more than 60% year to date. Teladoc Healthwhich once dominated the virtual care space, is down 58% and is 96% below its 2021 peak.
When Teladoc acquired Livongo in 2020, the companies had a combined enterprise value of $37 billion. Teladoc's market cap is currently under $1.6 billion.
GoodRxwhich provides drug price transparency tools, is down 33% year to date.
Schönhaus says many companies' estimates were too high this year.
Progyny lowered its full-year revenue forecast in each earnings report in 2024. In February, Progyny forecast annual revenue of $1.29 billion to $1.32 billion. By November, the range had narrowed to $1.14 billion to $1.15 billion.
GoodRx also repeatedly cut its full-year 2024 guidance. What was $800 million to $810 million in May shrank to $794 million in November.
In Teladoc's first-quarter report, the company said it expects full-year revenue of $2.64 billion to $2.74 billion. The company withdrew its guidance in the second quarter and reported consecutive year-over-year declines.
“This has been a year of grappling with the growth prospects of many of my companies, and so I think we can finally look at 2025 as potentially a better year in terms of lineup,” Schoenhaus said.
While overzealous predictions have been part of the digital health story this year, there have been some notable stumbles among certain companies.
Dexcomwhich makes diabetes and glucose management devices, is down more than 35% year to date. The stock plunged more than 40% in July – its biggest decline ever – after the company reported disappointing second-quarter results and gave weak guidance for the full year.
CEO Kevin Sayer attributed the challenges to a reorganization of the sales team, fewer new customers than expected and lower revenue per user. Following the report, analysts at JPMorgan Chase marveled at “the magnitude of the downtrend” and the fact that it “appears to be largely self-inflicted.”
Genetic testing company 23andMe had a particularly tough year. The company went public via a SPAC in 2021, valuing the company at $3.5 billion after its at-home DNA testing kits gained popularity. The company is now worth less than $100 million and 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 “strategic direction of the company.” Two months later, 23andMe announced that it planned to cut 40% of its workforce and close its therapeutics business as part of a restructuring plan.
Wojcicki has repeatedly stated that she intends to take 23andMe private. The stock has fallen more than 80% since the start of the year.
The bright spots of digital health
Hims & Hers products on display.
Him and him
Hims & Hers investors had a much better year.
Shares of the direct-to-consumer marketplace have risen more than 200% year to date, pushing the company's market cap to $6 billion thanks to soaring demand for GLP-1.
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 NordiskThe blockbuster drugs Ozempic and Wegovy, which can cost about $1,000 a month without insurance. Compounded semaglutide is a cheaper, tailored alternative to the brand-name drugs and can be manufactured when the brand-name drugs are in short supply.
Hims & Hers will likely have to contend with a dynamic supply and regulatory environment next year, but even before adding compounded GLP-1 to its portfolio, the company said in its February earnings release that it was generating revenue from its weight loss program than 100 US dollars expect to achieve sales of several million euros by the end of 2025.
Doximacya digital platform for healthcare professionals, also had a strong 2024 and saw its share price more than double. The company's platform, which has been likened for years to a LinkedIn for doctors, allows doctors to stay up to date on medical news, manage paperwork, find referrals and conduct telemedicine appointments with patients.
Doximity generates revenue primarily through its hiring solutions, telemedicine tools and marketing offerings for clients such as pharmaceutical companies.
Leerink's Cherny said Doximity's success was due to its lean operating model as well as the “differentiated mousetrap” it created because of its reach in the physician network.
“DOCS is a rare company in healthcare IT in that it is already profitable, generating strong incremental margins and experiencing steady growth,” Leerink analysts, including Cherny, wrote in a November note. The company raised its price target on the stock to $60 from $35.
Another highlight this year was Oscar healththe technology-focused insurance company co-founded by Joshua Kushner of Thrive Capital Management. Its shares are up nearly 50% since the start of the year. The company serves around 1.65 million members and plans to grow to around 4 million by 2027.
Oscar showed strong sales growth in its third-quarter report in November. Revenue rose 68% year over year to $2.4 billion.
Additionally, two digital health companies, Waystar And Tempus AItook the plunge and went public in 2024.
The IPO market has been largely dormant since late 2021 as rising inflation and rising interest rates pushed investors out of risk. According to a report from Rock Health, few tech companies have gone public since then, and no digital health companies held an IPO in 2023.
Waystar, a healthcare payment software provider, saw its shares rise to $36.93 from $21.50 in its June IPO. Tempus, a precision medicine company, didn't fare so well. The stock has slipped to $34.91 from its IPO price of $37, also in June.
“Hopefully the valuations will support the opportunities for other companies that have remained in the background as private companies in recent years,” said Schönhaus.
Out with the old man
The Nasdaq MarketSite is seen in New York City on December 12, 2024.
Michael M. Santiago | Getty Images
Several digital health companies have completely exited public markets this year.
Cue Health, which conducted Covid testing and counted Google among its early customers, and Better Therapeutics, which used digital therapeutics to treat cardiovascular disease, both closed operations and were 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. Likewise, Altaris bought Sharecare, which operates a virtual healthcare platform, for around $540 million.
Commure, a private company that provides tools to simplify physician workflows, has acquired medical AI scribing company Augmedix for approximately $139 million.
“A lot of competition has come into the market during the pandemic years and we've seen some of that flushed out of the markets, which is a good thing,” Schoenhaus said.
Cherny said the sector is adapting to the post-pandemic era and digital health companies are beginning to recognize their role.
“We are still going through what you could almost call Digital Health 1.1 business models,” he said. “It's great to say we're doing things digitally, but it only matters if there's an approach that achieves the 'triple aim' of healthcare: better care, more convenient, lower cost.”
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