Digital health stocks pummeled by Wall Street in 2024, but Hims surges

If the coronavirus era was a boom time for digital health companies, 2024 was destined to be.

In a year in which the Nasdaq soared 32% and surpassed 20,000 for the first time this month, health tech providers were among the hardest hit. Of the 39 public digital health companies analyzed by CNBC, about two-thirds have seen a decline in performance over the year. Others are currently out of business.

There were some break stars like his and her healthwas boosted by the success of its popular new weight loss product and the company’s position in the GLP-1 boom. But that was an exception.

Scott Schoenhaus, an analyst at KeyBanc Capital Markets who covers healthcare IT companies, said that while there were some company-specific challenges for the industry, overall it was a “year of transition.” Business models that seemed poised to break out during the pandemic didn’t all work out as planned, with companies having to refocus on profitability and a calmer growth environment.

“The pandemic has caused a significant setback in demand, and we face stiff and challenging competition,” Schoenhaus said in an interview with CNBC. “I think growth has definitely slowed down for most of my names, and employers, payers, providers, and even pharmaceutical companies are becoming more selective and more discerning about the digital health companies they partner with. .”

According to a report, digital health startups raised $29.1 billion in 2021, breaking all previous funding records. rock health. About 20 digital health companies went public that year through initial public offerings or special purpose acquisition companies (SPACs), up from the previous record of eight companies in 2020. As an investor, funds were poured into themes related to remote work and remote health. The company sought growth while interest rates remained near zero.

But as the worst waves of the pandemic subsided, so did the insatiable demand for new digital medical tools. It was a rude awakening for the industry.

“What we are still working on is understanding how best to address the needs and capabilities of digital health, the push and pull of current business models and how successful it is.” michael charneyLeerink Partners analyst told CNBC. “We are in a post-corona stable period.”

Progynywhich offers fertility and family planning benefits solutions, is down more than 60% year-to-date. Teladoc Healthwhich once dominated the virtual care space, has fallen 58% and is down 96% from its 2021 highs.

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

Good Rwhich provides drug price transparency tools, has fallen 33% year-to-date.

Schoenhaus said many companies’ estimates for this year were too high.

Progyny lowered its full-year earnings outlook in all of its 2024 earnings reports. As of February, Progyny had projected annual revenue of $1.29 billion to $1.32 billion. By November, range decreased from $1.14 billion to $1.15 billion.

GoodRx also repeatedly lowered its full-year 2024 outlook. It was $800 million to $810 million. In May, it shrunk to $794 million. november.

At Teladoc First quarter reportThe company said it expects full-year sales to be between $2.64 billion and $2.74 billion. company Withdrawn the outlook A sequential decline was reported in the second quarter compared to the same period last year.

“This year has been a year for many companies to embrace the growth outlook, so I think we can finally think about 2025 being a better year in terms of structure,” Schoenhaus said.

While over-predictions have told part of the digital health story this year, there have also been some notable stumbles at certain companies.

dexcomThe company, which makes devices for diabetes and blood sugar management, is down more than 35% year-to-date. Shares fell more than 40% in July, their biggest drop on record, after the company reported disappointing second-quarter results and issued a weak full-year outlook.

CEO Kevin Thayer said the challenges include a reorganization of the sales team, fewer new customers than expected, and declining revenue per user. Following the report, JPMorgan Chase analysts marveled at the “magnitude of the decline” and the fact that it “appears to be largely self-inflicted.”

genetic testing company 23 and me It’s been a particularly difficult year. The company went public through a SPAC in 2021 after the popularity of its at-home DNA testing kits skyrocketed, valuing the business at $3.5 billion. The company is currently valued at 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 company’s strategic direction.” Two months later, 23andMe announced it planned to cut 40% of its workforce and close its therapeutics business as part of the state of emergency. restructuring plan.

Wojcicki has repeatedly said he intends to keep 23andMe private. The stock price has fallen more than 80% since the beginning of the year.

Bright spots in digital health

It’s been a very good year for investors in Hims & Hers.

The surge in demand for GLP-1 has pushed the direct-to-consumer market share price up more than 200% since the beginning of the year, pushing the company’s market capitalization to $6 billion.

Hims & Hers began prescribing combination semaglutide through its platform in May, after launching a new weight loss program late last year. Semaglutide is its active ingredient novo nordisk‘s blockbuster drugs Ozempic and Wigovy cost about $1,000 a month without insurance. Combined semaglutide is a cheaper, custom-made alternative to brand-name drugs and can be manufactured to coincide with the launch of brand-name drugs. shortage.

Hymes & Haas will likely have to contend with a dynamic supply and regulatory environment next year, even before adding formulated GLP-1 to its portfolio, the company said in a report. February revenue The company announced that it expects its weight loss program to generate more than $100 million in revenue by the end of 2025.

toxic parentThe company, a digital platform for medical professionals, also had a strong 2024, with its stock price more than doubling. The company’s platform, which has long been likened to LinkedIn for doctors, allows clinicians to stay up-to-date on medical news, manage paperwork, find referrals, and schedule telehealth appointments with patients. can.

Doximity primarily generates revenue through recruitment solutions, telemedicine tools, and marketing services for clients such as pharmaceutical companies.

Leerink’s Cherny said Doximity’s success is due to its lean operating model and “mousetrap of differentiation” created by its reach to physician networks.

“DOCS is a rare company in the healthcare IT industry because it is already profitable, generates high incremental profits, and is growing steadily,” Leerink analysts, including Cherny, wrote in a November note. writes. The company raised its price target from $35 to $60.

Another thing that stood out this year was oscar healtha technology-enabled insurance company co-founded by Thrive Capital Management’s Joshua Kushner. The company’s stock price has increased nearly 50% since the beginning of the year. The company supports approximately 1.65 million members and plans to expand to approximately 4 million by 2027.

Oscar showed strong revenue growth. Third quarter report In November. Sales increased 68% year-on-year to $2.4 billion.

In addition, two digital health companies Waystar and Tempus AIwe took the plunge and went public in 2024.

The IPO market has been largely dormant since late 2021, when soaring inflation and rising interest rates drove investors away from risk. According to some information, very few technology companies have gone public since then, and no digital health company had an IPO in 2023. report From Rock Health.

Shares of Waystar, a healthcare payment software vendor, rose to $36.93 from its June IPO price of $21.50. Precision medicine company Tempus isn’t doing so well. The stock price has fallen to $34.91 from its initial level. IPO price is $37also in June.

“We hope this valuation will provide more of a boost to opportunities for other companies that have been quietly operating as privately held companies for the past several years,” Schoenhaus said.

go out with the old one

Several digital health companies have exited the public markets completely this year.

cue healthBetter Therapeutics, which created a Covid test and counted Google as an early customer, and Better Therapeutics, which used digital therapeutics to treat cardiometabolic diseases, both Shutter operation It was then delisted from the Nasdaq.

Revenue cycle management company R1 RCM obtained $8.9 billion deal between TowerBrook Capital Partners and Clayton Dubilier & Rice. Similarly, Altalis acquires ShareCareoperates a virtual health platform valued at approximately $540 million.

Commure is a private company that provides tools to simplify clinicians’ workflows. obtained Acquired by medical AI scribing company Augmedix for approximately $139 million.

“A lot of competition entered the market during the years of the pandemic, and we’ve seen some of it get taken out of the market, which is a good thing,” Schoenhaus said.

Charney said the sector is adapting to the post-pandemic period and digital health companies are understanding their role.

“We are still cycling through what could be called a digital health 1.1 business model,” he said. “It’s great to say we’re doing things digitally, but it’s important that we do some kind of approach that impacts the ‘triple purpose’ of healthcare: better care, more convenience, and lower costs.” Only if you have.”