Is over-investment killing digital health companies?

Healthcare is getting increasingly digital, with modern tech streamlining operations while making doctors' jobs that much easier. Or at least, that is the idea behind this revolution, though we still have to get there.

In the meantime, we've witnessed how the coronavirus pandemic accelerated the rise of digital health and caused a shift towards using software to allow the economy to continue functioning.

One of the key trends we've seen during the lockdowns was the amazing rise of telehealth use, with people from across the world turning to online medical consultations from home for diagnosis and treatments.

However, that tremendous growth brought along a ton of money to the sector, and while that is not necessarily bad - we did see some startups failing in the last few years.

Companies that went under

Among the companies that haven't succeeded were:

Babylon Health

Based in London, Babylon Health was founded in 2013 and offers virtual primary care, including telehealth appointments and chatbot-style symptom checkers designed to triage patients. The company secured early investment from Saudi Arabia's sovereign wealth fund, Swedish venture capital group Kinnevik, and data company Palantir. However, having spurned London with a $4.2 billion SPAC merger Stateside as its popularity soared during the coronavirus pandemic, its market cap is now just $5,000.

Biofourmis

An AI remote monitoring and digital therapeutics company, Biofourmis offers home care tools to help remotely monitor acute and post-acute patients, then alter a care team when a patient's condition changes from their personal baseline. It also provides a virtual specialty care platform for managing patients with chronic conditions like hypertension, lipid management, heart failure, and diabetes. The firm — which used to be a unicorn — recently confirmed it had laid off 120 employees across multiple nations, including 48 employees in the United States and, a month after conducting the significant layoffs, the company's CEO, Kuldeep Singh, quietly stepped away from his role.

Pear Therapeutics

Pear Therapeutics developed a range of digital therapeutics designed to help treat addiction, insomnia, PTSD, chronic pain, irritable bowel syndrome, and more. In 2017, the company's substance use disorder program, reSET, became the first-ever digital therapeutic to receive FDA clearance. However, less than two years after Pear Therapeutics went public in a SPAC deal worth $1.6 billion, the firm's assets were sold in an auction for just over $6 million.

Bright Health

An insurtech company, Bright Health was valued at $11.2 billion at its peak — cementing its status as Minnesota's first unicorn startup. However, as of the start of 2023, the company had completely pulled out of the insurance business and was instead focused exclusively on Medicare Advantage in California, alongside limited primary care offerings. Bright Health went on to receive a delisting warning from the New York Stock Exchange and had still failed to turn a profit.

Beyond the hype

There are no doubts that the hype was (and perhaps still does) surrounding digital health companies.

There is a reason for this, though. Due to its highly regulated status, healthcare is still one of the few industries left to be "properly" digitized. And that's where the opportunity lies for both entrepreneurs and investors.

The problem could have something to do with a ton of money being thrown at the sector, with companies showing little to no profit in turn.

But this isn't necessarily the case with digital health exclusively. There's a case to be made about fintech as well.

What can be done?

We strongly believe in markets. Investors have learned their lessons and while they still love digital health, they are more cautious. And that's not necessarily a bad thing.

As a result, we will see — and are already seeing — fewer digital health companies delivering better solutions with customers that actually want to pay for using them. And that's a good thing, right?

The bottom line is - we don't think that overinvesting is killing digital health. Rather, we think it is bad investing that makes the sector look bad. But have no doubts about it - digital health is still a thriving industry you should be involved in. If you already haven't, that is.