Digital health stocks fell on Wall Street in 2024, but HIMs rose

If the Covid era represented a boom time for digital health companies, 2024 was the reckoning.

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

There were some rising stars, e.g Himes and hers healthwhich was buoyed by the success of her popular new weight loss show and her position in the GLP-1 craze. But that was an exception.

Although there have been some company-specific challenges in the industry, overall it has been “a year of transformation,” according to Scott Schoenhaus, an analyst at KeyBanc Capital Markets who covers IT companies in the healthcare space. Business models that seemed poised to emerge during the pandemic have not all worked out as planned, and companies have been forced to refocus on profitability and a calmer growth environment.

“The pandemic has been a big boost to demand, and we're facing those tough, challenging businesses,” Schoenhaus told CNBC in an interview. “Growth has obviously slowed for most of my names, and I think employers, payers, providers and even pharmaceutical companies are being more selective and more discriminating about which digital health companies they partner with.”

In 2021, digital health startups raised $29.1 billion, surpassing all previous funding records, according to a report by 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 has been flowing into themes that have played a role in… Telework and telehealth as investors. They looked forward to growth with interest rates remaining near zero.

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

“What we are still going through is understanding how best to meet digital health needs and capabilities, the push and pull of existing business models and how successful they are,” Michael Cherney, an analyst at Leerink Partners, told CNBC. “We are in a period of stability after Covid.”

offspringwhich offers helpful fertility and family planning solutions, is down more than 60% year-to-date. Teladoc Healthwhich once dominated the virtual care space, is down 58% and is 96% below its 2021 high.

When Teladoc acquired Livongo in 2020, the companies had a combined enterprise value of $37 billion. Teladoc's market cap now stands at just under $1.6 billion.

GoodRxwhich provides price transparency tools for pharmaceuticals, is down 33% year-to-date.

Estimates for many companies were too high this year, Schoenhaus says.

Progyny has lowered its full-year revenue guidance at every earnings report in 2024. In February, Progyny was forecasting annual revenue in the range of $1.29 billion to $1.32 billion. By November, the range had fallen to $1.14 billion to $1.15 billion.

GoodRx also repeatedly lowered its full-year guidance for 2024. What was $800 million to $810 million in May had shrunk to $794 million by 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 forecasts for the second quarter, and announced successive declines on an annual basis.

“This has been a year of coming to terms with growth expectations for many of my companies, so I think we can finally look at 2025 as a better year in terms of settings,” Schoenhaus said.

While overly enthusiastic forecasts tell part of the story in digital health this year, there have been some notable missteps in certain companies.

Discomwhich makes diabetes and glucose management devices, is down more than 35% year-to-date. The stock fell more than 40% in July — its biggest drop ever — after the company reported disappointing second-quarter results and issued weak full-year guidance.

CEO Kevin Sayre attributed the challenges to a restructuring of the sales team, fewer new customers than expected and lower revenue per user. In the wake of the report, JPMorgan Chase analysts marveled at the “magnitude of the downside” and the fact that it “appears to be mostly self-inflicted.”

Genetic testing company 23andMe It was a particularly difficult year. The company went public via SPAC in 2021, valuing the business at $3.5 billion, after at-home DNA testing kits skyrocketed in 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 said it planned to cut 40% of its workforce and close its therapeutics business as part of a restructuring plan.

Wojcicki has repeatedly said she intends to take 23andMe private. The stock is down more than 80% since the beginning of the year.

Bright spots in digital health

Investors in Hims & Hers had a much better year.

Shares of the direct-to-consumer market have risen more than 200% year to date, pushing the company's market cap to $6 billion, thanks to surging demand for GLP-1s.

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

Hims & Hers will likely have to contend with dynamic supply and regulatory environments in the coming year, but even before adding compounded GLP-1s to its portfolio, the company said on a February earnings call that it expects the weight loss program to generate more than $100. $1 million in revenue by the end of 2025.

Getting closera digital platform for medical professionals, also had a strong performance in 2024, with its stock price doubling. The company's platform, which for years has been likened to LinkedIn for doctors, allows doctors to stay up-to-date on medical news, manage paperwork, find referrals and carry out telehealth appointments with patients.

Doximity generates revenue primarily through staffing solutions, telehealth tools, and marketing offerings for clients such as pharmaceutical companies.

Leerink's Cherny said Doximity's success can be attributed to its lean operating model, as well as the “differentiation mousetrap” created by its access to a physician network.

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

Another standout was this year Oscar's healththe technology-enabled insurance company co-founded by Joshua Kushner of Thrive Capital Management. Its shares are up nearly 50% year to date. The company supports approximately 1.65 million members and plans to expand to approximately 4 million by 2027.

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

In addition, there are two digital health companies, Waystar and Tempus AItook that leap and went public in 2024.

The IPO market has been largely dormant since late 2021, when rising inflation and rising interest rates prompted investors to turn away from risk. Only a handful of tech companies have gone public since then, and none of the digital health companies have an IPO in 2023, according to a report by Rock Health.

Waystar, a vendor of healthcare payment software, saw its shares rise to $36.93 from an IPO price of $21.50 in June. Tempus, a precision medicine company, did not fare as well. Its stock price fell to $34.91 from its IPO price of $37 in June as well.

“We hope that valuations will be more supportive of the opportunities for other companies that have remained in the background as private companies over the past few years.” Schoenhaus said.

Out with the old

Many digital health companies have exited the public markets entirely this year.

Cue Health, which ran Covid tests and counted Google as an early customer, and Better Therapeutics, which used digital therapeutics to treat cardiovascular disease, have shut down operations and been delisted from the 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 bought Sharecare, which operates a virtual health platform, for approximately $540 million.

Commure, a private company that provides tools to streamline doctors' workflows, has acquired AI-driven medical writing company Augmedix for approximately $139 million.

“There was a lot of competition coming into the market during the pandemic years, and we've seen some of that being taken out of the market, which is a good thing,” Schoenhaus said.

Cherny said the sector is adapting to the post-pandemic era, and digital health companies are discovering their role.

“We are still navigating what we would almost call Digital Health 1.1 business models,” he said. “It's great to say we're doing things digitally, but it's just important that it has some approach towards impacting the 'triple aim' of healthcare: better care, more convenient, lower cost.”