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Digital Health Companies Struggle in 2024 Amid Post-Covid Adjustments

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The year 2024 has been a tough one for digital health companies, marking a stark contrast to the boom times of the Covid era. While the Nasdaq soared 32%, surpassing 20,000 for the first time this month, digital health stocks have mostly suffered. Of 39 public companies in this sector analyzed by CNBC, approximately two-thirds have seen significant declines, with some even going out of business.

However, there have been a few success stories, including Hims & Hers Health, which benefited from its new weight loss program and its positioning within the GLP-1 craze. Despite these exceptions, the sector as a whole faced challenges. According to Scott Schoenhaus, an analyst at KeyBanc Capital Markets, 2024 marked a “year of inflection” for the industry. The pandemic-driven surge in demand has slowed, and businesses are now focusing on profitability in a more subdued growth environment.

During the pandemic, digital health startups raised record-breaking funds, with $29.1 billion secured in 2021 alone, and numerous companies went public. However, with the pandemic’s worst waves behind, the demand for digital health tools has cooled. As a result, many companies are rethinking their business models, with mixed outcomes.

Companies like Progyny, a fertility and family planning benefits provider, have seen a dramatic 60% decline in their stock prices, while Teladoc Health, once a leader in virtual care, has seen its stock plummet by 58%, and is 96% off its 2021 high. Teladoc’s market cap, which once stood at $37 billion after acquiring Livongo in 2020, is now under $1.6 billion. Similarly, GoodRx, which offers medication price transparency, is down 33% year-to-date.

The year saw several companies adjust their revenue forecasts, with Progyny and GoodRx repeatedly lowering their full-year guidance. In the case of Teladoc, the company withdrew its 2024 revenue outlook after experiencing consecutive declines.

Dexcom, a diabetes management device company, also faced challenges, with its stock dropping 35% in 2024, including a 40% plunge in July after disappointing results. Genetic testing company 23andMe had an especially difficult year, with its stock down more than 80%. The company’s post-SPAC valuation has fallen from $3.5 billion to under $100 million, and it has had to restructure its workforce and shut down its therapeutics business.

Despite these setbacks, some companies have thrived. Hims & Hers, for instance, saw its stock surge by over 200%, reaching a market cap of $6 billion. The company’s success was driven by high demand for GLP-1 drugs, particularly compounded semaglutide, a more affordable alternative to expensive treatments like Ozempic and Wegovy. Doximity, a digital platform for medical professionals, also had a strong year, with its stock more than doubling.

Oscar Health, a tech-enabled insurance provider, also performed well, with shares up nearly 50% in 2024. The company has been expanding rapidly, supporting around 1.65 million members with plans to reach 4 million by 2027.

Additionally, two companies, Waystar and Tempus, went public in 2024. Waystar, a healthcare payment software vendor, saw its stock rise significantly post-IPO, while Tempus, a precision medicine company, saw a slight decline.

Despite these bright spots, the sector has witnessed several exits. Companies like Cue Health and Better Therapeutics have shut down, and large-scale acquisitions occurred, such as the $8.9 billion acquisition of R1 RCM by TowerBrook Capital Partners and Clayton, Dubilier & Rice. Digital health companies like Commure and Augmedix were also involved in acquisitions.

As the digital health sector adjusts to a post-pandemic reality, industry experts believe the future lies in refining business models. Michael Cherny, an analyst at Leerink Partners, emphasized that digital health companies need to focus on achieving the “triple aim” of healthcare: better care, more convenience, and lower costs, if they are to succeed in the long term.

 

23andMe Announces Major Layoffs and Reports Revenue Decline Amid Strategic Shift

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On Tuesday, genetic testing company 23andMe reported a revenue decline for its latest fiscal quarter, following its announcement of significant workforce reductions and the closure of its therapeutics division. The company’s revenue for the fiscal second quarter dropped to $44.1 million from $50 million during the same period the previous year. However, 23andMe did report a reduced net loss, down to $59.1 million (or $2.32 per share), compared to a loss of $75.27 million (or $3.17 per share) a year prior.

As part of a restructuring plan, 23andMe revealed on Monday that it would cut 40% of its workforce, impacting over 200 jobs, and wind down all therapeutics programs and ongoing clinical trials. The company is exploring options, including asset sales and licensing agreements, to derive value from its existing therapeutic programs. CEO Anne Wojcicki expressed gratitude to the affected employees and underscored the importance of these steps to refocus on the company’s core consumer services and research collaborations.

The company’s shares have seen significant drops, falling slightly on Tuesday and down roughly 75% for the year. 23andMe has struggled with maintaining its Nasdaq listing, with shares previously below $1 until an October 1-for-20 reverse stock split. In September, all seven independent board members resigned, citing disagreements with Wojcicki regarding the company’s strategic direction. Since then, three new independent directors have joined the board.

Wojcicki has indicated her intention to take 23andMe private, emphasizing that this direction is the most viable for the company’s future. During Tuesday’s earnings call, she stated that the company had taken steps to regain Nasdaq compliance by reconstituting its board and implementing the reverse stock split. Although she did not discuss privatization plans in detail, a September SEC filing reaffirmed her commitment to pursue this path without considering third-party acquisition offers.

 

23andMe CEO Anne Wojcicki Proposes to Take Company Private as Stock Plummets

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Anne Wojcicki, CEO of 23andMe, has submitted a proposal to take the genetic testing company private, as its stock price remains below $1. In a filing with the U.S. Securities and Exchange Commission on Wednesday, Wojcicki offered to buy all outstanding shares of 23andMe’s common stock for 40 cents per share in cash. This proposed price represents an 11% premium to the company’s closing stock price in April.

Wojcicki, who co-founded 23andMe in 2006, initially expressed interest in acquiring the company in April, stating that she would not support any alternative transaction. She aims to complete the transaction “as promptly as possible,” according to the filing. On Wednesday, shares of 23andMe closed at 40 cents.

23andMe, known for its at-home DNA testing kits that provide customers with insights into their ancestry and genetic profiles, went public in 2021 through a merger with a special purpose acquisition company (SPAC), valuing it at approximately $3.5 billion. However, the company has struggled to maintain steady revenue, as customers only need to use its DNA testing product once. Since its public debut, the stock has declined by over 95%.

Wojcicki believes that taking 23andMe private will better equip the company to focus on its long-term mission without the short-term pressures of the public markets. In November, the company received a deficiency letter from the Nasdaq Listing Qualifications Department, giving it 180 days to bring its share price back above $1. In response, 23andMe’s board formed a “Special Committee” in late March to explore options to improve the stock price.

The Special Committee will need to approve or reject Wojcicki’s proposal to take the company private.