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

If the Covid era marked a boom time for digital health corporations, 2024 was the reckoning.

In a yr that saw the Nasdaq jump 32%, surpassing 20,000 for the primary time this month, health tech providers largely suffered. Of 39 public digital health corporations analyzed by CNBC, roughly two-thirds are down for the yr. Others at the moment are out of business.

There have been some breakout stars, like Hims & Hers Health, which was buoyed by the success of its popular recent weight reduction offering and its position within the GLP-1 craze. But that was an exception.

While there have been some company-specific challenges within the industry, overall it was a “yr of inflection,” in accordance with Scott Schoenhaus, an analyst at KeyBanc Capital Markets covering health-care IT corporations. Business models that appeared poised to interrupt out in the course of the pandemic have not all worked as planned, and firms have needed to refocus on profitability and a more muted growth environment.

“The pandemic was an enormous pull forward in demand, and we’re facing those tough, difficult comps,” Schoenhaus told CNBC in an interview. “Growth clearly slowed for many of my names, and I believe employers, payers, providers and even pharma are more selective and more discerning on digital health corporations that they partnered with.” 

In 2021, digital health startups raised $29.1 billion, blowing past all previous funding records, in accordance with a report from Rock Health. Almost two dozen digital health corporations went public through an initial public offering or special purpose acquisition company, or SPAC, that yr, up from the previous record of eight in 2020. Money was pouring into themes that played into distant work and distant health as investors searched for growth with rates of interest stuck near zero.

But because the worst waves of the pandemic subsided, so did the insatiable demand for brand new digital health tools. It has been a rude awakening for the sector.  

“What we’re still going through is an understanding of the perfect ways to deal with digital health needs and capabilities, and the push and pull of the present business models and the way successful they could be,” Michael Cherny, an analyst at Leerink Partners, told CNBC. “We’re in a settling out period post Covid.”

Progyny, which offers advantages solutions for fertility and family planning, is down greater than 60% yr thus far. Teladoc Health, which once dominated the virtual-care space, has dropped 58% and is 96% off its 2021 high.

When Teladoc acquired Livongo in 2020, the businesses had a combined enterprise value of $37 billion. Teladoc’s market cap now sits at under $1.6 billion.

GoodRx, which offers price transparency tools for medications, is down 33% yr thus far. 

Schoenhaus says many corporations’ estimates were too high this yr.

Progyny cut its full-year revenue guidance in every earnings report in 2024. In February, Progyny was predicting $1.29 billion to $1.32 billion in annual revenue. By November, the range was right down to $1.14 billion to $1.15 billion.

GoodRx also repeatedly slashed its full-year guidance for 2024. What was $800 million to $810 million in May shrank to $794 million by the November.

In Teladoc’s first-quarter report, the corporate said it expected full-year revenue of $2.64 billion to $2.74 billion. The corporate withdrew its outlook in its second quarter, and reported consecutive year-over yr declines.

“This has been a yr of coming to terms with the expansion outlook for lots of my corporations, and so I believe we are able to finally take a look at 2025 as perhaps a greater yr when it comes to the setups,” Schoenhaus said.  

While overzealous forecasting tells a part of the digital health story this yr, there have been some notable stumbles at particular corporations. 

Dexcom, which makes devices for diabetes and glucose management, is down greater than 35% yr thus far. The stock tumbled greater than 40% in July – its steepest decline ever – after the corporate reported disappointing second-quarter results and issued weak full-year guidance. 

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

Genetic testing company 23andMe had a very rough yr. The corporate went public via a SPAC in 2021, valuing the business at $3.5 billion, after its at-home DNA testing kits skyrocketed in popularity. The corporate is now value lower than $100 million and CEO Anne Wojcicki is attempting to keep it afloat.

In September, all seven independent directors resigned from 23andMe’s board, citing disagreements with Wojcicki in regards to the “strategic direction for the corporate.” Two months later, 23andMe said it planned to chop 40% of its workforce and shutter its therapeutics business as a part of a restructuring plan. 

Wojcicki has repeatedly said she intends to take 23andMe private. The stock is down greater than 80% yr thus far. 

Digital health’s brilliant spots

Investors in Hims & Hers had a a lot better yr.

Shares of the direct-to-consumer marketplace are up greater than 200% yr thus far, pushing the corporate’s market cap to $6 billion, due to soaring demand for GLP-1s. 

Hims & Hers began prescribing compounded semaglutide through its platform in May after launching a recent weight reduction program late last yr. Semaglutide is the lively ingredient in Novo Nordisk‘s blockbuster medications Ozempic and Wegovy, which may cost around $1,000 a month without insurance. Compounded semaglutide is a less expensive, custom-made alternative to the brand drugs and might be produced when the brand-name treatments are in shortage.

Hims & Hers will likely need to contend with dynamic supply and regulatory environments next yr, but even before adding compounded GLP-1s to its portfolio, the corporate said in its February earnings call that it expects its weight reduction program to herald greater than $100 million in revenue by the top of 2025. 

Doximity, a digital platform for medical professionals, also had a robust 2024, with its stock price greater than doubling. The corporate’s platform, which for years has been likened to a LinkedIn for doctors, allows clinicians to remain current on medical news, manage paperwork, find referrals and perform telehealth appointments with patients. 

Doximity primarily generates revenue through its hiring solutions, telehealth tools and marketing offerings for clients like pharmaceutical corporations.

Leerink’s Cherny said Doximity’s success might be attributed to its lean operating model, in addition to the “differentiated mousetrap” it’s created due to its reach into the physician network. 

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

One other standout this yr was Oscar Health, the tech-enabled insurance company co-founded by Thrive Capital Management’s Joshua Kushner. Its shares are up nearly 50% yr thus far. The corporate supports roughly 1.65 million members and plans to expand to around 4 million by 2027. 

Oscar showed strong revenue growth in its third-quarter report in November. Sales climbed 68% from a yr earlier to $2.4 billion.

Moreover, two digital health corporations, Waystar and Tempus AI, took the leap and went public in 2024. 

The IPO market has been largely dormant since late 2021, when soaring inflation and rising rates of interest pushed investors out of risk. Few technology corporations have gone public since then, and no digital health corporations held IPOs in 2023, in accordance with a report from Rock Health. 

Waystar, a health-care payment software vendor, has seen its stock jump to $36.93 from its IPO price of $21.50 in June. Tempus, a precision medicine company, hasn’t fared as well. It’s stock has slipped to $34.91 from its IPO price of $37, also in June.

“Hopefully, the valuations are more supportive of opportunities for other corporations which have been lingering within the background as private corporations for the last several years.” Schoenhaus said. 

Out with the old

Several digital health corporations exited the general public markets entirely this yr. 

Cue Health, which made Covid tests and counted Google as an early customer, and Higher Therapeutics, which used digital therapeutics to treat cardiometabolic conditions, each shuttered operations and delisted from the Nasdaq. 

Revenue cycle management company R1 RCM was acquired by TowerBrook Capital Partners and Clayton, Dubilier & Rice in an $8.9 billion deal. Similarly, Altaris bought Sharecare, which runs a virtual health platform, for roughly $540 million.

Commure, a non-public company that provides tools for simplifying clinicians’ workflows, acquired medical AI scribing company Augmedix for about $139 million.

“There was a number of competition that entered the marketplace in the course of the pandemic years, and we have seen a few of that being flushed out of the markets, which is a superb thing,” Schoenhaus said.

Cherny said the sector is adjusting to a post-pandemic period, and digital health corporations are determining their role.

“We’re still cycling through what may very well be almost termed digital health 1.1 business models,” he said. “It’s great to say we do things digitally, but it surely only matters if it has some approach toward impacting the ‘triple aim’ of health care: higher care, more convenient, lower cost.”