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Internet-driven health obsessives were once dismissed as “cyberchondriacs”. But medical tech is increasingly mainstream. Apps track sleep, fitness and reproductive health. They diagnose, monitor, and coach. The innovation is impressive. But investors are struggling to reap returns.
Digital health boomed in the pandemic. In 2020, such apps were released at an average rate of 250 a day. Globally, the field attracted over $100bn of investment in the three years to 2022, according to CB Insights. One legacy of that investment frenzy is intense competition. In virtual healthcare, there is often little to stop patients switching between apps.
Mental health is particularly competitive, repeatedly topping the list of the best-funded digital wellness areas. That gives patients multiple options, making it expensive for companies to attract and retain them. Surging costs and declining revenues explain why shares of Teladoc, owner of mental health platform BetterHelp, more than halved in 2024.
Start-ups may also be up against deep-pocketed tech companies. Sometimes there is scope for partnership. Shares in online therapy service Talkspace are up by two-thirds since September when Amazon Health Services added it to a newish service aimed at helping individuals take up health insurance benefits.
But brushing up against the 800-pound gorilla of ecommerce usually jangles investors’ nerves. In November shares of US telehealth company Hims & Hers Health dropped by 15 per cent on the day that Amazon launched a rival service, offering “low, upfront pricing” for telehealth visits for Amazon Prime members. That said, those fears were eclipsed by excitement over sales of compounded — or copycat — GLP-1 weight loss injections. That has driven up Hims & Hers Health’s market value by some 160 per cent to about $5.5bn over the past year.
Investors’ willingness to back digital health start-ups declined as interest rates rose, accentuating the importance of a path to profitability. Equity funding in the sector globally has dropped back to little more than a quarter of its 2021 peak, according to CB Insights. One in three digital-health dollars invested in the first half of 2024 went to start-ups using AI, according to San Francisco-based Rock Health.
AI shows great promise in medicine, for all the concerns about hallucinations, legal liability, transparency, privacy, data security and bias. As well as speeding up drug discovery, it has potential as a diagnostic tool and productivity booster. Its ability to analyse complex data is already proving its value in radiology and cardiology.
But without scale and proprietary data, it is hard for start-ups to establish a competitive advantage. Digital technology has huge potential in health, but it is far from a sure-fire prescription for investment success.
vanessa.houlder@ft.com
