Why digital health IPOs will disappear in 2022

There are 20 digital health companies that have listed shares in 2021. In 2022, there are two companies, only one of which is listed on a stock exchange based in the US.

A company that has gone public in the United States is testament to why other digital health companies are reluctant to follow the same path.

Boston-based prescription video game company Akili Interactive launched its initial public offering on August 23 through a special purpose acquisition company, Social Capital Suvretta Holdings. The stock opened at 36.06 USD/share and closed at 7.15 USD/share on the first trading day. Second, it closed at $1.05.

Other digital health companies that have gone public in the past few years have suffered a similar fate. Only two out of 20 digital health companies IPOs in 2021 have not lost significant market share,according to the database of Digital Health Business & Technology.

Industry watchers blame the challenging macroeconomic environment along with investor uncertainty on digital health business models, and say private companies are at an early stage. end up taking advantage of the pause to bolster their business.

“Companies that thought they would go public this year have had to stretch their time in the private market,” said Jacob Effron, principal at venture capital firm Redpoint Ventures. “There’s certainly been a valuation reset in the mass market that I think makes a lot of sense for some of the private companies that are at this stage of growth.”

Komodo Health exemplifies the challenge many people face. In early 2022, the healthcare data analytics company planned to go public in the summer. Instead, it received $200 million in funding on December 13 from venture firms Coatue Management and Dragoneer Investment Group, while laid off 9% of its employees.

SPACs, a key part of the IPO wave, are gone. Pear Therapeutics, Owlet, Sema4, 23andMe, Babylon Health and Hims & Hers have gone public through SPACs in 2021, compared with just Akili in 2022. Experts say SPAC IPOs are popular among investors The company has an unproven business model, which makes it attractive in the emerging digital sector. Health. Those days are over.

“In the near term, investors will be a lot more cautious about certain business models,” said Cheri Mowrey, head of US investment banking at Morgan Stanley. “In the last two years, there was so much going on the market that no one was doing due diligence on these companies.”

Chamath Palihapitiya, managing partner of Akili’s SPAC partner, Social Capital Suvretta Holdings, has been named the SPAC king for putting several companies on the stock exchange. But in September, he said he would dissolve SPAC’s two parent companies due to high interest rates. Palihapitiya also led a SPAC IPO for Oscar Health, the New York-based insurance company. have recently faced financial challenges.

Investors don’t expect a return of public market financing to digital health next year, Effron said, and the lack of outside funding means companies will have to save money. save cash.

“Maybe 2023 is worse than 2022, and in that case you want to make sure you have the money for a long time so you don’t need to raise money early,” Effron said. “If the market changes in the first half of 2023 and things go extremely well, you can always adjust, raise more capital and go public.”

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Lorin Gu, founder of venture capital firm Recharge Capital, said digital health companies that provide tech-enabled services have faced mass-market challenges with falling stock prices. about 80-90%. He hopes that will continue into 2023.

“We won’t know how the market is recovering until Q2 2023, but in the meantime, I expect recession headwinds to swing between hot new sectors, ​such as [software-as-a-service] digital health,” said Gu.

Scott Barclay, managing director of healthcare at venture capital firm Insight Partners, says digital health companies that have gone through late-stage funding rounds should use this time to focus on financial sustainability.

“We think the IPO market is closed,” Barclay said. “And as long as it’s closed, we’re still asking our companies to focus on building a great business. We are asking them if they are building a sustainable long-term company…This market is going to create winners.”

Carl Stegman, senior vice president of stock plan services at Fidelity Investments, which helps soon-to-go public determine equity compensation, said delays could be expected. backfired on an executive team that had never been through this process.

“We’ve seen situations where companies, especially in SPACs, don’t understand the implications of registered and restricted securities,” says Stegman. “The delay can be an opportunity to better educate yourself based on the IPO you are preparing for and work with your employees to understand what is tradable and what is not. There should be no surprises.”

This story first appeared in Digital Health Business & Technology.


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