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You are at:Home»Health»Why returns have been slow to follow investments in digital health
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Why returns have been slow to follow investments in digital health

January 2, 2025003 Mins Read
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Roula Khalaf, editor-in-chief of the FT, selects her favorite stories in this weekly newsletter.

Internet health obsessives were once called “cyberchondriacs.” But medical technology is becoming more and more widespread. Apps track sleep, fitness and reproductive health. They diagnose, monitor and coach. The innovation is impressive. But investors are struggling to get returns.

Digital health has exploded during the pandemic. In 2020, these apps were released at an average of 250 per day. Globally, the field has attracted more than $100 billion in investment in the three years to 2022, according to CB Insights. One of the legacies of this investment frenzy is intense competition. In virtual healthcare, there is often little stopping patients from moving from one application to another.

Column chart of annual equity funding ($ billion) showing investment in global digital health has declined since the pandemic

Mental health is particularly competitive, on several occasions at the top of the list best-funded digital wellness spaces. This gives patients multiple options, making it expensive for companies to attract and retain them. Rising costs and falling revenue explain why shares of Teladoc, owner of mental health platform BetterHelp, have more than halved in 2024.

Startups can also face deep-pocketed tech companies. There are sometimes partnership opportunities. Shares of online therapy service Talkspace have risen by two-thirds since September, when Amazon Health Services added it to a new service aimed at helping individuals qualify for health insurance benefits.

But confronting the 800-pound gorilla of e-commerce usually puts investors’ nerves to the test. In November, shares of US telehealth company Hims & Hers Health fell 15% on the day Amazon launched a competing service, offering “low upfront prices” for telehealth visits to Amazon Prime members. That said, those fears have been overshadowed by excitement over sales of weight-loss injections made with – or copied from – GLP-1. That caused Hims & Hers Health’s market value to soar about 160 percent to about $5.5 billion over the past year.

Investors’ willingness to back digital health startups has declined as interest rates have risen, heightening the importance of a path to profitability. Equity financing in the sector globally has fallen to just over a quarter of its 2021 peak, according to CB Insights. According to San Francisco-based Rock Health, one in three dollars invested in digital health in the first half of 2024 went to start-ups using AI.

AI shows great promise in medicine, despite all the concerns about hallucinations, legal liability, transparency, privacy, data security and bias. As well as accelerate drug discovery, it has potential as a diagnostic tool and boost productivity. Its ability to analyze complex data has already proven itself in radiology and cardiology.

But without scale and proprietary data, it’s difficult for startups to establish a competitive advantage. Digital technology has enormous potential in healthcare, but it is far from being a foolproof guarantee for investment success.

vanessa.houlder@ft.com

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