The healthcare market
I’ve almost never missed a newsletter, even during holiday weeks — except for this month, when I missed two.
It’s for an exciting reason that I’ll be able to announce this week (you can see my Twitter @OliviaWebbC if you want to follow). As part of this update, the cadence of my newsletter is going to change, with less frequent but longer deep-dive posts, as well as some shorter cross-posts.
For now, I wanted to write about something that everyone else is talking about: The state of the market.
I’m not a founder, nor am I particularly well-versed on the intricacies of the stock market (I was homeschooled, I have dyslexia with numbers — not a joke — and I’ve focused on my student loans more than investing to-date. Just so you really get a sense). But I’m good at trends, and there have been a few trends recently that have been hard to ignore.
Limited exit options
With the IPO market struggling over the last two years, companies in the startup pipeline have been reassessing the timing and manner of going public. In 2020 and 2021, this meant a wave of companies using the SPAC option, including a few healthcare companies. So far in 2022, it seems to mean a slowing down of healthcare companies going public at all.
At the same time, traditional healthcare companies like UnitedHealth, Anthem, and CVS/Aetna have done far better in the public markets than startups that went public over the last few years (for example, Bright, Oscar, Clover, Hims, Teladoc, and GoodRx). Why? I’m not an expert. Maybe investors prefer the familiar, maybe founders raising in bull markets overpromised, maybe everyone’s sick of hearing “value-based care” and not seeing any changes.
Increased M&A…and resulting consequences
Regardless of the reason, without straightforward exit options, many startups have turned to M&A to grow. That was all predictable. What was equally predictable, but much less talked-about, was that all of this M&A was likely to result in several rounds of layoffs, as companies adjusted their workforces after the deals closed.1
To me, these layoffs have seemed less a harbinger of doom than a rational business decision, especially as public posts seem to indicate that many of those let go were in roles that are likely to be duplicative across companies, roles like engineering, product management, and marketing (although no less painful for the people involved, obviously). (Interestingly, Carbon Health seems to have been an outlier. Whether CEO Eren Bali was just being more honest about the reason behind Carbon’s recent layoffs or whether it was genuinely more about profitability than duplicative roles, his public comments focused on the need for profitability in a challenging market.)
I suspect that fundraising over the next 6-12 months will be a stronger predictor of the wellbeing of the digital health market than the IPO numbers or layoff announcements. I’m saying this because digital health is still a relatively new market, and because I think there’s a ton more opportunity to be unlocked. (Rock Health also published a much more data-driven analysis of the digital health market a month ago and concluded that while it’s “frothy,” it’s not a bubble.)
There might be a slowdown ahead, though. Matthew Holt and Jess DeMassa, who track funding announcements, among other things, noted on Twitter that most current funding announcements are happening on roughly a monthly delay, and the amounts are down compared to recent precedent.
If I haven’t made this clear: I have no idea what happens next. I really don’t envy founders and the decisions they have to make over the next few years. Chrissy Farr’s recent tweet about fundraising, with a plurality of people responding that they’re worried about raising this year, seems indicative of broad concern about the market — but also that people are still raising:
As I’ve written before, this feels like an inflection point in healthcare in general. Telehealth is now an accepted modality, but companies that offer commoditized telehealth, like Teladoc and Doctor on Demand, are struggling. Virtual care models are promising, but the transition into B2B sales might be challenging as companies try to straddle the need to be specialized with being a less-sellable point solution. Complicated M&A in the name of “value-based care” seems likely to give way to more straightforward consolidation as companies try to shore up their strategies in a less excitable market. Through it all, traditional healthcare companies remain bulwarks against change — for good or bad.
I’m an optimist and a “healthcare groupie” (as I’ve been called before), so I’m quite hopeful about the future.
This information shouldn’t be taken as investment advice (obviously), and the opinions expressed are entirely my own, not representative of my employer or anyone else.
My previous company Thirty Madison also laid off a few people following a merger, but I wasn’t involved in the process in any way, so I know exactly as much as is publicly available.