Seeking Balance in the Hyperactive Mental Health Tech Market

The prevalence of psychological and behavioral well being situations has been on the rise in current a long time, additional aggravated by the pandemic within the final two years. Social isolation, grief from the lack of family members, concern of contracting the virus, and monetary worries had been all main stress components that more and more affected the psychological wellbeing of the inhabitants, and the ensuing statistics are startling: the common share of adults with signs of tension or depressive problems jumped from 1 in 10 pre-pandemic ranges to 4 in 10 in early 2021. Whereas the pandemic has definitely triggered an increase in psychological and behavioral well being situations, it has additionally illuminated a rising disaster that has been perpetually stigmatized and buried for many years, bringing it to the forefront of dialog, together with a wave of latest improvements aiming to alleviate the disaster.

Regardless of the rising prevalence, roughly half of these with psychological well being wants go untreated, a posh pattern largely pushed by insufficient insurance coverage protection, stigmatization, and lack of entry. Whereas Covid-19 initially exacerbated difficulties in entry, the swift public emergency declarations that led to the easing of rules proved a catalyzer for distant fashions that had beforehand struggled to realize adoption. Nevertheless, it’s unclear how lengthy these lodging will proceed, notably these with potential pitfalls, comparable to the flexibility to prescribe stimulants to new sufferers with out at the very least one in-person go to, which has led to sure corporations coming beneath scrutiny in current months.

The huge array of stakeholders in behavioral and psychological healthcare has resulted in a large and intensive vary of options, as will be seen in HGP’s two market maps: supplier know-how which spans care supply, care documentation, and care analysis, and client and member know-how which incorporates each provider-guided and self-guided options. Rising demand for digital well being options, elevated consciousness, and loosened rules have led to a flurry of deal exercise throughout all psychological and behavioral well being sectors, with common quarterly funding quantity rising 60% from pre-COVID to post-COVID, and common quarterly funding worth skyrocketing 300%. Driving these traits are rising valuations, maturing corporations elevating bigger rounds, and keen buyers trying to deploy capital into the booming sector.

Whereas the marketplace for psychological and behavioral well being is giant and ever-growing, the last word query is whether or not there’s sufficient market share to go round to assist the $4.6 billion invested since 2020.  Already, there are indicators that the market is cracking.  Buyer acquisition prices are rising as corporations combat for members, entry to clinicians is exacerbated by provide constraints, pricing is beneath strain on account of intense competitors, and in lots of end-markets gross sales cycles are prolonging.  The general public market already displays these challenges – Accolade, Amwell, Lifestance, Talkspace, and Teladoc have seen their inventory costs plummet. A part of the disruption skilled by the general public corporations is because of private-equity-backed corporations taking part in by a distinct algorithm – the personal corporations can afford development in any respect prices whereas the general public comps should show a capability to function at scale. 

Because of the development philosophy, many rising development corporations function with sub-scale gross margins and vital working losses.  In the meantime, buyers are shifting away from growth-at-all-cost fashions.  Corporations funded over the past two years will virtually inevitably have to faucet buyers for extra capital, and a key unknown is whether or not personal buyers, like their public counterparts, refocus their funding standards towards stronger working metrics that make the subsequent spherical of capital much less forgiving than the post-COVID growth. 

Notable transactions within the client and member tech class embrace:

• Pear Therapeutics, software-based drugs supplier, made its mark in 2017 as its software turned the primary digital therapeutic accredited by the FDA with claims to enhance scientific outcomes. The Firm has since raised a complete of $271mm, and finally went public in 2021 by way of a reverse merger. With elevated competitors, corporations within the house are eyeing FDA approval as a key level of differentiation.
• Meditation and mindfulness have been not too long ago embraced as efficient strategies for dealing with stress, a pattern that was additional accelerated with Covid-19 as People rushed to obtain mindfulness apps. Whereas new apps proceed to pop up seemingly daily, the Headspace merger with teletherapy supplier Ginger.io alerts a shift in the direction of complete bundled options that higher deal with the total continuum of psychological well being wants.
• Substance abuse problems had been exacerbated by Covid-19, with 1 in 3 People reporting a rise in utilization throughout the pandemic. Diminished stigma within the house has attracted buyers and led to corporations tackling particular problems comparable to opioids, alcohol, tobacco, and consuming. Corporations comparable to opioid addiction-focused Ophelia, which raised $50mm in 2021 at a post-money of $275mm, are eradicating obstacles for sufferers searching for therapy.
• The psychological well being disaster was acutely felt amongst youngsters and adolescents, because the pandemic introduced adjustments comparable to distant studying and a wave of latest stressors. Brightline, which presents a digital well being resolution designed to assist children and teenagers, has raised $202mm and is valued at $705mm, and is among the many corporations aiming to supply family-oriented options.
• Cerebral first made headlines as one of many unique members of the psychological well being unicorn firm cohort, elevating $126mm at a $1.13B valuation in June 2021, and one other $300mm at $4.8B valuation, simply 6 months after the earlier spherical. Nevertheless, the corporate is now dealing with intense backlash over its prescribing practices.
• The telehealth house has seen a surge of latest entrants, however giants comparable to Sondermind, which raised $242mm in 2021 at a $1.64B valuation, and AbleTo, which was acquired by Optum for $470mm in April 2020, proceed to dominate the house, however not with out feeling the strain from the brand new gamers.

Notable transactions within the supplier tech class embrace:

– LifeStance, a supplier of digital and in-person outpatient psychological well being care, made its preliminary splash in Could 2020 with its $1.2B buyout, which was shortly adopted by its IPO in June 2021. The inventory has plummeted since its IPO, ending Q1 2022 ~70% down from it’s 52-week excessive, a response that highlights Lifestance is among the many public corporations feeling strain from each rivals and buyers dissatisfied with the reported working losses.

– Amongst these rivals upping the strain for public corporations is Quartet Well being, which is targeted on offering an infrastructure and care navigation platform for psychological healthcare. Quartet has not solely raised vital funds, the newest Collection E valuing it at $991mm, however can also be making strategic M&A strikes, with its acquisition of InnovaTel.

– In an space as advanced and dynamic as behavioral well being, persevering with schooling is essential. Platforms comparable to Motivo, which has raised early enterprise rounds, are aiming to supply instruments for each aspiring suppliers and scientific specialists, whereas additionally serving to deal with the licensed supplier scarcity. Funding on this sector is early and minimal as in comparison with different sectors, as few schooling platform are centered solely on psychological and behavioral well being.

– A number of corporations comparable to Eleos Well being, which raised a $20mm Collection A in April 2022, and Ellipsis Well being, which raised a $26mm Collection A in July 2021, are offering novel know-how that leverages voice AI and voice evaluation that ends in actionable scientific insights in addition to elevated effectivity.

– A cornerstone of the psychological and behavioral well being tech market is PM/ EMR methods, which provide suppliers instruments that streamline apply administration, knowledge seize, and billing. The class has many notable gamers, together with Remedy Manufacturers which was recapitalized by Kohlberg Kravis Roberts in Could 2021 at a $1.2B valuation, Netsmart which was recapitalized by GI Companions and TA Related in December 2018, and Qualifacts and Credible which merged in August 2020.

HGP certified US-based corporations for the market landscapes based mostly on $1mm+ institutional funding or M&A since 2018. Due to Andrea Stone from the UT Well being College of Biomedical Informatics for her contribution to this analysis.

About Healthcare Development Companions (HGP)

Healthcare Development Companions (HGP) is a Houston, TX-based Funding Banking & Strategic Advisory agency solely centered on the transformational Well being IT market. The agency gives  Promote-Facet Advisory, Purchase-Facet Advisory, Capital Advisory, and Pre-Transaction Development Technique providers, functioning because the unique funding banking advisor to over 100 well being IT transactions representing over $2 billion in worth since 2007.