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Shaken but not Deterred – Digital Health Tech

Sentiment and valuations have been reset, but the underlying themes driving digitization in Health Care remain intact. 2021 was a tough year for most of the publicly traded digital health/HCIT companies. The promise of clinical and financial benefits to the healthcare ecosystem from these disruptors was more than offset by shifting investor focus (from just top-line growth to revenue growth coupled with a realistic path to profitability, favorable unit economics, and attractive LT margin profiles), increasing competition (including increased interest and investment from traditional insurers, tech giants, etc.), and the lack of visibility into a “normalized” environment. However, this did not stop the digital health space from continuing a massive transformation that started almost two years ago. In addition to rollouts of new products/services, the digital health consolidation wave also continued.

Our survey of public equity investors indicates a drop in investor sentiment for the HCIT/digital health group. Of the 81 institutional investors we surveyed, only 27% are bullish on HCIT/digital health heading into 2022. Last year, around 74% of our investor respondents were bullish on HCIT/digital health heading into 2021. Significant opportunities still exist for making the US healthcare system more efficient and improving patient experience and outcomes, and investors recognize that. While valuations in the public-market have moderated significantly from the peak, excitement and interest remain high.

For Healthcare Distributors, the recovery in patient/provider interactions, prescription volumes, and general healthcare utilization as well as the continuing adoption of biosimilars and other specialty therapeutics will continue to serve as a tailwind. With stable balance sheets & attractive cash flow profiles, distributors maintain attractive capital deployment flexibility.

In our study of e-brokers, our researchers note that, in 2021, every company in the group had some noise, confusion issues, or both, which drove significant volatility in the space. Our researchers also saw a decline in investor interest as 2021 progressed. Our researchers also believe that some of the operational challenges could persist for the e-brokers in 2022.

@Jailendra Singh