Post-pandemic reality hits digital health hard

The fall of Babylon Health marks the second major collapse of a digital health pioneer of 2023. Ben Hargreaves has a look at what went wrong for the company, and how companies in the space are tightening their belts.

Digital health has long been a major talking point in the healthcare industry, due to its potential to streamline certain elements of care and treatment. However, once the pandemic set in, its uses and advantages went from potential to reality. As stated by the WHO, digital health tools were actively used in four areas: communication and information, monitoring and surveillance, supporting provision of health services, and vaccination. According to Rock Health, investment into the area within the US subsequently skyrocketed, with $29.1 billion venture funding flooding in during 2021.

However, as the heights of the pandemic have passed, investment into the area has fallen away, and there have been warning signs appearing across the developing industry suggesting all is not healthy in the digital health space. The latest setback has seen Babylon Health fall from being valued at $3.5 billion as recently as 2021, to filing for bankruptcy and selling off its assets.

Precipitous rise

The reason Babylon Health was able to grow its valuation to such heights was based on its ability to offer artificial intelligence technology to provide ‘virtual doctor’ solutions. During the pandemic, this led the company to roll out a digital care assistant that could advise people how to diagnose and manage suspected COVID-19 infections. It also saw Babylon Health create a 10-year partnership with the UK’s Royal Wolverhampton NHS Trust to provide remote access for patients to GPs and specialists. A core part of its business was the GP at Hand virtual service that provides video consultation services to NHS patients in the UK, and also has an interactive symptom checker, providing patients with triage advice.

As the digital health company widened its influence in the UK, it decided to go public in the US on the NASDAQ. It created its listing through a special purpose acquisition company (SPAC), as part of the wave of listings that occurred during the early parts of the pandemic. At the time, Babylon Health stated that it was contracted to serve over 24 million people in 16 countries. Reuters reported that the listing would provide the company with up to $575 million in gross proceeds.

Things fall apart

Despite the optimism that greeted its listing on the NASDAQ, Babylon Health had created controversy with some of its actions and marketing. In 2018, the company’s claim that its Babylon Diagnostic and Triage System outperformed the average human doctor was critiqued in correspondence published in The Lancet. Notably, the authors concluded, “Babylon's study does not offer convincing evidence that its Babylon Diagnostic and Triage System can perform better than doctors in any realistic situation, and there is a possibility that it might perform significantly worse.”

Following this, BBC Newsnight published a short investigation into whether Babylon Health’s AI chatbot could be deemed effective, and whether there was enough evidence to prove it was safe. Dr David Watkins, a consultant oncologist at The Royal Marsden, became a notable figure in his criticism of the company’s AI chatbot, noting flaws and posting them to his Twitter/X account. Unusually for a company of Babylon Health’s size, the company posted a press release response specifically to Watkins, which stated that it had reached out to him ‘openly’, but suggested that “he prefers to troll on Twitter.” 

Babylon Health also experienced issues during the pandemic, when it attempted to sell a finger-prick blood test for previous infection with COVID-19 – this resulted in a response from the kit manufacturer, Abbott, who stated that this was not the test’s intended use. By mid-2022, there were greater signs of trouble, as Babylon Health ended flagship partnerships with two NHS trusts, including terminating its 10-year partnership with the Royal Wolverhampton NHS Trust only two years after agreeing the deal. 

Financing troubles

It should be noted that the same Rock Health report referenced previously, which found funding reach highs in 2021 for digital health, also revealed that such investment fell by half the following year in 2022. This is one of the major factors that led to the collapse of Babylon Health. By mid-2022, the company announced that it would undertake cost reduction actions to save itself $100 million per year. As the company’s troubles continued, its share price fell below the $1.00 limit placed on NASDAQ listings, forcing it to implement a reverse share split. Late in 2022, Babylon Health announced plans to sell its Independent Physician Association business, which it stated would provide it a cash runway through to making the company profitable.

As recently as March 2023, the company’s CEO, Ali Parsa, had told investors during a 2022 fourth quarter call that he expected it would become profitable by mid-2024. However, by August 2023, the company had filed for bankruptcy in the US, and sold its assets to eMed, a US healthcare services company. After debuting on the NASDAQ at $244 per share, the price of the stock had fallen to $0.50 prior to filing for bankruptcy.

Digital health under pressure

Babylon Health’s collapse arrives not long after another of the largest digital health companies, Pear Therapeutics, was forced by its financial situation into bankruptcy. The digital therapeutics specialist had similarly gone public in 2021, raising $175 million and developing a valuation of approximately $1.6 billion, only to collapse under financial strain in 2023.

One of the major talking points of Pear Therapeutics’ demise centred on whether companies in the digital health space could achieve sufficient profitability, and thereby retain the interest of investors. The pandemic period, where investment and capital were easier to secure, meant that many digital health businesses could grow rapidly, but once this funding was reduced, any expansion undertaken could badly expose any companies that had overreached.

Other companies in the space have moved to pivot towards profitability over growth. Biofourmis, a digital health company that delivers digital therapeutics, patient management, and virtual care, announced at the start of September that its CEO, Kuldeep Rajput, would be stepping down from the role, under pressure from investors to focus on profitability. Prior to this move, the company had laid off 120 employees worldwide to reduce costs.

This type of action is becoming common across the digital health space, as companies navigate the post-pandemic environment that currently sees less demand for digital solutions. In some respects, the pandemic was both a gift and a cure for the digital health space – proving both that it has some important uses, but also raising questions about whether society is prepared to pay for these uses outside of emergency situations.