Digital health firms prepare for multi-billion dollar IPOs

A gang of digital health start-ups worth a combined $7.6 billion are preparing for IPOs after three years of inactivity, according to a press report.

Regular readers of pharmaphorum will have noted that digital health firms have attracted billions of dollars of investment from private backers, with 2018 proving to be a vintage year where the sector raised $9.4 billion in backing from VCs.

But that investment may have peaked as VC investment figures for Q1 this year were down compared with the same period in 2018, although it’s too early to say whether this was caused by disruption to the US financial system caused by the 35-day government shutdown at the start of the year.

But there have been no initial public offerings (IPOs) in digital health for three years, noted Business Insider, and this could be about to change.

According to the report, companies like Livongo, SmileDirectClub, Health Catalyst and Ancestry could go public this year.

The last digital health IPO of note came in 2016 when cardiac monitoring company iRhythm listed for the first time.

According to experts interviewed by Business Insider the reason for this is that digital health firms are beginning to offer much more than software.

By providing technological solutions that can be used across the healthcare system to make care more efficient, the companies are gaining the critical mass to grow into really large companies.

The article cited Graham Brown, a partner at Lerer Hippeau, who said that companies such as SmileDirectClub are included in this new breed of digital health company.

SmileDirectClub offers patients custom-made invisible tooth-aligners designed with the help of a digital scan generated from a kit sent to a patient’s home.

This is backed by a payment system that allows patients to split costs into monthly instalments.

Brown said: “I think it's in part that you have models that have a high consumer appetite and the ability to monetise well in a way that people hadn't approached before.”

While the IPOs could be transformational for the digital health firms, success in the long-term will require them to have well-established business models, according to Business Insider.

Experts interviewed noted that tech firms such as Lyft and Uber have struggled since their IPOs because of issues with the foundations of their companies.

Adam Goulburn, a partner at Lux, is looking forward to the financial details the companies will share ahead of any IPOs.

“They're going to be much more business rather than vision driven,” he said.