While record funding in 2021 and 2022 launched companies to new heights, 2023 will be remembered as the year some of them came crashing down to earth.
“There are many, many organizations that just tried and failed at providing a solution,” said Peter Micca, national health tech leader at professional services firm Deloitte. But Micca said this doesn't dampen his enthusiasm for the sector at all. "I'm incredibly bullish on the future of health and innovation."
Read more: From AI to M&A: 6 digital health investors weigh in on 2024
The year was defined by higher interest rates paired with inflation and rising expectations from investors, which forced many companies to quell growth plans and focus on profitability. Silicon Valley Bank’s failure in March revealed the broader infrastructure’s challenges as digital health founders, who often relied on SVB as their bank of choice, were forced to pick up the pieces.
While many digital health companies have weathered the storm, others were forced to fold or significantly reduce operations. Here are six companies that had a particularly tough 2023.
Health IQ
Artificial intelligence-enabled life insurance startup Health IQ officially filed for Chapter 7 bankruptcy in a Delaware federal court in August, listing $256 million in liabilities and $1.3 million in assets.
Health IQ faced separate litigation from ex-customers that alleged the company breached its contracts with them. Don Beskrone, a trustee who has been given control over Health IQ's bankruptcy proceedings, did not respond to a request for comment.
The company’s bankruptcy proceedings are ongoing.
Health IQ’s former CEO Munjal Shah has gone on to launch generative AI company Hippocratic AI. Hippocratic received $50 million with backing from General Catalyst and Andreessen Horowitz, which also backed Health IQ. In his last 60 days as CEO of Health IQ in late 2022, Shah said he pitched 50 investors to save the company but it didn’t work out.
Babylon Health
Babylon Health announced a proposed deal to go private and combine with MindMaze in June. That would-be deal fell through in August, which forced the AI-enabled virtual diagnosis and medical appointments company to shutter its U.S.-based businesses after it couldn't find another buyer. It then sold portions of its United Kingdom business to eMed, a digital first primary care service and chronic healthcare management technology company, according to a Securities and Exchange Commission filing dated Aug. 31, 2023.
Babylon started the year off with high hopes. In January, then-CEO Ali Parsa predicted the company would be profitable in the near term. "It might be the end of [2024] or the beginning of [2025]. It doesn’t matter,” he said at last year’s J.P. Morgan Healthcare Conference in San Francisco in January. “We will break even.”
But it never happened. Babylon had a monthly burn rate of $15 million and was unsuccessful in previous capital raising processes, according to a blog post from consultancy Alvarez & Marsal, which brokered the eMed deal.
The AI-enabled virtual diagnosis and medical appointments company was founded in 2013 in London and went public in October 2021 through a special purpose acquisition corporation merger with Alkuri Global Acquisition Corp. A Babylon spokesperson said at the time of its IPO that the transaction would bring the company around $575 million in funding and value it at $4.2 billion.
Before it shuttered, Parsa planned to take the company private, find additional financing and create a long-term employee incentive plan, according to a regulatory filing.
Olive AI
Olive AI, a company that developed technology to help providers and insurers automate the revenue cycle and was once valued at $4 billion, sold its remaining assets and began winding down operations in October.
Olive sold its patient access software product to Waystar and prior authorization business to Humata Health. Terms of the deals were not disclosed.
Olive was one of the most well-funded startups in digital health during the industry’s boom period. Altogether, the company raised $832 million, according to research firm Crunchbase.
Despite all of this funding, Olive never established itself in the AI arms race within healthcare, critics say. Aaron Miri, a senior vice president and chief digital & information officer at Jacksonville, Florida-based Baptist Health, said companies like Olive struggled to bring value to health system and insurer customers.
“They collapsed because they actually didn’t do anything,” Miri said. “They wanted you to do all the work. You’re seeing a correction in the market where these vendors who truly are using AI [in] the way AI was meant to be done and understanding your processes while doing it are succeeding. Those who are [not]...are wondering why they're not taking off."
Cano Health
A public dispute among former board members highlighted a tumultuous year for membership-based primary care provider Cano Health.
In April, Cano faced a public clash with three former directors of its board: Barry Sternlicht, a billionaire real estate investor; Dr. Lewis Gold, co-founder of Sheridan Healthcare; and Elliot Cooperstone, managing partner of InTandem Capital Partners. The trio resigned and called for then-Cano Health CEO Dr. Marlow Hernandez to be removed. Hernandez eventually stepped down in June and Mark Kent was named interim CEO.
Cano separated the roles of CEO and board chairman in April, appointing communications executive Solomon Trujillo as chairman. The membership-based company announced in May it was exploring strategic alternatives for its non-core segment as it reported first-quarter earnings
August proved to be even more eventful for Cano. Kent had the interim tag struck from his title and was elected to the company’s board of directors. Cano said its liquidity of $125 million was not enough to cover operating, investing and financing uses for the next 12 months. That same month, Cano Health said it would lay off 700 employees, exit four markets and explore a sale.
On Monday, Cano said it had established committee to oversee day-to-day activities, management and the company’s advisers for the exploration of financing alternatives and strategic alternatives.
While the company remains alive and publicly traded, it faces a difficult road ahead. Its share price has sunk from $112 per share in January to $7.99 per share on Wednesday afternoon. Cano Health did not respond to a request for comment.
Mindstrong
On March 10, Mindstrong stopped providing service to patients and closed its headquartera in Menlo Park, California, according to a Worker Adjustment and Retraining Notification notice filed in January.
Sondermind, a digital mental health company, acquired the company on March 22. This ended Mindstrong's six-year run. SonderMind said at the time it planned to hire about 20 of Mindstrong's employees, while the remaining 100 workers would lose their jobs.
Mindstrong’s CEO Michelle Wagner said it became too difficult to navigate macroeconomic pressures and deliver on new profitability expectations from investors.
“It's hard to get to scale,” Wagner said in March. “It is hard to incorporate measurement on a personalized basis because we are human and we're all quite different in how we operate, especially in behavioral [health].”
Mindstrong received $160 million in funding from venture capital firms such as General Catalyst and ARCH Venture Partners since being founded in 2017 by Dr. Tom Insel, former director of the National Institute of Mental Health. It first started as a company that would use biomarkers to detect mental health conditions before it evolved to treat mental health through smartphone-based therapy and other services.
Pear Therapeutics
Pear Therapeutics, which developed applications for opioid use, chronic insomnia and substance use disorders, filed for Chapter 11 bankruptcy protection and eliminated most of its workforce in April.
While it was able to get some insurance coverage, its troubles mounted after going public in 2021. The company earned just under $13 million in revenue in 2022 while suffering more than $120 million in losses, according to SEC filings. Founder Corey McCann said in April the company failed because of denials from payers and market conditions.
PursueCare, a digital behavioral health provider, announced last week it acquired a pair of the former company’s Food and Drug Administration-approved digital therapies for substance use disorder and opioid use disorder. The one-time "unicorn," sold off its assets for around $6 million in total in May.
The Boston-based company was founded in 2013 and made strides that few others embarking on digital therapeutics could match. It was one of the first prescription digital therapeutics companies to get FDA clearance and take its product to market. Its therapeutics were covered by 15 Blues carriers and multiple state Medicaid plans, according to McCann.
Despite these successes, the company's failure exemplified the challenge that faces the emerging digital therapeutics industry as it tries to get payer coverage, provider acceptance and consumer adoption.