The optimism that began the year for many direct-to-consumer telehealth companies has given way to a tougher reality.
Businesses that offer direct-to-consumer telehealth, companies that prescribe medications and other treatments to patients through subscription plans, are struggling with high advertising costs and a decline in consumer demand. Scott Schoenhaus, managing director of healthcare technology at KeyBanc Capital Markets, said direct-to-consumer telehealth has become a costly business to run.
Read more: Where is direct-to-consumer telehealth headed in 2024
"The general sort of thesis for this whole group is that it's expensive, particularly given the decelerating macroeconomic environment," Schoenhaus said.
After the sector began the year with high hopes, companies of all sizes have been forced to pivot from their initial plans. This includes technology giant Amazon, which moved on the direct-to-consumer telehealth marketplace in June after only 19 months and.
Here are the trends that have affected direct-to-consumer telehealth in 2024.
GLP-1 companies face high ad costs but strong demand
The rising popularity of glucagon-like peptide agonists, or GLP-1s, has led to numerous companies to offer telehealth weight loss services directly to paid subscribers. The list includes WeightWatchers, Hims & Hers, Ro and several other startups. While GLP-1s are popular with consumers, customer acquisition costs have caused some of these companies to adjust growth plans.
WeightWatchers, which recently refocused its business towards GLP-1s, said Thursday it was laying off an undisclosed number of employees and cutting costs as it struggles to stay afloat in a new era of obesity treatment. During a call with analyst investors on Thursday, CEO Sima Sistani said the company postponed the roll out of a marketing campaign that was initially set to begin in the second quarter partly due to high advertising costs.
Hims & Hers, which sells compounded and branded GLP-1 medications to consumers, also cited rising advertising costs as a possible threat to the company’s revenue growth in a May earnings report. The company declined to answer questions about its advertising costs ahead of its second-quarter earnings call on Aug. 5.
Despite the challenges with advertising costs, many of these companies are still eager to provide a platform where clinicians can prescribe GLP-1s directly to consumers. Eli Lilly, which makes GLP-1 medications Zepbound and Mounjaro, said in January it was launching a direct-to-consumer telehealth service called LillyDirect.
Direct-to-consumer telehealth company Ro has seen its weight management offering become one of its top drivers of business only 18 months after it launched in January 2023, according to co-founder and CEO Zachariah Reitano. Ro has increased its advertising budget year-over-year as it deals with increasing demand, Reitano said.
As more companies enter the space, there is a race to differentiate products and services. Many are placing a significant value behind their branding, Schoenhaus said.
Mental health telehealth companies struggle to show value
Companies offering mental and behavioral health directly to paid subscribers also face challenges with high advertising costs. But unlike those in the GLP-1 space, they're dealing with shrinking consumer demand. The majority of teletherapy platforms have seen consumer spending drop this year, according to an analysis published by KeyBanc Capital Markets in July.
Teladoc Health is attempting to reposition its direct-to-consumer mental health subscription platform BetterHelp to counter declining revenues and usage. Teladoc is also pursuing U.S.-based insurance coverage for BetterHelp in response to rising customer acquisition costs and planning to broaden its international expansion with a focus on some non-English speaking markets.
Many customers said they left the direct-to-consumer mental health service because of high out-of-pocket costs, said Teladoc CEO Chuck Divita during a second-quarter earnings call on Wednesday. Challenges with BetterHelp led Teladoc to reporting a goodwill impairment charge of $790 million, or $4.64 per share, during the quarter. The company previously estimated flat to low-single-digit revenue growth for BetterHelp in 2024 but revenue for the segment has fallen each of the first two quarters. As a result, Teladoc pulled guidance for BetterHelp for the rest of the year.
Teladoc is not the only one to undergo a pivot away from subscription plans. Virtual mental health company Talkspace, which has had a lagging direct-to-consumer business in recent years, is using marketing efforts to inform consumers its services are covered by insurance, said Chief Marketing Officer Katelyn Watson. In May, it also rolled out its services to 13 million Medicare members across 11 states with plans to expand to 33 million members nationwide by the end of the year.
Not everyone in mental health is shifting away from direct-to-consumer telehealth. In April, mental health company Headspace launched a direct-to-consumer coaching service to broaden its reach beyond enterprise customers.
Fundamental challenges will continue for many of these companies during the remainder of 2024 and into 2025, said Tom Cassels, managing director at law and consulting firm Manatt Health. Cassels said many direct-to-consumer mental health companies are more focused on bringing quick access to patients rather than retaining them.
“Mental health is a chronic condition and chronic conditions require ongoing care,” Cassels said. “I think it's really difficult for companies that are based on speed to access, not coordination and retention within a care plan.”
