Digital health companies interested in going public must convince potential investors that their companies will succeed where others have faltered.
During the early 2020s venture capital funding boom, more than two dozen digital health companies that achieved "unicorn" valuations of more than $1 billion had initial public offerings. Many of those companies have struggled to achieve profitability and have laid off employees, sold lagging businesses, been taken private or filed for bankruptcy.
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IPOs from digital health companies were at a near two-year standstill until healthcare payments company Waystar and precision medicine company Tempus went public in June. The lack of IPO activity and public skepticism over the efficacy of some digital health tools has led many companies to take a conservative approach to their funding alternatives.
Still, there is a growing consensus among investors and industry experts that companies' need for capital and a slightly improved macroeconomic outlook could produce more IPOs in 2025. Formulating a compelling communications strategy — and doing it early in the process — to put in front of potential investors is said to be key.
“There are no great [comparisons] in digital health right now,” said Jon Swope, managing director in the healthcare investment banking group at Barclays. “We’re back to a place where we need to communicate to investors why a pre-IPO company stands on its merits."
It's equally important to abide by the disclosure rules set for publicly held companies by the Securities and Exchange Commission. The public disclosure of finances, risk factors, operational details and information on executives and competitors can be a lift for companies used to operating behind closed doors. Getting it wrong can expose the company and its executives to shareholder lawsuits or enforcement actions.
Before chronic care management company Livongo went public in 2019, it developed three narratives, said John Hallock, who was Livongo's senior vice president of corporate communications. The first revolved around how its core product saved employers money, the second highlighted patient experiences and the third focused on its technology and artificial intelligence products.
"That takes, gosh, a good year, year and a half to really start that drumbeat," said Hallock, now chief communications officer at healthcare navigation technology company Quantum Health. "It can't be, 'Hey, we did an announcement and we're good.' It has to be a cadence."
Hallock said too many companies outsource the majority of that work to public relations or investor relations firms before building in-house teams. Those employees can advocate internally to board members and executives.
In the years since the IPO of Livongo, which later was sold to Teladoc, the communications strategy for pre-IPO companies has changed, said Matt Wolf, director and healthcare senior analyst at consultancy RSM.
Investors are valuing predicted revenue growth less because they are able generate reasonable returns on companies with a clearer path to profitability, Wolf said. As a result, higher interest rates have led many investors to back companies with stable operations and reliable growth that likely would have been passed over in years past.
Hallock said digital health companies are under more scrutiny by potential investors, media outlets and the public. To boost its profile, Waystar made multiple announcements and publicized research studies in the months before it went public.
In May, Waystar announced it was using Google Cloud’s generative AI technology to enhance its revenue cycle management technology. In February, the company said its tools would work with electronic health record company Meditech’s system. The company viewed the IPO, in part, as a way to boost its name recognition and separate from competition, CEO Matthew Hawkins said in an interview shortly after the IPO.
“It gives us awareness and visibility,” Hawkins said. “We want to be known. Being publicly traded gives us that awareness.”
The changing environment requires startups to balance the discipline investors value with the risks needed to position a company for an IPO, said Christina Farr, a health technology investor and consultant to startups. Taking a conservative approach to messaging can reduce name recognition and ultimately inhibit growth. Companies should lean into narratives around topics like patient experience and improved access to care, she said.
“I think it's positive that we're being more interested rightsizing these businesses and ensuring that that they profitable or at least on that track,” Farr said. “They should do the opposite when it comes to their communications. It's in that arena that more of these companies need to take risks.”
