The prevalence of mental and behavioral health conditions has been on the rise in recent decades, further exacerbated by the pandemic in the last two years. Social isolation, grief over the loss of loved ones, fear of contracting the virus and financial worries were major stressors that increasingly affected the mental well-being of the population, and the resulting statistics are alarming: the average proportion of adults with symptoms of anxiety or depressive disorders jumped from 1 in 10 pre-pandemic levels to 4 in 10 in early 2021. While the pandemic has certainly triggered a rise in mental and behavioral health conditions, it has also exposed a growing crisis that has been perpetually stigmatized and buried for decades, bringing it to the forefront of the conversation, along with a wave of new innovations. designed to alleviate the crisis.
Despite rising prevalence, about half of people with mental health needs are not receiving treatment, a complex trend driven largely by inadequate insurance coverage, stigmatization, and lack of access. While Covid-19 initially exacerbated access difficulties, the rapid public emergency declarations that led to the relaxation of regulations proved to be a catalyst for remote models that had previously struggled to gain adoption. However, it’s unclear how long these adaptations will continue, particularly those with potential drawbacks, such as the ability to prescribe stimulants to new patients without at least one in-person visit, which has brought certain companies under scrutiny in recent years. months.
The wide range of stakeholders in behavioral and mental health has resulted in a wide and extensive range of solutions, as can be seen in HGP’s two market maps: provider technology spanning care delivery, documentation of care and care assessment; and consumer and member technology. including both vendor-driven and self-guided solutions. Growing demand for digital health solutions, heightened awareness and loosening regulations have led to a flurry of business activity across behavioral and mental health sectors, with average quarterly investment volume increasing 60% from pre-COVID to post-COVID, and an average quarterly investment value shot up 300%. These trends are driven by rising valuations, mature companies landing larger rounds, and enthusiastic investors looking to deploy capital in the booming sector.
While the behavioral and mental health market is large and constantly growing, the ultimate question is whether there is enough market share to support the $4.6 billion invested since 2020. There are already signs that the market is cracking. . Customer acquisition costs are rising as companies fight for members, access to doctors is exacerbated by supply constraints, prices are under pressure from intense competition, and, in many end markets, Sales cycles are getting longer. The public market already reflects these challenges: Accolade, Amwell, Lifestance, Talkspace and Teladoc have seen their share prices plummet. Part of the disruption experienced by public companies is because private equity-backed companies are governed by a different set of rules: private companies can afford to grow at all costs, while public companies must demonstrate the ability to operate. to scale.
Due to the growth philosophy, many emerging growth companies operate with below-scale gross margins and significant operating losses. Meanwhile, investors are turning away from growth models at all costs. Companies funded in the past two years will almost inevitably need to turn to investors for more capital, and a key unknown is whether private investors, like their public counterparts, refocus their investment criteria toward stronger operating metrics that make the next round of capital to be less forgiving than the post-COVID boom.
Notable transactions in the consumer and member technology category include:
- pear therapeutics, provider of software-based medicines, made its mark in 2017 when its tool became the first FDA-approved digital therapeutics with claims to improve clinical outcomes. Since then, the company has raised a total of $271 million, eventually going public in 2021 through a reverse merger. With increased competition, companies in the space are looking at FDA approval as a key point of differentiation.
- Meditation and mindfulness have recently been embraced as effective methods of dealing with stress, a trend that was further accelerated by Covid-19 as Americans rushed to download mindfulness apps. While new apps seem to keep popping up every day, the Head space merger with teletherapy provider ginger.io signals a shift towards comprehensive packaged solutions that better address the full continuum of mental health needs.
- Substance use disorders have been exacerbated by Covid-19, with 1 in 3 Americans reporting increased use during the pandemic. The diminished stigma in the space has attracted investors and prompted companies to address specific disorders such as opioids, alcohol, tobacco and diet. Companies like those focused on opioid addiction opheliawhich raised $50 million in 2021 with a subsequent investment of $275 million, is removing barriers for patients seeking treatment.
- The mental health crisis was felt acutely among children and adolescents, as the pandemic brought changes like remote learning and a wave of new stressors. bright linewhich offers a digital health solution designed to help children and adolescents, has raised $202 million and is valued at $705 million, and is one of many companies looking to provide family-oriented solutions.
- Cerebral first made headlines as one of the exclusive members of the mental health unicorn cohort of companies, raising $126 million at a valuation of $1.13 billion in June 2021, and another $300 million at a valuation of $4.8 billion, just 6 months after the previous round. However, the company is now facing intense backlash for its prescription practices.
- The telehealth space has seen a surge of new entrants, but giants like Sondermindwhich grossed $242 million in 2021 at a valuation of $1.64 billion, and Able towhich was acquired by Optum for $470mm in April 2020, continues to dominate the space, but not without feeling pressure from new players.
Notable transactions in the technology provider category include:
– LifeStance, a virtual and in-person outpatient mental health care provider, made its initial appearance in May 2020 with its $1.2 billion purchase, which was quickly followed by its June 2021 initial public offering. plummeted since its initial public offering, ending the first quarter. 2022 ~70% down from its 52-week high, a reaction that highlights that Lifestance is among the public companies feeling pressure from both competitors and investors disappointed with reported operating losses.
– Among the competitors increasing the pressure for public companies is Health Quartet, which is focused on providing a care navigation platform and infrastructure for mental health care. Quartet has not only raised significant funds, the latest Series E values it at $991 million, but it is also making strategic M&A moves, with the acquisition of InnovaTel.
– In an area as complex and dynamic as behavioral health, continuing education is key. Platforms like reason, which has raised initial rounds of venture, aims to provide tools for both aspiring providers and clinical experts, while also helping to address the shortage of licensed providers. Funding in this sector is early and minimal compared to other sectors, as few educational platforms focus solely on mental and behavioral health.
– Various companies such as Eleos Healthwhich raised a $20mm Series A in April 2022, and Ellipsis Healthwhich raised a $26mm Series A in July 2021, is providing novel technology that leverages voice AI and voice analytics resulting in actionable clinical insights as well as increased efficiency.
– A cornerstone of the behavioral and mental health technology market is PM/EMR systems, which offer providers tools that streamline practice management, data capture and billing. The category has many notable players, including therapy brands which was recapitalized by Kohlberg Kravis Roberts in May 2021 at a valuation of $1.2B, intelligent which was recapitalized by GI Partners and TA Associated in December 2018, and qualities Y Credible which merged in August 2020.
HGP rated US-based companies for market outlooks based on institutional funding or M&A of more than $1 million since 2018. Thanks to Andrea Stone of the UT Health School of Biomedical Informatics for their contribution to this research.
About Healthcare Growth Partners (HGP)
Healthcare Growth Partners (HGP) is a Houston, TX-based investment banking and strategic advisory firm focused exclusively on the transformational healthcare IT market. The firm provides Advice on the sale side, purchase notice, Capital AdvisoryY Pre-transaction growth strategy services, serving as the exclusive investment banking advisor for more than 100 healthcare IT transactions representing more than $2 billion in value since 2007.
