Over the past five years, publicly traded health tech companies have lagged behind key market indices, presenting an underwhelming picture of the industry. In order to measure health tech market performance, a study has been conducted using a cohort of 32 publicly traded health tech companies, including healthcare SaaS and tech-enabled services. Here, public and private market performance, benchmarking and best practices, as well as emerging predictions for 2024 are evaluated. 

Why it’s notable: 

• Between 2018 and 2023, the health tech market faced several challenges. These include an underwhelming public market performance and a projected fall in venture capital funding of 65% from its $29 billion peak in 2021 to about $10 billion in 2023. Despite these challenges, this trend is seen as a cyclic market correction rather than a reflection of the industry's long-term potential. The health tech sector is still considered promising due to its resilient founders, ample capital, and a large market opportunity. 

• In recent years, the health tech industry has experienced a “hype cycle”. The market has followed three phases starting with a “technology and regulation trigger”, that saw digital health companies emerge driven by changes in regulation and the adoption of cloud technology. This led to a “peak of inflated expectations”, with a major decline correcting for the public market enthusiasm during the early stages of the pandemic. This was subsequently followed by a decline into the “ trough of disillusionment”, with more stable performance seen since May 2022. 

Industry Implications:

• Achieving scalability for business requires a careful balance between high growth and profitability. It is suggested that shifting focus from revenue to metrics like gross profit and scalability score may be a more favourable option to balance growth and profitability. The analysis emphasised this, highlighting a strengthened correlation between valuations and scalability scores in health tech companies over the past year. Additionally, the analysis underscored the shift in focus to scalability in the private market, which will hopefully trickle down to founders, operators and investors, resulting in more companies reaching scale with more profitable business models. 

• While the initial years of the digital health sector may have been turbulent, it would seem that the industry is following a typical pattern of innovation cycles. The future of health tech is seen as promising, with several trends and predictions emerging. These include the rise of "Services-as-Software" driven by AI, efforts to align incentives in healthcare payments, a focus on making the biopharma value chain more efficient, and the importance of diversifying business models. Startups that can address these areas with the right characteristics, such as solving vital issues and demonstrating strong ROI, are expected to succeed.

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