Telemental health demand isn’t enough to save some startups

The news: Telehealth giant Amwell made a second bid for online therapy provider Talkspace, offering about $200 million, per The Calcalist.

How we got here: Talkspace was the first online mental health company to go public and its financial trajectory provides a cautionary tale for others in the space.

• Talkspace went public in mid-2021 via a SPAC deal with Hudson Executive Investment Corp. that valued the company at about $1.4 billion.
• However, Talkspace’s stock price plummeted to just $0.60 on November 25, the last closing date before the talks with Amwell went public. Amwell’s offer of $1.50 per share represents a 150% premium over its stock price.
• While its B2B revenues grew 72% in the first three quarters of 2022 (to $89 million), its D2C revenues dropped 24% following an earlier decision to cut marketing spending.
• Amwell isn’t the first suitor Talkspace rejected. It was approached by rival Mindpath Health in May.

The telemental health boom: The pandemic accelerated a growing mental health crisis in the US, as well as a boom in money for mental health startups.

• 90% of US adults say mental health is a crisis, per an October 2022 CNN/Kaiser Family Foundation poll.
• Mental health issues account for the lion’s share of telehealth medical claims. In August, they made up 65% of all telehealth claims, according to Fair Health.
• The record amounts of capital ($4.5 billion, 137 deals) invested in mental health companies in 2021 enabled them to expand and scale their platforms early in 2022, Silicon Valley Bank reported in October.
• But just $1.9 billion (92 deals) went to mental health companies in the first three quarters of 2022, per SVB.

Now the telemental health market is shifting: This year’s economic downturn has had a significant impact on digital health companies. The volatile equity markets have sent valuations plunging and caused layoffs across the industry.

• In the telemental health space, D2C models are under growing financial pressure from higher therapist-related labor costs and the higher marketing spending needed to acquire new customers.
• Talkspace is in the process of pivoting from a D2C to a B2B model, selling its services to self-insured employers. That may be why B2B-focused Amwell is interested in buying it.
• Shifting strategies is a promising step, as 67% of US employers surveyed by WTW (formerly Willis Towers Watson) plan to make employee mental health and emotional wellbeing programs and solutions one of their top three health priorities over the next three years.
• AI-based telemental services like Kai.ai, Sayana, Woebot Health, and Wysa could be winners, as their labor costs for professional therapists could be lower.
• 47% of US adults were interested in using a mental health chatbot or AI therapist, per a Woebot Health survey.

Our take: The telemental health segment is oversaturated and even growing demand for services won’t keep many startups afloat. Shifting from a D2C to a B2B model takes time, and most employers want solid performance data showing improved patient outcomes before they agree to offer a company’s services to employees.

Insider Intelligence estimates that 74.1 million US adults will use telemental health services in 2022, about three-quarters (74.8%) of all telehealth users. By 2025, telemental health users will grow to 100.8 million, or 86.4% of all telehealth users.

This article originally appeared in Insider Intelligence's Digital Health Briefing—a daily recap of top stories reshaping the healthcare industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.

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