Investors predict the winners and losers in America’s shift to digital health during the pandemic

Digital health is one of the sectors that has been thriving in the pandemic. Venture investors backed companies to the tune of $3.1 billion,  more than in any first quarter of any previous year since 2016, according to Rock Health.

But not every company in the field will do well, despite the fact that more Americans are now opting for virtual doctor visits, online drug purchases and at-home medical testing. Investors suspect there will be some home runs because of Covid-19 and some abject failures.

Either way, all eyes are on health tech as Americans seek alternatives to traditional brick-and-mortar care. For that reason, CNBC selected a cohort of some promising digital health start-ups on its 2020 Disruptor 50 list, spanning biotech, health-technology and pharmaceuticals. They include GoodRx, Healthy.io and Butterfly Networks. Many of these businesses have transitioned a chunk of their talent and resources to support the Covid-19 effort and are raising sizable funding rounds along the way.

To find out which kinds of companies are likely to do well — and not so well — in the coming months, we spoke to a half-dozen investors, entrepreneurs and academics to get their take.

Here’s what they had to say.

Telemedicine companies have seen skyrocketing usage during the pandemic, particularly in the months of March and April. Analysts now expect that visits could top 200 million this year, up from the previous estimate of 36 million. Many of the largest companies in the space, including American Well, or “AmWell,” that connects patients with doctors online, are raising capital just to keep up with demand and are weighing the public markets. The Boston-based  company, which recently confidentially filed for an initial public offering, has already raised more than $500 million from such investors as Teva Pharmaceuticals and Anthem.

Within the broad umbrella of telemedicine, the experts agreed that some companies are poised do particularly well.

Meghan Fitzgerald, a private equity investor and adjunct health policy professor at Columbia University, is a big believer in technology that helps seniors get cared for remotely. Many older Americans are nervous about being in nursing homes, given Covid-19 outbreaks, or seeing the doctor in-person. So technology that helps them live independently and get checked out by a remote clinical team will likely see a big upshot in demand. But it also has to be custom-built for this population because not all seniors (although some are very tech-savvy) are comfortable using smartphones and other tech without support. Fitzgerland sees an opportunity for companies that offers a mix of virtual care with some in-person visits, when it’s required.

Matthew Holt, a health-technology consultant, thinks there’s a big opportunity for more companies to “bridge the gap” between remote monitoring for patients at home, telehealth and behavioral care, including to bring all of the information into one place. He also thinks that there’s a growing need for technology that can predict which patients will likely need to get seen in person, rather than continuing to stay home. Those sorts of applications, many of which will claim to offer artificial intelligence technology, could see skyrocketing demand, and they could be adopted by health insurance plans.

Dan Gebremedhin, a doctor and investor with Flare Capital, is bullish on area of health care that is notoriously underfunded: diagnostics. During Covid-19, many diagnostics companies have shifted to helping develop Covid-19 tests, which remain in short supply, and that’s been a big boon for their business. Others have focused on at-home medical testing for other conditions that will still affect patients during the pandemic, such as Healthy.io’s at-home urinalysis test.

Gebremedhin is also feeling optimistic about start-ups that sell into the Medicaid market or serve the non-insured, given rising unemployment.  GoodRx,  does just that and is reporting huge growth. GoodRx, which aims to help people save money on their prescription medications, was valued at $2.85 billion at its last valuation in 2018.

Behavioral or mental health is another big area, according to many of the experts, given that stress and anxiety is at an all time high. Companies like Big Health, which recently raised $39 million, have reported major growth by focusing on helping people get better quality sleep. Another company in the space, AbleTo, just sold to United Health’s Optum for $470 million. Many of the app makers say that demand is continuing to spike, even as people start to feel more comfortable seeking care in person.

As the health-care industry continues to evolve digitally, there are some services that are not expected to make the shift significantly. Pregnancy care is one area that will stay relatively stable, says Carolyn Witte, the CEO of Tia, a five-year-old start-up backed by veteran venture capitalist John Doerr, among other institutional investors, that specializes in women’s health services including birth control and behavioral health. Some services can be done online, but there’s also a heavy in-person component to caring for pregnant patients. And that won’t change much, even during a pandemic.

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“You can do a lot of the wrap around consults virtually — triage, nutrition, even fertility testing at home,” notes Witte. “But you can’t do core obstetrics visits virtually, including the ultrasound, so pandemic or not, pregnant women still need to go to the doctor.”

Gebremedhin agrees that there’s a whole sector of the health economy that can’t be easily conducted virtually. That will still continue, particularly if the patient isn’t in a position to get the care they need remotely. Many patients will still go into the hospital or doctor’s office for chemotherapy or for dialysis, for instance.

Health-care consulting services that help providers and other groups figure out how to make budget cuts during the pandemic will also see their business stay stable or remain unchanged, notes Pranay Kapadia, the CEO of health-tech start-up Notable, a company that helps doctors transcribe their patient visits. Some, of course, will lose business as their clients struggle and even go bankrupt. But others will see it pickup as hospitals look for ways to stabilize after a particularly rough few months.

Health systems lost millions of dollars per day in the spring just for staying open. And the situation could be bleak for several years as hospitals struggle to recoup their losses. Many were hit hard because they needed to delay nonessential elective procedures, which are a major source of revenues. Current estimate indicate that health systems in April lost between $1 billion and $1.2 billion per day.

So Fitzgerald, the private equity investor, doesn’t see herself investing in companies that don’t have a clear path to reimbursement in the short-term. Start-ups that are approaching hospitals asking them to forge tech and IT deals that cost them millions of dollars could struggle. “This is the worst time to ask someone (at a hospital) to empty their pockets,” she said.

She’s also wary of companies that are pure brick-and-mortar, meaning there’s no virtual offering when there should be. Patients are starting to reschedule their visits with their doctors, but many are still using telemedicine instead. And companies should start to think about meeting that demand, if they haven’t done so already.

Gebremedhin notes that any businesses that specialize in procedures that are viewed as discretionary and optional will also struggle. That might include plastic surgery or cosmetic dermatology. That are also tech companies that are geared around these in-person patient visits, which are currently still lower than normal volumes. Companies that make apps for check-ins or provide scribes for in-person visits, for instance, will likely also be hard-hit.

Traditional retail pharmacies might also struggle, notes Stephen Buck, a pharmacy expert and co-founder of a website called cancersurvivalrates. “In the short term, people stockpiled medications, and now many are getting them via (mail) delivery … and some will never go back to in-store activity.”

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