If this is the age of Big Tech and Big Pharma, then health technology providers should be thriving. some are. U.S.-based Hims and Hers, whose sales rose by two-thirds last year to $872 million, is expected to post its first annual profit this year. The company's shares have risen more than 40% in the weeks since the report was released.
This is a broad church that spans online doctors, medical big data platforms, artificial intelligence-assisted diagnosis, and robots. Operators include traditional pharmacies such as Boots in the UK, which has launched an online doctor service for certain conditions, as well as a host of start-ups in the US and Europe. China beats many to the punch with companies like WeDoctor and Ping An Good Doctor.
At the basic end, telemedicine providers diagnose and dispense medications. Going online doesn't make people blush: Issues such as hair loss, weight loss, erectile dysfunction and sexually transmitted diseases are not without reason. Generic pills and potions come in chic minimalist packaging.
However, as he and she well know, this can be a morbid thing. The pandemic-induced boom faded as people returned to traditional surgeries and pharmacies.
Star companies during the boom, such as Carbon Health in the United States, tell an all too common story. In 2021, it was driven by funding from the likes of Blackstone Horizon and ambitions in primary care in the United States. But the bubble burst and the operator carried out its fourth round of layoffs last month. The operator also has physical clinics and has been actively involved in Covid-19 testing and vaccinations.
High interest rates and investors' new insistence on profitability have scarred business models. A crowded market means high customer acquisition costs. The same goes for the end of the pandemic. Despite its size, Hims and Hers still spends half of its revenue on marketing.
In the United States, these platforms are often a refuge for the uninsured, consumers who are price-conscious and where choice means they can afford the vagaries of the consequences.
Regulatory scrutiny is intensifying. Hims UK was forced to pull the ad. Noom has been hailed as a modern approach to wellness and a healthy lifestyle, but has faced backlash after users claimed it could trigger eating disorders. Mental health-focused Cerebral stopped prescribing Adderall and other stimulant drugs used to treat ADHD following an investigation by the U.S. Drug Enforcement Administration.
PitchBook healthcare analyst Aaron DeGagne pointed out that long-term risks include the involvement of heavyweight companies. Amazon, which spent $3.9 billion to acquire One Medical in 2022, is clearly a future competitor, but so are large retailers like Walmart.
Early-stage investors are increasingly skeptical. In the broader digital health care space, private financing fell to $13.2 billion last year, just a quarter of the 2021 figure, according to CBInsights. The number of exits also dropped significantly to 156, of which all but 5 were exits through mergers and acquisitions.
With a handful of companies expected to go public in the next 18 months, selectivity is key. British startup Babylon is a warning: it went public in the United States in 2021 with a valuation of $4 billion. But widening losses and a shortage of funds forced the company to restructure last year, resulting in the loss of shareholders.
But medical technology remains one of the fastest-growing areas of life sciences in the UK. According to government data for the year ending April 2022, there are 3,460 medical technology sites (some businesses may have more than one), and 1,440 servicing and supplying those technology sites.
Bulls can point to signs of improving health. McKinsey expects sales growth across medical technology to be well above pre-pandemic levels, with digital health, cardiovascular health and robotics topping the list. Perhaps most importantly, startups like Carbon Health have become leaner after their struggles. As every doctor knows, this usually means better health.
European carbon price collapse looks like market short-sightedness
Boom and bust cycles are a characteristic of the economy. It’s no surprise that carbon markets are no exception. The cost of carbon dioxide emissions has fallen sharply in Europe over the past year, sowing the seeds for a future carbon crunch.
The price of carbon dioxide allowances under the EU emissions trading system has halved since February 2023 to 52 euros per ton. There's a good reason the market is oversupplied: commodity data and analytics provider ICIS estimates the region will emit 1.2 billion tonnes of carbon dioxide this year, compared with 1.4 billion tonnes in 2022. Less happily, there are still plenty of quotas floating around. Because the EU is auctioning off extra land to help pay for the energy transition.
This all sounds like how a functioning market would work. But no one can see very far. The EU has committed to cutting the supply of ETS licenses by 62% by 2030, which should already result in 200 million tonnes fewer licenses available by 2027 than today.
At the same time, Europe's massive carbon dioxide losses are cyclical, not structural. Almost half of ETS emissions come from the industrial sector, which has been hampered by high energy prices. As Europe's economy recovers, emissions should start growing again.
Most of the remaining ETS emissions cover the power sector, which has a better development trajectory and has a larger share of renewable energy generation. Gas-fired power plants have replaced polluting coal production due to low natural gas prices.
There is a cyclical factor here too. Falling electricity demand – down nearly 7% between 2021 and 2023 – is the result of a price surge in 2022 and should reverse.
All of this contributes to a weakening emissions reduction trajectory. CO2 emissions in 2026-27 are expected to be about the same as today. The market is likely to be tight given the mandated reduction in permit supply, which could reach hundreds of millions of tonnes of CO2 permits.
Current low-carbon prices will reduce pressure to invest in new emissions-reducing technologies, exacerbating the coming squeeze. For example, carbon capture requires a CO2 price of over €100/tonne to stack up. Hydrogen is probably higher than this.
Imperfect markets are a fact of life. But the volatility of CO2 trading is particularly concerning because it should provide signals to incentivize structural, long-term projects.
The EU has established a system to gradually absorb excess supply. The lesson of the current crisis is that it remains too unwieldy to provide the power needed to decarbonise.
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