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What makes for a successful business model for digital companies in mental health?
Mental health has been one of the therapeutic areas with more investments in digital health in the last few years, leading to a crowded and competitive space. How can digital companies in mental health partner with pharma? What are the business models that have worked so far?
Read the key takeaways from the Webinar on ‘Business Models for Digital Companies in the Mental Health Space’ by Russell Glass, CEO at Headspace Health.
M&A Activity in Mental Health
When the pandemic hit, there was this incredible need and demand for mental health solutions. That has definitely levelled off but it continues to stay at post-covid levels. There was an explosion of solutions to cater to the demand and rightly so. Like any industry, there cannot be thousands of solutions that cater to the same need. It makes sense to consolidate and certain winners are emerging post consolidation. One big reason is that health plans and enterprises cannot manage dozens of vendors for different needs of care, they are increasingly looking for more scaled, more proven and more comprehensive solutions that solve a range of mental health needs of their employees. Second driver of the M&A activity is the lack of liquidity in the market and investment is harder to find. It is not cheap to build and scale a healthcare solution. As capital dries up, comprehensive solutions with better potential to scale will win over those that are less comprehensive.
Pharma Partnerships in Mental Health
Pharma represents a significant opportunity for mental health companies. The infrastructure set up that pharma companies bring to help reach consumers is very valuable. Lot of the success seen in digital health has come through either from partnerships directly with pharma or with digital formularies. Built in distribution and ease of contracting adds a lot of value with pharma partnerships. One key challenge is that contracts can take time. Planning for contracts and understanding the timelines is key. Another challenge is the time it can take to make revenue and profits from these contracts. It can take years after signing for revenue because these companies and their sales team are not set up and structured to sell digital solutions. However, once you overcome the initial barriers, partnerships with pharma can be huge successes. It will take time and effort to make that happen. Start-ups have liquidity constraints and are resource limited. Misaligning with the effort required and the timelines can be a significant challenge.
Value of a Strong Consumer Brand in Mental Health
To solve prevention in mental health, there is a need for a strong consumer brand. It can de-stigmatize and convince people to take action and participate. A strong brand can help people feel comfortable with the product of service. Another key value that a strong consumer brand brings is ground up capabilities that it can bring to the table. Even with B2B models, brand presence can drive activation and engagement. More data from more consumers will also eventually drive better patient understanding. Consumer brands are however expensive and not so easy to build. There is value in partnering or consolidating with a strong consumer brand to drive additional value together.
B2C and B2B Business Models
B2B and payor side of the business are more scalable and bring long term value to mental health solutions. Those business models are much more cost effective and more sticky than consumer focused business models tend to be. B2B models could ultimately be the lion’s share of revenue for mental health solutions. Consumer focused business is a valuable component and it can be an engagement generator, a de-stigmatizing agent which is a key element for mental health.
Scaling Across Geographies
It is really important to be committed to key markets, to invest in time and resources thoughtfully. From regulations, to languages to nuances on cultural elements, a lot goes into choosing your strategy for a market. Opening up a new market is not an easy decision and investment needs to be made more carefully and once a solution decides to enter a market, it will require strong commitment to adjust and succeed in it.
Pricing Mental Health Products
Understand the unit-economics and what it costs to deliver the care in your model. Be thoughtful about how solutions deliver the outcomes at less cost and how they can lower cost in your unit economic model. If solutions consider a price-value curve, they could map perceived value against prices and understand where potential competitors are placed within that curve. It can help solutions be thoughtful about what they can charge and how value based solutions can be.
(This story was originally published on 14th September, 2022)
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