Where are Europe’s digital care unicorns?

Revent Reflections on Chronic Care (Pt. 2)

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Nov 27, 2023

This is the second part of a two-part series on digital chronic care. You can read Part 1 here (Why We Need a Digital-First Approach to Chronic Care).

Summary

🤷‍♀️ Where are the European unicorns in digital chronic care?

There are great disparities between the American vs. European digital chronic care landscape. The top-funded American players have raised at or near billion-dollar valuations, while there are much fewer breakout successes among European players.
For proof, see our comparative timeline of Europe and the US’s top digital chronic care players.

🧐 Why the big difference?

We explore 3 potential hypotheses for the shortage of successful digital chronic care players in Europe:
1. Digital chronic care is a fundamentally unsustainable approach, even in the US - the long-term success of celebrated US startups still needs to be proven.
2. Although digital chronic care works in the US, something about European healthcare systems/economics renders a digital approach unviable.
3. European chronic care is on track to digitize, but delayed by a heterogeneous market and slower consumer adoption of digital technology.
Our conclusion: For Europe, enrollment is the short-term barrier, while Economics is the underlying long-term challenge for digital chronic care.

📈 Why now? What’s being tried?

A few key trends may open a new window of opportunity in Europe:
- GenAI breakthroughs promise to lower coaching/service costs.
- Profitability seems to be on the horizon for multiple US players.
- Increasing prevalence of chronic diseases and worsening shortage of care providers.
- Increasing openness to digital health across Europe.
Who’s already giving it shot? See our market map of digital chronic care players in Europe.

🔍 What are we looking for?

We believe the players who will usher in digital-first chronic care across Europe will:

Urgently generate proof points across the “Four E’s”: Enrollment > Engagement > Efficacy > Economics
Hack distribution to enroll users in an environment where digital adoption remains challenging
Tackle the steepest curves in marginal cost of illness (see Hypothesis #2 below), addressing conditions that cause emergency care, hospitalizations, dialysis etc.
Harness AI & LLM’s to radically decrease costs (coaching, R&D, software-enabled hardware and sensors etc.)
Align incentives through innovative business models: integrating with existing payer and provider networks, tying payment to key proof points (Enrollment, Engagement, and Efficacy) etc.

If what you’re building checks one or all of these boxes, we’d love to hear from you! Reach out at sharon@revent.vc.

A Big Disparity

While Europe, like the US, is experiencing an upswing in chronic illness, the journeys of top American vs. European chronic care (chronic care) startups have looked quite different. See below a graph showing the funding disparity between the top-funded European vs. US chronic care startups:

For instance, compare Swiss diabetes management platform Oviva to its US counterpart Livongo. Both began in 2014, Oviva has become the leading player in Europe, while Livongo found success in the US among multiple direct competitors like Omada, Dario, and Virta.

Oviva raised its Series C round in 2021 after expanding into three of the largest European markets - UK, Germany, and France - and serving over 200,000 users. Meanwhile, Livongo had a successful IPO in 2019, and reported 442,000 enrolled members when it was acquired by Teladoc for $18 billion in 2020.

So while Oviva has been successful in its own right, its growth has been markedly slower compared to its US counterpart. (However, Teladoc’s recent $13.7 billion write-down from its Livongo acquisition raises the question of whether Oviva’s growth is muted or just more measured.)

A few more Europe vs. US data points to consider:

Two of the top musculoskeletal health startups, Sword and Kaia, were founded in Portugal and Germany, respectively. Both hit their stride only upon entering the US market.
Among the top-funded US chronic care startups, three (Somatus, Monogram, and Strive) focus on chronic kidney disease, while no prominent European equivalents exist.
The top 10 American players have raised at or near billion-dollar valuations, while Oviva, the most valuable European chronic care startup that hasn’t moved to the US, was estimated to be worth $300-400M in its most recent 2021 fundraise.
There have been major busts in the US market: see Teladoc’s Livongo write-off, Pear Therapeutics’ bankruptcy, and Dario Health’s struggling share price.

What’s apparent is the significantly lower investor appetite for chronic care startups in Europe vs. the US. What requires more thought is the billion-dollar question: is this gap justified, or are we European investors just behind the game?

Is there a future for digital disease management in Europe?

In Part 1 of this series, we established the “Four E’s” (enrollment, engagement, efficacy, and economics) of digital chronic care. Based on this understanding, we’ll consider three potential reasons for why European chronic care startups trail their US counterparts:

Digital chronic care is a fundamentally unsustainable approach, even in the US - the long-term success of celebrated US startups still needs to be proven.
Although digital chronic care works in the US, something about European healthcare systems/economics renders digital chronic care unviable.
European chronic care is on track to digitize, but delayed by a heterogeneous market and slower consumer adoption of digital technology.

Hypothesis #1: Digital chronic care is a fundamentally unprofitable approach, even in the US - it might be more hype than substance.

For all the excitement around digital chronic care in the past decade, here’s one damning factoid: none of these companies, whether in the US or Europe, has (publicly) turned a profit.

Digital chronic care solutions have repeatedly produced improved health outcomes and lower healthcare expenditures across client populations (see Part 1 for examples). In fact, Sword Health “guarantees in its contracts with employers that they will save a certain amount of money for every dollar they spend on the program”.

However, for the company making the chronic care solution, profitability means that the program’s price tag must exceed the cost of running it. Where Economics tends to break down: the inclusion of live coaches, often necessary for Engagement and Efficacy, throws a wrench in the attractive margins of software. Even at relatively high patient-to-coach ratios - Livongo reported that each of their coaches supports thousands of patients - coaching salaries can comprise a significant variable cost.

This is not to say that digital-first chronic care is a lost cause. Livongo’s financial statements showed that it was close to profitability before it was acquired. Hinge and Sword have both announced anticipated profitability in 2024. How? Hinge is moving part of its product development to India, where “they can deliver similar results at ⅓ of the cost”, while Sword is investing heavily in Generative AI solutions to further increase its coach-to-patient ratio.

So while the jury is still out, there are reasons to believe that Economics can work out for digital chronic care companies and their clients.

Hypothesis #2: Digital chronic care is less viable in European healthcare systems than in the US.

Even if the economics of digital chronic care works in the US, does that mean they will work in Europe? Not necessarily.

A major barrier lies in the underlying costs of US vs. European healthcare. Keep in mind the Economics relationship needed for chronic care solutions to succeed: healthcare cost savings for clients must be greater than product pricing, which then must be greater than the program’s implementation cost to the chronic care startup. Since healthcare expenditures are broadly lower in European healthcare systems, the potential absolute cost savings are smaller, which limits the price a chronic care startup can charge.

To illustrate this, let’s take the example of a theoretical chronic care solution that targets obesity. For reference, German DiGA Aidhere has shown in clinical trials an average of 8% weight loss - the average user, starting at a body mass index (BMI) of 37, would drop to a BMI of 34 through the program. To estimate how this level of Efficacy translates into Economics, we can use the graph below, which shows the marginal cost of BMI increase - the more severe one’s obesity, the higher one’s annual medical expenses - in Germany vs. the US.

Medical expenses vs. body mass index in Germany (source) and the US (source)

For a theoretical chronic care program that drops a user’s BMI from 37 to 34: in the US, we can reasonably expect this person’s healthcare cost to drop by ~$660, whereas in Germany, this individual’s healthcare costs would only drop by ~$270. In other words, the same clinical outcome translates to less than half the cost savings in Europe vs. America. And this directly limits the price a chronic care solution is able to charge.

The same disparity is mirrored in other disease areas. In Virta’s cost savings breakdown for T2 Diabetes, the insulin cost is ~$2000 / yr. In contrast, Oviva quotes the annual cost of insulin for the UK National Health Service as 850 GBP per patient, or around $1000 / yr. (Fortunately, major drivers of product cost are also lower in Europe - the average annual base salary for a US health coach is around $50,000, while in the UK it’s closer to $30,000.)

In a nutshell, European startups must be even more attuned to Economics. One may do well to focus on illnesses with a high marginal cost of disease progression. For instance, preventing chronic kidney disease patients from needing dialysis can save up to 36,000 euro per individual per year. Furthermore, a laser focus on cost is a must-have, especially variable costs like coaching and hardware.

Hypothesis #3: Europe is slower to adopt digital chronic care, but we’ll get there eventually.

Digital adoption is uneven across European countries, with the UK leading the charge and Germany trailing behind. Healthcare, in particular, is a space where German players and consumers have been very slow to adopt. However, after Covid-19 restrictions eased, while some European countries saw a reversal in digital adoption, laggards like Germany and Austria were able to hold on to their gains:

Ultimately, digitalization is here to stay. Legislation like Germany’s DiGA’s, France’s My Health Space, and the European Health Data Space are creating the regulatory structure for digital healthcare. Large incumbent players, from hospital chains to insurance groups, have announced exploratory projects to bolster their own digital offerings, including solutions for chronic diseases. Digital solutions like Aidhere have shown adoption and efficacy even in Germany.

In this sense, while digital adoption is undoubtedly lagging in parts of Europe, we are seeing signs of an inflection point. While lower digital readiness may cause a short-term bottleneck in Enrollment and Engagement, we expect Europe to embrace the benefits of digital chronic care in the long run.

The Verdict: Where’s the Opportunity?

Why Now?

If you believe, like we do, that there is indeed an opportunity in digital chronic care, there is a lot to learn from US players, as well as emerging tailwinds in the European market. The fundamental societal problems that drive the need for effective chronic care are growing - Western populations continue to age, while provider shortages deepen. Meanwhile, the window for digital-first approaches in Europe is expanding rapidly.

A rich body of evidence has been generated across the US and Europe for the benefits of digital chronic care: they have been shown to increase adherence, improve health outcomes, and lower healthcare costs. Now is the time to show that the business works.

Today, generative AI promises to lower costs of keeping human providers in the loop. Still, the condition areas and business models that are economically viable in Europe will be significantly different from those that work in the US.

What’s being attempted in Europe?

For a sampling of what European players are attempting, see market map below:

What We’re Interested In

Based on the above research, Revent believes that the startups that will bring digital chronic care into the European mainstream will be the ones who:

Urgently generate proof points across the “Four E’s”: Enrollment > Engagement > Efficacy > Economics
Hack distribution to enroll users in an environment where digital adoption remains challenging
Tackle the steepest curves in the marginal cost of illness (see Hypothesis #2 above), addressing conditions that cause emergency care, hospitalizations, dialysis etc.
Harness AI & LLM’s to radically decrease costs (coaching, R&D, software-enabled hardware and sensors etc.)
Align incentives through innovative business models: integrating with existing payer and provider networks, tying payment to key proof points (Enrollment, Engagement, and Efficacy) etc.