Will Your Neighborhood Pharmacy Acquire a Digital Health Company? | 7investing
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Will Your Neighborhood Pharmacy Acquire a Digital Health Company?

July 22, 2021

Did the pandemic get you down?  Do your children feel overwhelmingly anxious about going back to school?  Do you have trouble getting out of bed in the morning, even after a full night’s sleep?  The pandemic definitely took its toll on our mental health.  Or perhaps it simply made it acceptable to acknowledge our languishing sadness and loneliness.  It seemed that since everyone could relate, it was easier to talk about.

Prior to the pandemic, however, mental illness was an unnecessarily stigmatized disease.  Unfortunately, it is also a disease that affects millions of people, even if we don’t talk about it.  In fact, according to the National Alliance on Mental Illness (NAMI), 1 in 5 adults in the US (over 50 million people) suffer from mental illness each year.  This ranges from depression to anxiety disorders and also includes post-traumatic stress disorder (PTSD) and eating disorders.  It also affects people of all races, genders, and sexual orientations.  That means that there is a strong likelihood that you know someone who suffers from a mental illness.

Mental illness impacts more than the person suffering from the disease and their families.  People who suffer from mental illness tend to drop out of school, lose jobs, become dependent on drugs, and commit crimes.  The effects of mental illness permeate through society.  Left unchecked, it can have a devastating impact.

Smartphones and digital health apps have made getting help for mental illness a little easier.  In fact, there are over 20,000 digital health apps that address mental health.  For an illness that is frequently associated with stigma, being up to connect with a care team digitally, often through text, can be welcomed. The pandemic further accelerated the use of remote care, especially as people were discouraged from in-person visits.

The downside to these numerous apps is their limited sustainability.  With software development toolkits (SDKs) easily accessible, it is possible for anyone with an idea to create and app and a business.  When you become reliant on an app to assist with your mental health, however, it can be detrimental if the app disappears because the developers lose interest or run out of money.

Fortunately, Talkspace (NASDAQ: TALK) has proven to be successful.  Rated as the best app for therapy, Talkspace connects customers to therapists for a range of mental illnesses and disorders.  They provide text, video, and audio messaging with a licensed therapist or psychiatrist, depending on need and membership, through their secure, HIPAA-compliant app. Individuals can purchase memberships for differing amounts of time.  Employers also offer access to Talkspace as part of their employee assistance programs (EAP.) Talkspace recently became publicly traded after a merger with Hudson Executive Investment Corporation (NASDAQ: HECCU), a special purpose acquisition company (SPAC).  Although the recent merger gives Talkspace the funds and additional guidance to help grow in the market, I do think Talkspace will become a good acquisition target for a larger company that is looking to add mental health to their list of services.

One company that is top of mind is CVS Health (NYSE: CVS).  With the purchase of MinuteClinic in 2006 and Aetna in 2018, CVS Health is looking to be much more than just your neighborhood pharmacy.  MinuteClinic allows customers to visit with a nurse practitioner, fill a prescription, and pick up a can of chicken soup all in one visit.  The acquisition of Aetna expanded that level of care by integrating their provider network. Collectively CVS is innovating community health to help make healthier communities, while lowering costs.  They recently added mental health services to their offering during the COVID-19 pandemic, but these are in person visits.  Incorporating a digital solution for mental health seems like the next step in that offering.  The desire to acquire an already highly regarded company that comes with a network of therapists makes Talkspace a likely candidate.

Given the state of the post-pandemic world, I think a digital health company focused on mental health, like Talkspace, will become an acquisition target for a community health company that can complement its offerings by including mental health as a digital solution.  The acquisition players may not be Talkspace and CVS per se, but I do anticipate seeing consolidation of the many digital mental health companies and inclusion of them into mainstream health care.

Interested in learning more? Click here to see which stocks on the 7investing scorecard would be most affected by an acquisition of Talkspace.