Why the Hinge Health IPO is so important for digital health

Hinge Health has filings for an initial public offering, and the whole industry is talking about it. There hasn’t been an IPO in the category for a while, not since Waystar, the practice management software company that went public in the summer of 2024. Before then, there was very little activity for a few years, making Livongo’s $18.5 billion sale to Teladoc seem like a blip.

So what do I think about the Hinge IPO? Well, I spent the morning calling up friends in the industry - bankers, researchers, analysts and investors - to get their take on it. I also read Hospitology’s fantastic analysis, which pointed to one big question: Valuation. VCs previously valued Hinge at $6.2 billion in 2021 — will the public markets place that high of a premium on the business?

Hinge’s revenue in 2024 rose to $390.4 million, and it reported a reduction in net losses. So there’s a lot to like about the company’s performance in the past few years (we have limited data to go on pre-2023), and yet there’s still some questions to dig into. Needless to say, I’m keeping a close watch on how the public markets react to Hinge. It is emblematic of a lot of the digital health companies right now, although it is clearly best in class in terms of revenue growth and customer traction. It’s heavy on services and humans in the loop; gross margin typically is in the 70s at the high end; and sales and marketing represents a huge chunk of the spend.

It’s still early days, but here’s some thoughts additional thoughts. Read the S-1 yourself here. I focused more on this analysis on the macro questions, and less on the numbers, both because there’s so many great analyses already out there tearing into the growth, margin, spend & more. And we’ll learn more about the metrics as time goes on.

1) Moving beyond the self-insured employer: I’ve long been bearish on the self-insured employer market for newcomers to the digital health space. The major areas of spend for employers, inclusive of MSK, oncology and diabetes, are already saturated with Point Solutions, many of which (including Hinge) benefited by starting up more than a decade ago. Self-insured employers are not looking for more Point Solutions by and large. Many of the jumbo employers have become more sophisticated in how they analyze the effectiveness of their existing vendors, and it’s increasingly common for them to have their own data warehouse in order to parse the analytics internally. They are no longer as reliant on the companies themselves to share that data, and they’re aware that there’s plenty of cherry-picking going on.

How does that relate to Hinge? Well, Hinge has done a good job at penetrating the jumbo employer market — it’s currently in the lead for digital MSK, with Sword hot on its heels. And yet, I don’t see a ton of further growth in this market, relative to the opportunity to sell into Medicare and the fully-insured markets. That is far more greenfield in my opinion, but these payer sales cycles tend to be even slower than employers. They are also very rigorous in how they evaluate companies in the digital realm, owing to a certain skepticism about anything that feels tech-centric. Hinge itself acknowledges in the risk section of its S-1 that these are fundamentally different markets than self-insured employers, and there’s no guarantee that there will be continued momentum here.

2) Moving beyond MSK: I’ve got to hand it to Hinge and Sword. MSK is the ideal market to start with: It’s a huge TAM on its own; patients that are suffering from MSK-related issues tend to be experiencing acute pain during discrete episodes and are therefore more likely to engage with a digital solution; and employers recognize that unnecessary surgeries are a big, potentially avoidable expense. For so many reasons, it’s a much easier beachhead than other categories that startups have focused on, like cardiovascular disease. “We know in MSK, surgical appropriateness in these elective procedures can at times be suspect,” said Dr. Jon Slotkin, a spine surgeon and chief medical officer at Contigo Health. “This will continue to drive employers and purchasers of care to look for solutions.”

And making it even more appealing, there is evidence that digital-administered physical therapy can be very successful for a subset of conditions & populations. Perhaps the most compelling? The Peterson Health Technology Institute’s (PHTI) digital MSK report, which found that there was a lot to like about the category from a clinical outcomes perspective. MSK performed far better overall than a similar report to uncover the effectiveness of the various digital diabetes solutions. PHTI’s analysis is independent, as the organization is not driven by any kind of profit-motive.

But as Slotkin points out (and I wholeheartedly agree), the MSK companies will need to move beyond MSK at some point in the near future. Now that they have a foothold with employers and some health plans, there will be pressure to provide solutions in other categories like behavioral health, women’s health and GI. Ideally, these companies would start with categories that are adjacent to MSK, where there’s a clear overlap. “That’s where you can get more employers and build the relationships deeper,” said Slotkin. I have heard from countless employers in recent months that they’d rather work with fewer Point Solutions that take on more care for their members. And if Hinge already has that trusted relationship, I would not be surprised to see them charting out a path to other categories.

The big question for the next few years: Will Hinge take a “build” or “buy” approach as it expands?

3) The macro timing?

Hinge might appeal to investors given its focus on MSK (we discussed the merits above) and its incorporation of AI, which continues to be a major draw. And yet, some of the experts I spoke to expressed concern about the timing from a macro perspective. The markets right now are dipping in a big way, largely driven by recession fears. Taking a step back, the public markets don’t tend to react well to instability, and we are living through a time of incredible uncertainty.

“What surprised me is why now, especially as the market has experienced a terrible meltdown over the past week and a half,” said Stephanie Davis, an industry expert and researcher. “This environment could limit investor risk appetite.”

From that perspective, I do worry about the rest of digital health if Hinge’s IPO does not go swimmingly. The IPO window has not been open in quite some time, and so the first few that go out really matter. There is hesitation amongst VCs in this market to invest in the category, largely driven by a concern about the lack of exits. So if Hinge does well — meaning a decent revenue multiple and sustained performance/growth — that gives the rest of the industry a reason to believe in the category. A lot is riding on Hinge and its team, so I’ll continue to pay close attention and report back.

What I do find really compelling about Hinge - as I’d like to leave you on all a positive note - is this is a proof-point that it’s possible to grow an extremely large & growing business in our space. If you work for Hinge, you should be proud of the fact that you pulled that off - and helped a lot of people avoid surgeries they didn’t need in the process. Our best companies in digital health are doing well by doing good. How many other categories can claim that?

That’s it for now. If you have thoughts on the Hinge IPO, send them my way!