Hi friends,

Two topics for you this week. I share the main takeaways from Talkspace’s presentation at the JPM Health Conference and give my reaction to Quartet’s sale to Neuroflow.

Let’s get into it.

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Talkspace at JPM

Last month, Talkspace presented at the JP Morgan Health Conference. I watched the presentation, read the slides and did a bit of analysis on some of their numbers. There were a few interesting takeaways to share.

Remember, this problem is huge!

They opened their presentation with the number of people with mental health challenges, 23% of adults in the US, 25% of Medicare recipients, 50% of adolescents between 13-17… It was a good reminder of the size of this problem and how much work we still have to do.

While somewhat crude, they also demonstrated the size of this market. Yes, it’s often hard to make money as a business in mental health. But there are tens of billions of dollars spent every single year. This is a large market with a large need. The challenge is to meet that need and improve outcomes in a way that allows you to make money as a business.

The value of data in an AI world

There was a clear message Talkspace wanted people to take from this presentation and it was “Talkspace can be an AI drive company”. Right now, they are valued as a services company (and rightly so). However, the messaging through their presentation was all about the value of their datasets and their plans to leverage those datasets with their AI engine. They do have some pretty massive data assets, 6.2M assessments, 1.2M diagnoses and 4.3M psych notes. But I’d love to know more about the quality of these datasets, however. Without good outcome measurements, it will be much more difficult to train any useful AI.

They did share some impressive results about their ability to improve some operational metrics like reducing no-shows by 18.5%. These are important and impactful, but very different to more care-focused interventions that could be driven by AI.

The importance of engagement for long-term growth

Client engagement is a huge focus for Talkspace. That, alongside capture rate, will be the key to them delivering on their growth goals for 2025. During the presentation, they announced a new AI-driven feature that generates mini “podcasts” for clients to listen to in between sessions. You can watch a demo of the feature here. I think this is an interesting application, there’s a lot that can be done to improve engagement in between sessions, but frankly, the actual product didn’t seem super impressive to me. I don’t ever like to bash people who are making a genuine attempt to build new solutions, and perhaps this is just an early iteration of something that will prove beneficial, but I think they still have a lot of work to do before this is truly useful to clients and actually drives engagement.

Capture rate is essential for payer strategy success

Talkspace has grown significantly in recent years whilst also reaching profitability. This is largely down to their shift towards a Payer strategy and away from D2C. They’ve increased their covered lives to 158 million as of Q3 2024 and expect to surpass 200 million in early 2025. That’s a huge number.

Their growth relies on their ability to turn those covered lives into clients that use Talkspace, or as they call it, increase capture rate. I’ve gone into depth on this before in previous posts about Talkspace, but I wanted to run an analysis to see how their capture rate has been trending. I compared completed payer sessions to covered lives as a good proxy for capture rate and you can see the results below.

Clearly, even as covered lives increased rapidly from Q2 2022, the ratio of Sessions:Covered lives increased, from 1.3 sessions per 1,000 covered lives in Q2-22 to 2.2 as of Q1-24. So not only did their covered lives number almost double over this period, but their capture rate increased by approximately 70% as well.

Since Q1 2024, that number has entered a slight decline, now down to 2.0 as of Q3 2024. Yes, there may be some lag in converting new covered lives to completed sessions, but this will be a key ratio to watch out for in future Talkspace earnings reports.

Speaking of earnings reports, Talkspace will release its 2024 full-year results on February 20th. I’ll be interested to see how they perform (not least in terms of capture rate), but also any further product announcements they discuss and the guidance they give for 2025. And yes, I will of course be writing about it.

Neurflow acquires Quartet Health

Last week Neuroflow announced that they had acquired Quartet Health. It’s big news in the space. So what do we think happened here?

I don’t have any first-hand information and there were no deal terms announced, but based on what I do know, here’s what I think went down. I reckon Quartet was struggling and Neuroflow made an opportunistic acquisition, at a big discount, in an all-stock deal.

This was a “David buys Goliath” kinda deal which is why it raised eyebrows with many people. Quartet had raised over $220M over seven funding rounds. Meanwhile, Neuroflow has only raised $56million, with their latest round in September 2024. It’s therefore extremely unlikely they had the capital to pay for this acquisition in cash and even more unlikely that they did a deal at a valuation anywhere close to Quartet’s price at their latest round. Most likely, it was an all-stock deal at a significant discount.

Interestingly, Neuroflow has been on a mini-buying spree lately. Quartet is their fourth acquisition in two years, others including Owl Health and the purchase of a proprietary behavioural health analytics model from Intermountain Health.

Are they seeing a consolidation opportunity here? As some mental health tech businesses reach the end of their runway, they are looking for buyers and will often sell at a significant discount. Is there an unknown backer behind Neuroflow driving this strategy and funding these acquisitions? I don’t know.

Neuroflow’s strategy is based on using advanced analytics to identify behavioural health risks in patient populations, then helping provider organisations to intervene early and better coordinate their care. They also have a strong focus on measurement-based care. The Quartet acquisition is well aligned with this strategy, giving them additional capabilities in care coordination, measurement and the ability to deliver on VBC payment models. It also comes with a provider network expanding Neuroflow’s ability to actually deliver care and of course, a customer base as well.

I’ll be very interested to see how this deal progresses and if Neuroflow have any other acquisitions in their sights.

That’s all for this week.

Keep fighting the good fight!

Steve

Founder of The Hemingway Group

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