Teletherapy company Talkspace is facing a class action lawsuit alleging that it misled investors about the company’s financial position ahead of its merger with a special purpose acquisition company.
The lawsuit, filed Jan. 7, alleges that investors were not notified that Talkspace has seen significantly increased advertising costs and lower conversion rates from those ads in its direct-to-consumer business. The class action lawsuit also alleges that the company has increased customer acquisition costs and lower demand in its consumer business than disclosed to investors, and that it overstated revenue from its health plan businesses.
“As a public company, Talkspace does not discuss ongoing litigation. However, we have examined the allegations in the complaint(s) and do not believe they are well founded. We will vigorously defend the company,” a spokesman for Talkspace wrote Mobile Health News.
WHY IT MATTERS
In January 2021 Talkspace announced plans to go public via a merger with a blank check company, Hudson Executive Investment Corp. The transaction closed six months later and provided the company with $250 million in growth capital.
But the mental health company has struggled financially ever since. The share price on opening day was $8.90; today’s prices are hovering around $1.50 per share.
Talkspace co-founder and CEO Oren Frank and co-founder and head of clinical services Roni Frank stepped down from their roles in November, the company said “disappointing” third quarter results.
About a week later, President and Chief Operating Officer Mark Hirschhorn resigned following an internal review of his conduct in relation to an external company event.
THE BIGGER TREND
Virtual mental and behavioral health is a hot area in digital health, drawing a lot of investor attention. There are a variety of companies aiming to rethink mental health care in the digital age, including Headspace Health, SonderMind, Lyra Health, Modern Health, and a host of other players.
Beat the public markets SPAC is also a trend among digital health and health tech companies. Last year, Pear Therapeutics, baby tech company Owlet, digital health chatbot Babylon, clinical trials platform Science 37, and consumer genetics company 23andMe all entered the public market through SPAC deals.
However, many health tech companies do not fare well after IPO,This is according to a report by the Silicon Valley Bank. It found that overall de-SPAC performance was -23% in the healthcare industry and -44% in the healthcare technology sector.
“The aggressive valuation premiums we’ve seen in the private health technology market have not translated to the public market,” the report’s authors write.