Teletherapy company Talkspace is facing a class action lawsuit alleging it misled investors about the company's financials in the run-up to its merger with a special purpose acquisition company.

The suit, filed Jan. 7, alleges investors weren't informed that Talkspace was seeing significantly increased advertising costs in its direct-to-consumer business, and it was seeing lower conversion rates from those ads. The class action also claims the company had increased customer acquisition costs and lower demand in its consumer business than was revealed to investors, and it had overvalued income from its deals with health plans.

"Talkspace, as a public company, does not discuss ongoing litigation. However, we have reviewed the allegations in the complaint(s) and do not believe they have any merit. We will defend the company vigorously," a Talkspace spokesperson wrote to MobiHealthNews.

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 deal closed six months later, providing the company with $250 million in growth capital. 

But the mental health company has struggled financially since then. Its opening day stock price was listed at $8.90; today's prices are hovering around $1.50 per share.

Talkspace's cofounder and CEO Oren Frank and cofounder and head of clinical services Roni Frank stepped down from their roles in November as the company announced "disappointing" third quarter results. 

About a week later, president and chief operating officer Mark Hirschhorn resigned following an internal review of his conduct in connection with a company offsite event. 

THE LARGER TREND

Virtual mental and behavioral health is a hot space in digital health, drawing plenty of investor attention. There are a variety of companies that aim to rethink mental healthcare in the digital age, including Headspace Health, SonderMind, Lyra Health, Modern Health and a variety of other players. 

Hitting the public markets via SPAC is also a trend among digital health and health tech companies. Last year, digital prescription therapeutic company Pear Therapeutics, baby tech company Owlet, digital health chatbot Babylon, clinical trial platform Science 37 and consumer genetics company 23andMe all hit the public markets through SPAC deals. 

However, many health tech companies aren't performing well after going public, according to a report by Silicon Valley Bank. It noted that de-SPAC performance was -23% in the healthcare industry overall, and -44% in the health tech sector.

"The aggressive valuation premiums we have seen in the health tech private market have not translated to the public market," the report's authors wrote.