23andMe settles 6.9M data breach lawsuit for $30M. Breaking–all seven independent directors quit

23andMe settles, not fights. And their independent directors just quit. The troubled (understatement) company is paying $30 million to settle a massive class action lawsuit around the 6.9 million data breach that started a year ago. This infamous data breach that TTA timelined here was discovered last October, with 23andMe claiming it only affected 14,000 records. Reality dawned as it rapidly grew to millions through the 23andMe databases of over 14 million. By December, 23andMe then resorted to blaming users reusing previously breached passwords (credential stuffing) which was easily disproved. It was one of the worst corporate faux pas since Bud Light.

The hackers had also specifically targeted people with Chinese or Ashkenazi Jewish heritage which wasn’t disclosed until February, though part of the October 2023 hack. It added to the suspicion that those of Jewish heritage were specifically targeted.

Users as a group will receive $30 million along with three years of credit monitoring called Privacy & Medical Shield + Genetic Monitoring. The settlement reached 13 September requires approval by the Federal District Court in the Northern District of California, San Francisco division.

Notably, 23andMe spokesperson Katie Watson confirmed to The Verge that $25 million will be covered by cyber insurance, so most of the cash is there. The settlement document also refers to the extremely uncertain financial condition of the company and asks that the judge halt any further arbitrations by tens of thousands of other class members. 23andMe’s parlous financial status is publicly well known, but no other buyer since the board’s turndown in August of Anne Wojcicki’s offer of $0.40 per share has stepped up to make an acceptable offer. (Perhaps the board was premature–it closed today at $0.34.) Reuters 

Breaking: Wojcicki won’t have to worry about her independent directors anymore. They’ve resigned, effective today, leaving a board of one. The seven directors sent a letter today (Tuesday 17 September) to CEO Wojicki citing that the Special Committee of the board, after months of work, never received from Wojcicki a “fully financed, fully diligenced, actionable proposal that is in the best interests of the non-affiliated shareholders”. It was quite an ask, given that Wojcicki controls the company through a supervoting arrangement. She reportedly holds 22.5% of the company’s outstanding Class A common stock and 59.2% of outstanding Class B common stock (according to analyst TD Cowen)–other reports state that she has in total 49.99% of the voting power. In their letter, they made it clear that the differences were irreconcilable: “Because of that difference and because of your concentrated voting power, we believe that it is in the best interests of the Company’s shareholders that we resign from the Board rather than have a protracted and distracting difference of view with you as to the direction of the Company.” Your move, Anne. Release

(An examination of the board posted online reveals that only one of the resigning members, Richard H. Scheller, ever worked at 23andMe. According to his online bio, he joined 23andMe in 2015 as Chief Scientific Officer and Head of Therapeutics. According to his Caltech board of trustees bio, he retired from 23andMe in 2019.)

Rounding up follow ups: Walgreens shareholder suit on pharmacy performance, Steward CEO no-shows Senate committee, Masimo-Politan proxy fight has court win for Politan–vote on for 19 September

Another shovelful topping Walgreens’ Mound of Misery. Filed in the US District Court for the Northern District of Illinois, this shareholder lawsuit points to the poor performance of Walgreens’ pharmacy division. The fault is assigned to Walgreens management, specifically CEO Tim Wentworth and CFO Manmohan Mahajan plus 10 other executives including chairman Stefano Pessina, in overstating the division’s performance between 12 October 2023 to 26 June 2024 . It charges that they “falsely and materially claimed confidence in the brand inflation, volume growth, cost execution, discipline, and overall contributions of [Walgreens’] pharmacy division”, leading to an overvaluation of Walgreens’ share price. In addition, Walgreens “veiled the reality: that (Walgreens’) pharmacy division was not actually equipped to adapt to ongoing hurdles within the industry”.

The shareholder is Mark Tobias, a shareholder since late 2022. Key to the suit is the 12 October 2023 earnings conference call that contained positive comments about the pharmacy operation made by Wentworth, new at that time to Walgreens, and Mahajan. Their tune changed by the 27 June 2024 conference call where they admitted that the pharmacy model was “not sustainable”. Walgreens’ share price on 12 October 2023 was $24.19.  As of 4pm New York time today, 13 September, Walgreens closed at $9.21.

From the Crains Chicago Business article, the lawsuit demands restitution and reforms:

  • Walgreens should be awarded damages and restitution from the individual defendants
  • The company and defendants take steps to reform and improve corporate governance and internal procedures
  • Those reforms may include
    • Strengthening the board’s supervision of operations
    • Permitting Walgreens shareholders to nominate at least five candidates for election to the board
    • Ensure the establishment of effective oversight of compliance with applicable laws, rules and regulations

The Crains article also includes a Scribd copy of the filing.  Also Healthcare Dive

Another very large Mound of Misery buried Steward Health…but CEO Ralph de la Torre doesn’t plan to comply with a Senate committee subpoena. His testimony before the Senate’s Health, Education, Labor and Pensions committee was scheduled for 12 September but last week on 4 September, his attorneys informed the committee that Dr. de la Torre would not appear. They cited the ongoing US Bankruptcy Court for the Southern District of Texas sale of Steward assets (Healthcare Dive update) and a court order that silences him from comment during the sale process. The committee, chaired by Senator Bernie Sanders, is also accused by the CEO’s attorneys of using the bankruptcy and de la Torre’s marine possessions (a $40 million yacht and $15 million fishing boat) and private jets as “a pseudo-criminal proceeding in which they use the time, not to gather facts, but to convict Dr. de la Torre in the eyes of public opinion.”

The committee plans to decide on 19 September among two options: whether Dr. de la Torre will be brought up on criminal contempt charges that would be referred to the District of Columbia US Attorney, or civil contempt which usually involves a fine and another subpoena to appear. Several Senators on the committee–Sanders, Elizabeth Warren, and Edward Markey–have called de la Torre’s no-show “outrageous”. Sanders has issued threats of de la Torre being held accountable for his greed, but exactly how much of this is for the press and what the committee will do is unclear.  More of concern to the CEO would be whether further lawsuits would attempt to ‘pierce the corporate veil’ and claw back his bank and personal assets–or hold him criminally liable. Healthcare Dive, AP

The ugly Masimo-Politan Capital proxy fight continues–with a win for Politan. The attempt by Masimo, a consumer audio company that branched out into professional healthcare and pulse oximetry products–and last year won a big patent infringement decision against Apple on pulse oximetryto further postpone a shareholder vote on giving control to activist shareholder Politan Capital ended in a loss yesterday. The US District Court, Central District of California denied Masimo’s request for a preliminary injunction to block Politan’s nominees for the Masimo board. Unless Masimo’s motion asking the same court to find Politan in contempt due to breaking the court’s sealing order on the decision, and the court grants a further delay, the shareholder vote will be held next Thursday 19 September. The likely outcome, according to Strata-gee which is covering this from the consumer audio perspective, is that shareholders will turn the board over to Politan by electing their representatives to the two open seats, booting CEO Joe Kiani–and total corporate chaos will ensue. Strata-gee has all the gory details. Background in TTA 8 August and prior.

US telehealth controlled substances prescribing waiver may expire at year’s end; DEA may further restrict

Current waivers end 31 December without DEA, Congressional action. The Drug Enforcement Administration (DEA) apparently through inaction, will allow the current virtual prescribing flexibilities impacting Schedule II and higher drugs to expire at the end of year. These waivers which removed the in-person examination requirement under the Ryan-Haight Act were instituted during the Covid pandemic and extended twice [TTA 11 Oct 23, 11 May 23] with a final expiration of 31 December 2024.

Reportedly, the DEA is not only wishing to reinstate the status quo ante, but also reportedly wants to institute additional restrictions. However, any draft rule that would reimpose or changes restrictions has not been put out for the public comment period, review, and final rule implementation which typically takes anywhere from 60 to 120 days, well past year’s end. Last year, when a draft rule was released for comment, nearly 40,000 comments were received.

At the time of the 2023 extension that kicked this particular can down the road into the end of a presidential election year, DEA had stated that they would use 2024 to finalize telemedicine prescribing rules, but no action has been taken. Since then, the Department of Justice has filed multiple charges of Medicare and Medicaid fraud and illegal distribution of controlled substances against seven Done Global employees [TTA 3 July and prior], with investigations pending on practices by provider Cerebral and pharmacy Truepill

Under the aegis of the American Telemedicine Association (ATA), a coalition of 330+ organizations have again written as of Tuesday 10 September to the current administration and both houses of Congress to 1) extend the waivers for two years, as part of the end of the Federal fiscal year (starting 1 Oct) package, and 2) use the time for DEA to “to fulfill its congressional mandate to establish a special registration pathway that balances access to medically necessary care with appropriate enforcement.” The rationale centers on the lack of time, but strongly around the availability of psychiatrists throughout most of the US–there are none in half of US counties especially in rural areas. (The average MD psychiatrist is well over 50, nearing retirement, and not well reimbursed for his or her time–which is why med school grads in heavy debt don’t gravitate to the specialty.) What is not stated is that many if not most telepsychiatry providers do not have models that will support in-person evaluations as required without waivers.

There are no public actions or responses either by Congress or by the DEA as of today (13 September).

ATA press release, Biden Administration letter, House letter, Senate Leadership letter, Healthcare Dive

ATA Action, ATA’s trade organization and advocacy arm, has also formed a political action committee (PAC), ATA Action PAC. Its stated purpose is to support incumbent Federal candidates including Congressmembers who support their goals in virtual care policy. Candidates on the Federal or state levels will not receive support.  Release

Evolent Health talking major acquisition by payer Elevance, private equity

Management services organization Evolent Health moving down the road in selling itself. Another deal perking below the Labor Day wire to brew into September or October coffee is a full or partial buyout of Evolent Health.  Potential buyers or partners include Elevance Health (the former Anthem), to position against Optum/UHG, and several private equity companies: TPG, KKR, and Clayton, Dubilier & Rice (CD&R). Evolent provides organizational and administrative services for primary plus specialty care physicians and payers for patients with complex conditions, within and outside of value-based care models such as ACOs, utilizing connected care and workflow automation technologies. In June, it agreed to acquire many of the AI utilization management assets of Machinify, not yet closed. 

Evolent’s (EVH, NYSE) current market capitalization is about $3.65 billion; stock price closing yesterday was $31.62 (Yahoo Finance). Industry analyst Jailendra Singh of Truist projected earlier this month, before this news dropped, that the stock was underpriced at the time in the ~$20 range and justified a target price at $33, citing their ability to manage utilization trends and rate adjustments for FY 2024. Seeking Alpha went so far as to state that at an acquisition price of $35, it would still generate a profitable internal rate of return (IRR).

A buyout won’t be cheap. With an estimated $114-116 billion shares outstanding, an outright purchase price at $35/share could approach or top $4 billion. Which means that the buyout lift could be shared. Projections with the information available range from PEs negotiating a leveraged buyout (LBO), a tuck-in by Elevance, or possibly a PE/Elevance partnership. Elevance already works with CD&R in the Mosaic Health care delivery platform partnership.  The shape of the buyout will develop over the next few weeks. FierceHealthcare

Another activist shareholder forcing a sale? Medical Buyer added to the above reports that long-time shareholder Engaged Capital pushed for this, to the degree that the board of directors needed to settle with them by forming a strategy committee focused on “value creation initiatives”.  As far back as 2021, Evolent was courting suitors or partners–at that time, Walgreens Boots Alliance, which may have been a far better but more complex buy than VillageMD. Hat tip to HIStalk 8/26

Evolent’s potential sale complicates the outlook for other MSOs such as Aledade, Optum, Privia Health, Health Catalyst, Accolade, Alignment Health, and Collaborative Health Systems (now part of Centene–disclaimer, CHS was this Editor’s former employer). In addition, a payer buying a large MSO with provider contractual relationships may pique the interest of FTC and DOJ, which already have Optum on their radar.

Sidebar: Revealed yesterday was Evolent’s CEO Blackley Seth cleaning up his stock option portfolio. According to Investing.com, he “sold shares totaling approximately $5.6 million at an average price of $30.00, with transactions ranging from $30.00 to $30.02. Additionally, the CEO acquired shares worth roughly $1.6 million through option exercises with prices between $6.87 and $10.27.” The sales were prearranged on 29 February under SEC Rule 10b5-1 to avoid insider trading charges. Both the sale and buy were over 100,000 shares.

Truepill to be acquired by LetsGetChecked for $525 million

When is $525 million not $525 million?  Ireland’s LetsGetChecked and California-based Truepill have two things in common: backed by Optum and burning through cash. The deal went under the Labor Day wire:

  • How the buy is structured: $25 million in cash, another $200 million in possible earnouts tied to revenue milestones, and $150 million via a convertible note offering to finance the deal….which doesn’t add up to $525 million.
  • While LetsGetChecked is technically is doing the buying, it is creating a merger NewCo to unify both businesses. Truepill will be the surviving trade name as it has the slightly healthier business.
  • This creates a digital pharmacy to market and fulfill LetsGetChecked’s at-home testing kits.
  • Most of Truepill’s senior management, including their CEO, Paul Greenall, will remain. Greenall also received a $7.25 million forgivable loan. (The reason why is unstated, but these loans usually cover stock option purchases.)

No closing date nor required regulatory reviews are disclosed.

According to Axios, both businesses are in the red. “Truepill lost $15 million on $64 million in revenue for the first four months of this year (increased revenue run rate), while LCG lost $32 million on $39 million in revenue over the first five months of 2024 (declining revenue run rate)”. Truepill was valued in 2021 at $1.6 billion and had acquired $370 million in VC funding. 

As projected at the beginning of the year, health tech M&A are either tuck-ins or throwing in together to survive. Truepill had been shopped since March but received only one other offer. During the Cerebral and more recently developing Done Schedule II drug prescribing scandal in mid-2022, Truepill, as a mail-order pharmacy for both, found itself in the middle of it and under DEA scrutiny with a ‘show cause’ action. LetsGetChecked was also deeply underwater and not looking like it was surfacing. With the NewCo, it seems like an Optum Ventures-engineered ‘shotgun wedding’.  TTA 19 June19 Dec 2022

Signs of life: another view on healthcare investments and exits as of mid-year

Silicon Valley Bank and their reports live! Now under the aegis of First Citizens Bank, SVB’s 14th Healthcare Investments & Exits Mid-Year Report for 2024 covers four healthcare areas: biopharma, health tech, DX (diagnosis)/tools, and device. Concentrating on health tech, highlighting their findings which are very different than the other three sectors and mostly in line with H1 findings from Rock Health that this Editor analyzed as possibly a ‘dead cat bounce’:

  • Series A raises are easier than in other sectors, and growing. It is the second-strongest start for Series A health tech investment since 2021. While average valuation sizes are remaining static around $10 million, and deals to date are just under $8 billion.
  • For later-stage companies, their high valuations during the palmy days of 2020-early 2022 created a ‘valuation trap’. The report uses ‘nadir’ to describe it–“now investors (who) are now opening up their coffers for new investments.” (The picture might be less optimistic if one pulled out Transcarent, which is controlled by two investors, General Catalyst and 7wireVentures.) Flat and down rounds are the norm.
  • They term the above ‘price discovery’, defined as the opportunities to extend due diligence, “build conviction” and build the “right syndicate” of investors.(Above all page 14)
  • Investment is accelerating at a rate above the other sectors (page 18). 
  • Exits have cratered at $0.2 billion with only four M&A deals reported. “Companies are preparing themselves to be good public market performers by tuning their cash efficiency and ensuring good unit economics”. Their view is that this may accelerate in H2 2024. (page 21).

SVB is offering the report online as a free preview download. Contact them for the full report.

Are patients and physicians ready for generative AI? How will it be most acceptable?

As the flood of news will ebb over the next two to three weeks or so (and your Editor takes annual leave), some reading for your pondering.

Gimlet EyeBain and Company, the well-known (and well-feared when they come to your company) management consultants (and investors), recently published results from March’s US Frontline of Consumer Healthcare Survey taken from 500 (undefined) respondents. Unfortunately, with the article, there is no opportunity to download the full survey or review the methodology. From their featured toplines, though, we can savvy that there are still many patient and clinical doubts around generative AI. 

Bain’s article generally spins positives from the results. For instance, their lead is that patients are ‘more comfortable with generative artificial intelligence (AI) analyzing their radiology scan and making a diagnosis than answering the phone at their doctor’s office.’  Their second lead is that clinicians generally have ‘a positive view, recognizing generative AI’s potential to alleviate administrative burdens and reduce clinician workload”.

Your Editor takes a more Gimlety view. First, let’s review consumer comfort with generative AI in five functions:

  • No ‘comfortable’ response is above 37%. Adding in ‘neutral’ at 18%, the only area breaking 50% is “taking notes during appointments to send follow-ups” at 55%. Consumers are not comfortable with generative AI “providing medical advice, treatment plans, and prescriptions” at 21% (11% and 10% respectively).
  • ‘Not comfortable’ is lowest for notes for follow up at 45%. The highest is for medical advice at a eye-blinking 79%. In between, the range is 52% to 68%–indicating strong consumer resistance across the board.
  • As to analyzing radiology scans, there is a lot more comfort with that report going to the doctor for review than AI making a diagnosis. For reports to the doctor, the ‘comfortable’ response is 31% but falls to 21% for diagnosis. ‘Not comfortable’ notches from 52% to 62%
  • For answering calls for providers or insurers, there is definite unacceptance at 68% with only 33% ‘neutral’ or ‘comfortable’.

Provider perspectives are split between physicians and (undefined) administrators. (No neutral in these responses)

  • They both believe that administrative burden and workload will be reduced, with admins far more hopeful than physicians at 43% and 35% by area respectively.
  • What neither group likes is the potential to undermine the patient-provider experience: 19% negative for the physicians and the admins not far behind at -17%.

The takeaway: Generative AI is following the telehealth curve in initial low acceptance. The responses and proportions resemble the early days of telehealth and to a lesser degree, remote patient monitoring. Information didn’t fit into workflows, wasn’t seen as critical, and increased administrative burdens. With acceptance languishing for over a decade, it took a black swan event called the Covid Pandemic to overcome–and in the end it reshaped telehealth, as Teladoc and Amwell have learned.

But in present time, if your Editor as a consultant were presenting this to an AI developer, a physician group, or investors, she would advise preparing for a long, hard road. A road which needs validation, real revenue models, demonstrated accuracy, acceptances, and proven value in solving crucial problems and cost reductions. Natural-language processing (NLP) is being touted as a tool for most of this–but it is only part of the picture. 

Views at variance: Healthcare IT News (NLP interest), MedCityNews (LLMs losing to humans on medical knowledge), MedCity News (on proving value)

“I will survive” updates: NeueHealth survives Q2 with small net loss, Steward sells off Stewardship Health practices to private equity firm for $245M

Mid-August’s pre-Labor Day news deluge was so chock-full of developments that your Editor missed these two survival specials:

NeueHealth, a New Reality casualty that’s decided to create its Own New Reality (or the equivalent of the Twinkie Defense), reduced its Q2 net loss, eked out positive EBITDA.  NeueHealth, which has made an art form of Dodging Disaster, notched Q2 revenue of $226 million with a net loss of $53 million and a slight positive adjusted EBITDA of $3.96 million. Diluted loss per share was reported as $8.65, more than $5.00 worse than Q1. Revenue and losses were reduced as expected from Q2 2023 as their business model drastically changed with the sale or closure of its health plans by close of last year. Their covered lives are slightly down (value-based consumers meaning patients) or way up (enablement services lives, a fancy term for non-clinical support services such as health education and care coordination).

Their forecasts for 2024 are oh-so-rosy, with total revenue of $950 million, segmented for NeueCare (primary care in Florida and Texas plus affiliates) at $320 million plus NeueSolutions (management services including ACO management) at $640 million, with adjusted EBITDA in the $15-20 million range.

CEO Mike Mikan touted the $150 million debt financing round from Hercules Capital, which in this Editor’s view had more hedges than France’s Bocage [TTA 26 June]. Stock, which had a brief bump to over $6.60 in July, languishes in the $5.00 range. There is no update on the 16 June NYSE non-compliance notice for a market cap below $50 million that had a 45-day deadline for a plan to remediate within 18 months. Market cap is presently at $41 million. There is also no update on their ticking time bombs: the CMS Repayment Agreements due on or before 14 March 2025 nor $89 million owed to Texas from last year to cover risk liabilities for its shuttered ACA plans [TTA 14 Feb]. It’s those Gordian Knots again! Yahoo Finance, NeueHealth release, Fierce Healthcare

A bright spot in the messy bankruptcy unwinding of Steward Health Care is the pending sale of Stewardship Health, its practice arm, to be reviewed today. The teed-up proposed buyer offering $245 million is a new company, Brady Health Buyer, set up by private equity company Kinderhook Industries, LLC, on behalf of its existing investment, Nashville-based Rural Healthcare Group.

  • Kinderhook is a $8.5 billion PE with investments across healthcare services, environmental/business services, and automotive/light manufacturing sectors.
  • RHG has 14 clinics in rural North Carolina and Tennessee.
  • Stewardship operates practices in nine states, has 5,000 doctors, and serves 400,000 patients.
  • They will have to move facilities from Steward hospital properties. There are no location or state overlaps with RHG.

Their prior sale arrangement to Optum preceded the bankruptcy and was withdrawn after a DOJ challenge. The only other offer from 57 potential bidders approached, other than Kinderhook/Brady/RHG, were their FILO lenders.

Judge Christopher Lopez, the bankruptcy court judge in Texas, is expected to rule on the sale today (Friday), along with a separate sale of up to six Massachusetts hospitals. Regulatory approvals are required. WBUR, Healthcare Dive

Short takes: Stryker to buy Care.ai, Masimo W1 medical watch clears FDA for oxygen, heart monitoring, Create Health Ventures forms $21M fund

Medical/surgical device giant Stryker snapping up Care.ai. Price and financing are not disclosed. Orlando-based Care.ai specializes in sensor-based smart room technologies for hospitals and post-acute care facilities along with virtual care data analysis and workflows. Timing of the closing is based upon the usual regulatory approvals and Care.ai will operate separately until then. After that, it’s projected that it will be integrated into Stryker’s 2022 acquisition Vocera Communications’ platform and devices.  Care.ai may be just the first deal for Stryker’s second half, as their CEO Kevin Lobo promised on the Q2 investor call a “very active deal pipeline” of tuck-in acquisitions. According to HIStalk, Care.ai co-founder and CEO Chakri Toleti sold his previous venture, HealthGrid, to Allscripts (now Veradigm) in 2018 for $60 million. MedTech Dive, Stryker release

Despite the proxy fight, business as usual goes on with Masimo. Their W1 medical watch for remote patient monitoring, integrated into the Masimo SafetyNet telemonitoring platform, received FDA 510(k) clearance. The watch MW-1 module monitors high-resolution SpO2, pulse rate, perfusion index (Pi), and heart rate from an ECG from a single wearable device. Readouts are both on desktop for the clinician and on an app for patients and caregivers. All can receive customized notifications and manage care remotely. The Masimo W1 medical watch and the integrated Masimo MW-1 module are indicated for adults in hospitals, clinics, long-term care facilities, and homes. No cost is provided and it is not available on the website, but the W1 Sport consumer version is $549.  SleepReview, Masimo product page.

Another sign of digital health investment revival–a new venture capital fund not started by Glen Tullman. Create Health Ventures is kicking off its inaugural fund with $21 million. Its focus will be on early-stage startups founded by experienced healthcare veterans on two tracks, according to their announcement release

  1. For payers, improve access to care for everyone, enhance the patient experience, and facilitate better health outcomes
  2. For pharmaceutical companies, technologies they can use to recruit and retain patients for clinical trials, as later-stage trial needs swell in the industry

The two founders and managing partners, who started the firm in Austin and Chicago in 2021, are Emma Cartmell and Amit Aysola. They have advised or invested in over 80 companies. Venture Capital Journal, Mobihealthnews

Veradigm update report: initial bids collected to take company private

Veradigm (formerly Allscripts), which announced in May that it was seeking ‘strategic alternatives’, reportedly has some initial bids for parts or all of the sprawling data and tech platform company. Bids are coming in at above $9.50/share according to Axios, but only three players have been mentioned by the usual ‘inside sources’.

  • Thoma Bravo, which took NextGen Healthcare EHR private for $1.8 billion last November [TTA 19 Sept 2023]. NextGen has worked with Veradigm in a strategic data exchange partnership dating back to 2019.
  • Roche, current owner of Flatiron Health, which also has a specialized EHR for managing cancer data. However, Roche recently put Flatiron up for sale, which could make serious interest in Veradigm doubtful. 
  • Vista Equity Partners, which owns EHR Greenway Health,

Because some parts are more interesting to bidders than others, two or more could partner to buy Veradigm’s assets in healthcare data systems and services. Veradigm’s market capitalization remains about $1 billion.

Veradigm was delisted from Nasdaq on 29 February because of software problems making their 2022 and 2023 reporting inaccurate and being unable to file required current financial reports. It trades OTC under MDRX closing today at $9.55. Yet they reported profitable results in 2023 with net income from continuing operations between $49 million and $58 million and shortly after acquired two companies this year, ScienceIOfor $140 million in cash [TTA 15 Mar] and Koha Health [TTA 3 Jan]. For 2024, Veradigm forecasts revenue between $620 million and $635 million, with adjusted EBITDA between $104 million and $113 million. One wonders why there aren’t more bids, even joint bids, financing, and other structured offers for what appears to be a fairly healthy going business. Ionanalytics.com

News roundup: SleepioRx clears FDA 510(k), Caregility adds AI fall detection, Otsuka releases Rejoyn depression app, MD Ally’s $14M Series A, Alcove launches CallConnect247 (UK), Health Catalyst buys Lumeon for $40M

Big Health’s SleepioRx digital insomnia therapeutic gains 510(k) FDA clearance. The 90-day treatment is based on a prescription device delivering Cognitive Behavioral Therapy for Insomnia (CBT-I). The treatment adjunct is tailored to symptoms and provides daily sleep tracking, enables goal setting, and content for help falling asleep. Sleepio was originally developed in the UK (we covered in 2013!) but moved to San Francisco in 2015.  Their original Sleepio is marketed to employers and health plans to support treatment for sleep disorders and insomnia, along with other products for digital support for anxiety and depression. Their last funding was a Series C of $75 million raised in the palmy days of January 2022 and a year later acquired Limbix, provider of SparkRx, a depression management app targeted to adolescents. Release, Mobihealthnews

In my home state of NJ, Caregility announced an AI-powered fall detection upgrade to their acute care clinical observation platform. iObserver is used by hospital care teams for observation of patients at risk for falls or self-harm. Interestingly, the fall detection system is run on computer vision, which means it runs entirely on telehealth edge devices in the patient room with the AI capable of identifying and deriving information from objects and people in images and videos. Edge device use means that processing is done within the devices themselves, which eliminates bandwidth issues and upstreaming to the cloud, a failure point for privacy and as we now see, hacking risk. According to the release, the computer vision capability is available for use on every one of the more than 15,000 Caregility edge devices currently installed in hospitals around the globe. 

Otsuka Precision Health (OPH) launches Rejoyn digital therapeutic for depression.  As previewed earlier this summer [TTA 29 May], OPH launched Rejoyn, the first and sole prescription digital therapeutic cleared by the FDA for the adjunctive treatment of major depressive disorder (MDD) symptoms. Rejoyn was developed in conjunction with Click Therapeutics. It is for use by those aged 22+ on antidepressive medication. After being prescribed from the patient’s provider or Wheel Health, the Rejoyn app can be downloaded from major app stores after keying in an access code that is furnished to the provider by BlinkRx. It is currently being priced on a cash-pay basis at $50 for the six-week course, which will increase later to $200 for insurer coverage, though it is not yet covered. In a six-week trial, the use of Rejoyn reduced depression symptoms and improvement across multiple scales typically used by patients and clinicians to track depression improvement. The Otsuka release and commitment are significant as it’s also the first true involvement of a major pharmaceutical company in telemental health with a highly targeted clinical app that isn’t tied to one of their medications. It’s a long road with a lot of bumps, as Otsuka experienced with Proteus Digital Health’s smart pill tech for its Abilify MyCite, as well as failed companies like Pear and Babylon Health.  Release, Healthcare Dive

In funding news, emergency services telehealth company MD Ally now has $14 million in a Series A to add to its previous $11 million.  The raise was led by Frist Cressey Ventures, founded by Senator Bill Frist and Bryan Cressey, and anchored by General Catalyst, with participation from Techstars, Seae Ventures, Red & Blue Ventures, and Alumni Ventures. MD Ally’s value proposition centers on the non-emergency 911 call. Dispatchers and first responders, after determining the non-emergency status, can divert the call to other telehealth and community-based resources to assist the person plus a ‘care assistant’ for treatment plans and long term outcome management. MD Ally is currently in test in Phoenix and locations in Florida, Arizona, and California serving about 5 million patients. Release, Mobihealthnews

In UK related news:

Alcove expands TEC services with CallConnect247. It is a state-of-the-art 24/7 Alarm Receiving Centre (ARC) designed for communities and local authorities who are modernizing their call services for alarm management to incorporate virtual care and video welfare calls. It includes AI-powered and automated services to reduce false alarms and minimize the ‘white noise’ calls that often inundate traditional ARCs. It’s expected to grow coverage up to 8,000 users by October. Alcove release, Thiis.co.uk

Health Catalyst buys US/UK care management company Lumeon Ltd for $40 million. The $40 million purchase price was funded with a mix of $2.5 million in stock and $37.5 million in cash plus a potential recurring revenue-based earn-out of up to $25 million that, if achieved, would be paid solely in cash. (page 42 of SEC Form 10-Q). No information was provided concerning staff transitioning at Lumeon’s current HQs in Boston and London, where it adds a UK/EU footprint to Health Catalyst’s current data analytics and software businesses. Lumeon’s Care Orchestration automates care coordination processes for providers in outpatient, acute care, and post-acute settings.

Health Catalyst’s earnings were also reported in the 10-Q. Revenue for Q2 was up slightly from last year to $75.9 million, but burdened with a net loss of $13.5 million which was more than 50% reduced from Q2 2023’s $32.6 million. Q2 adjusted EBITDA improved to $7.5 million versus $3.5 million in prior year. Release, Mobihealthnews

Food–allergy and metabolism–takes center stage with Series A fundings for Amulet and Levels

Food, as nutrition and more nebulously, ‘food as medicine’, has become a popular part of the disease treatment value proposition in funding. Two examples gained Series A funding in just the past few days.

Amulet announced a $5.8 million Series A round led by HealthX Ventures, with participation from Incite Ventures, AllerFund, Mendota Venture Capital, Great Oaks Venture Capital, plus Julie Bornstein (Pinterest/Daydream) and serial founder and investor Diede van Lamoen. Total funding including grants from Imperial College London and Dartmouth and seed rounds is now $10.7 million. The fresh funding will enable the company to scale its team, expand its detection portfolio, and execute a full product launch.

Amulet’s two products are a pocket-sized consumer wearable, Allergy Amulet (left), that can test food for allergens right at the table in about one minute. A professional testing system, Amulet Scientific, is for use by the food industry–restaurants, suppliers, manufacturers, and related–to test for food toxins and environmental contaminants. The proprietary molecular detection technology recognizes and binds target molecules, then measures binding via electrical current, and reads both on the wearable device and on its app. Amulet’s devices and software are pre-launch, although it has secured two patents and received grant funding from the National Institutes of Health (NIH) and the US Department of Agriculture. For those with multiple food sensitivities ranging from mild (magnesium stearate, casein, lactose) to significant (gluten, peanut, sulfites, shellfish), having a tester beats asking the waiter and crossing your fingers.   Release

Levels takes the metabolic road to nutrition centering primarily on continuous glucose monitoring (CGM). The Series A extension of $10 million was unusually raised two ways: $7 million from venture capital companies Long Journey, a16z, and others, while $3 million was raised from 2,000 crowdfunders. The original Series A raised $5 million from crowdfunding (1,400 individuals). Funding to date is $57 million.  Levels seeks to improve metabolic health from feedback tracking metrics such as real-time blood sugar, blood testing, nutritional intake, and sleep and exercise data. Their featured CGM is Dexcom’s G7. Synched with the CGM, the Levels app monitors blood sugar and lifestyle factors to calculate scores and provide personalized choices plus feedback. Membership to date is over 60,000. Fitt Insider (release) 

23andMe drops drug discovery group, expands Lemonaid into GLP-1 weight loss medications, loses $69M in Q1–and board rejects CEO’s buyout offer

Troubled 23andMe disbands drug discovery group, moves into weight loss meds, loses $69 million in FY25 Q1–and soundly rejects CEO buyout offer. The next shoes have dropped in the 23andMe drama.

The latest from both the Q1 earning announcement and their SEC filing, both 8 August:

  • 23andMe has abandoned its drug discovery dreams and closed the unit, terminating 30 employees in the Therapeutics Discovery unit including Bill Richards, the head of Therapeutics Discovery (package details in the 8-K), effective 9 August.  SEC Form 8-K 
  • 23andMe will retain their Therapeutics Development unit for the two drugs currently in early-stage clinical trials. They are also collaborating with Nightingale Health to pilot a metabolomics blood biomarker panel with a cohort of 23andMe+ members.
  • The Lemonaid telehealth unit is moving into prescribing GLP-1 semaglutide weight loss drugs through a membership program and receive either brand-name or compounded medications. (Editor’s note: why anyone would be a member of 23andMe after their epic user and member data breach last year–that they blamed on users’ passwords–is beyond me.)
  • This is coupled with what the company terms in its Q1 press release “a large-scale genetic research study to help identify the genetic mechanisms that may drive the efficacy and potential side effects of GLP-1 medications”

Their Q1 FY 2025 was singularly depressing, with revenue sinking 34% to $40 million, well below the $52 million projected by Street analysts. The drop was attributed to the loss of the GSK genetics collaboration in mid-2023.  The only bright spot was that losses also shrank 34% to $69 million from $105 million in the prior year. 

Stock delisting pending. ME closed on Tuesday at $0.35. The company received an extension from Nasdaq to 4 November and is seeking shareholder approval for a reverse stock split to raise the price above $1.00 as required. Endpoints, MedWatch, FierceHealthcare

CEO’s buyout rejected. On 2 August, the $0.40 per common share non-binding offer from CEO and controlling shareholder Anne Wojcicki offered on 29 July [TTA 1 Aug] was soundly, roundly rejected by the impressively named Special Committee of the Board of Directors of 23andMe. From the letter:

“We are disappointed with the proposal for multiple reasons, including because it provides no premium to the closing price per share on Wednesday, July 31st, it lacks committed financing, and it is conditional in nature. Accordingly, we view your proposal as insufficient and not in the best interest of the non-affiliated shareholders. Therefore, we are not prepared to move forward under the terms provided. Importantly, we request that you immediately withdraw your stated intent to oppose any alternative transaction so that we can fully assess whether there is interest from third parties in a transaction that would maximize value for all shareholders.” (Editor’s emphasis)

It closes with a demand:

“In the absence of a revised offer at a more appropriate price per share that meets the other requirements set forth above, we will pursue other alternatives in striving to maximize value for all shareholders. In that regard, given both the lack of certainty regarding a path forward with you and your potential investors and the current liquidity position of the Company, in parallel with your work to submit a revised bid, we intend to immediately begin the process of engaging a consultant to advise the Special Committee on a revised business plan that would provide the Company with a path to a more sustainable financial profile and achieving profitability. In your capacity as CEO, we expect your full support in these efforts.

Given that she reportedly holds 22.5% of the company’s outstanding Class A common stock and 59.2% of outstanding Class B common stock (according to analyst TD Cowen)–other reports state that she has in total 49.99% of the voting power–that is quite a defiant statement. Based on her supervoting privileges–a trick picked up from her Silicon Valley tech friends back when–Wojcicki could kill any buy not in her interest. Or any interest, period. Developing.  

Short takes: both Clover and Oscar in the black; Aetna prez booted after 11 months; Ava-VSee bedside robot; updates on Change, OneBlood ransomware, Masimo proxy fight

Clover Health’s milestone–a first-ever profitable operating quarter. Not only that, but it was an impressive turnaround from the prior year. With results in their Q2 operating net income of $7.2 million, versus a $28.9 million loss in 2023, these results were far more favorable directionally than the adjusted EBITDA which was $36.2 million versus $9.9 million for the prior year. Insurance revenue was also up 11% to $349.9 million, attributed to member retention and an improved medical cost ratio (MCR) of 71.3%, down from 77.9% in the prior year. Additional revenue from other operations, such as the recently introduced Assistant AI, is minimal. The 2024 forecast stays ‘in the clover’ with raised forecast revenue of $1.35 to $1.375 billion and adjusted EBITDA of $50 million to $65 million. Also helpful is their lifted Star rating from 3 to 3.5 for 2025. FierceHealthcare, Clover earnings release

Rival Oscar Health also stayed Back in Black for the second quarter running–CEO Bertolini wouldn’t have it any other way (or else–see below right). Q2 net income rose to $56.2 million which was a a $71.7 million improvement versus prior year. Adjusted EBITDA also nicely improved to $104.1 million, a $68.6 million improvement. Revenue increased to $2.2 billion, a 46% increase over the prior year. Their MCR went down .9 points. The overall forecast for the year wasn’t provided. Membership was up over 600,000 in their main business of individual and small group insurance, with Bertolini pointing out that this was powered by plan growth in 80% of the states where they operate. Oscar exited Medicare Advantage at the end of 2023, and is shifting to marketing ICHRA, or individual coverage health reimbursement arrangements that permit small businesses to offer employees individual health plans subsidized by employer contributions. After this year, the 58,000 members left in the unprofitable Cigna co-branded small group program will exit [TTA 10 May]. Oscar release, FierceHealthcare

Back in Mr. Bertolini’s old stand, Aetna, results weren’t so cheerful–and their president walked the plank after less than one year. The reorganization announcement was made on the earnings call yesterday, effective immediately. CVS Health CEO Karen Lynch will oversee the daily operations of the health benefits segment along with Aetna’s CFO. CVS VP/chief strategy officer Katerina Guerraz will move over to become Aetna’s chief operating officer.

What initiated it: while health benefits’ revenue stayed in the black, going the wrong way were operating income decreasing 39.1%, the medical benefits ratio (MBR) soaring to 90% from 86% in prior year and the medical loss ratio (MLR) going up to 89.6% from 86.2%. These were attributed to increased utilization, the decline in Medicare Advantage Star ratings, Medicaid acuity, and a revised risk adjustment in the individual exchange business. Something in this immediately doomed now former president Brian Kane, who joined only last September. His last post was at Humana as chief financial officer and leader of their primary care business. CVS Health release, FierceHealthcare, Healthcare Finance

Marrying robots with telemedicine, VSee is partnering with Ava Robotics to create an autonomous robot for telepresence use in hospital intensive care units. This would enable remote emergency physicians to be present at the point of patient care, interact with patients, consult with onsite staff and make treatment decisions. The projected market is smaller regional hospitals and ICUs.  VSee already markets telemedicine carts and portable diagnostic and home care kits. Availability is not disclosed. VSee release, Mobihealthnews

VSee also announced a partnership with Wichita, Kansas community health provider Stand Together for its Aimee telehealth services. Telehealth at their centers will be available to participants for a monthly charge of $4.99 or a single virtual urgent care appointment for $9.99. VSee release

Ransomware strikes again. Non-profit blood donation organization OneBlood was hit on 29 July by a despicable ransomware attack that disabled much of its blood collection services for over 250 hospitals in the southeastern US. They continued to operate at reduced capacity and called for donors of O positive blood, O negative blood and platelet donations. The perpetrator, ransom demands, and breached information were not disclosed. On Monday 5 August, systems were partially restored in time for Tropical Storm Debby’s assault on many southeastern states. From a OneBlood spokesperson: “Our critical software systems have cleared reverification and are operating in a reduced capacity. As we begin to transition back to an automated production environment, manual labeling of blood products will continue. Additionally, we are beginning to return to using our electronic registration process for donors.” DataBreaches.net, FierceHealthcare, HealthcareITNews

Hard-hit Change Healthcare is still playing games with reporting to HHS’ Office of Civil Rights (OCR). Parent UnitedHealth Group reported the ransomware shutdown and data breach to OCR, a full five months after its occurrence. The number reported is the OCR minimum of 500, when it is well known that it affected millions of patients. UHG started direct patient notification on 31 July after weeks of delay, but stated to OCR that they are still determining the number of individuals affected. Provider notifications started in late June [TTA 21 June]. This followed after a hostile dispute earlier that month where UHG tried to push patient notifications onto providers, which HHS decided was 100% UHG’s responsibility. [TTA 5 June]. OCR FAQ update, HealthcareITNews

Masimo and activist shareholder Politan Capital continue to slug it out down to the 19 September shareholders meeting. Back in mid-July, Masimo postponed the meeting, originally scheduled for 25 July. At that time, Masimo filed a complaint in the US District Court for the Central District of California against the two Politan representatives on their board of directors plus Politan’s two nominees that proxy materials contained false statements and violations of the Exchange Act. The suit added that board member Quentin Koffey, also Politan’s chief investment officer, was secretly conspiring with a plaintiffs’ bar law firm currently in litigation with Masimo.

The latest revelation per Strata-gee 7 August: Politan’s countersuit in the Delaware Court of Chancery states that the charges filed by Masimo in the District Court are based on ‘unnamed sources received from a third-party opposition research firm…’ and Masimo’s outside counsel does not know the identity nor ever spoke to the sources. This was filed against CEO Joe Kiani, independent director Craig Reynolds, and director Bob Chapek as a breach of Delaware law.

To date, Masimo has not confirmed their sources to the Delaware court. 

As previously reported [TTA 17 July], the proxy fight was triggered by the value of the company, reduced substantially after Masimo’s snakebit 2022 acquisition of Sound United’s consumer audio brands, Politan’s move to control the company, and kick out the CEO Joe Kiani.  The fight on the Masimo board of directors for two open seats pits the Masimo slate of CEO Joe Kiani and outside candidate Christopher Chavez, against Politan’s Darlene Solomon and William Jellison. Politan already holds two seats and with a win of two additional seats will control the company. Masimo plans to sell the consumer audio and healthcare (baby monitoring) businesses to another unnamed investor, retaining their professional healthcare and pulse oximetry products.

Stay tuned to the next episode of this soap opera.

HHS reorganizing ONC, ASTP in tech funding, talent bid; FDA’s Digital Health Advisory Committee named; GAO scores progress on VA Telehealth Access Program

Time to make lemonade? The US Department of Health and Human Services (HHS), in the midst of technical challenges such as AI and cybersecurity, has turned its weary eyes to a reorganization of a function that goes back two decades to the GW Bush administration. Technology has been under the purview of the Office of the National Coordinator (ONC) for Health Information Technology (HIT), currently Micky Tripathi, within HHS–but not entirely. The HHS solution is to rename ONC-HIT as the Office of the Assistant Secretary for Technology Policy, or ASTP, and to add in IT functions distributed to other offices within HHS. 

  • Not unexpectedly, HHS will hire three new technical experts: a chief technology officer (vacant for several years), a chief AI officer (currently held by Tripathi). and a chief data officer.
  • The new ASTP will also absorb the IT functions within HHS’ Assistant Secretary for Administration (ASA).
  • Another shift is being made to the HHS 405(d) Program, a partnership between the health sector and the federal government to align healthcare  cybersecurity practices. That moves from ASA to the Administration for Strategic Preparedness and Response (ASPR).

With this, ASTP hopes for more funding. Since the early 2000s, their budget has remained stagnant at $50-65 million, not including ‘paste ons’ for initiatives such as HITECH and 21st Century Cures. Healthcare Dive, Fierce Healthcare

Another alphabet committee formed to advise the Food and Drug Administration (FDA). The Digital Health Advisory Committee (DHAC) has been named to advise FDA on topics such as AI/ML, virtual reality, wearables, digital therapeutics, and remote patient monitoring (RPM). The chair will be Ami Bhatt, MD, chief innovation officer of the American College of Cardiology. A full list of the committee is in FierceHealthcare and the DHAC industry representative pool is here.

The Government Accountability Office (GAO) has more than a few reservations about the Veterans Health Administration’s Telehealth Access Program. The VA has had in place since 2019 a distributed telehealth program to enable veterans without internet access at home to obtain clinical telehealth services at outside locations. The Accessing Telehealth at Local Area Stations (ATLAS) pilot program works with private organizations, such as veterans service organizations, to provide locations where veterans can connect with VA clinicians for video consults. The problem is that 14 of 24 ATLAS sites active at the time had no veteran visits in Federal FY 2022 and 2023. Of the active 10, reports were favorable but not measurable. Where GAO scores VA is that the program lacked performance goals and related measures. VA going forward will implement goals and measures based on leading good practices and assess the effectiveness and efficiency of the ATLAS program on an ongoing basis. GAO report.

Breaking: Walgreens considering sale of entire stake in VillageMD

The other shoe just dropped. Walgreens Boots Alliance filed today (7 August) Form 8-K with the Securities and Exchange Commission (SEC) that confirms that they are considering a VillageMD sale. On page 2, Walgreens is considering the “sale of all or part of the VillageMD businesses, possible restructuring options and other strategic opportunities.”

The broad reason why is that VillageMD has “substantial ongoing and expected future cash requirements”. The specific event is VillageMD’s default as of 2 August on the VillageMD Secured Loan, a senior secured term loan and credit facility amounting to $2.25 billion. Currently (6 August), the loan is in a forbearance agreement while the companies work out terms. The 8-K also reiterates that Walgreens “is actively engaged in discussions with VillageMD’s stakeholders and other third parties with respect to the future of its investment in VillageMD”.

None of this should be surprising given recent statements made by CEO Tim Wentworth on the dismal Q3 earnings call [TTA 2 July], disclosing that Walgreens plans to lower its Village MD ownership below a majority holding (currently 63%). This signaled a partial sale at least–and that Walgreens was giving up on VillageMD as an integral part of the company. Between the direct investment of $5.3 billion and subsidizing Village MD’s purchase of Summit Health/CityMD with an additional $3.5 billion plus development costs, the Village MD Money Pit has disappeared roughly $10 billion of Walgreens’ fisc. Closing 160 locations did not, and could not, unsink this ship. While VillageMD is not the only dark spot for Walgreens’ business (retail is crashing, pharmacy is going soft), the plunging stock price has kicked off multiple shareholder class action lawsuits.[TTA 17 July]

It’s going to be tough to find any buyer at all at even a fraction of what Walgreens invested. An industry analyst estimated VillageMD’s 2023 losses at $800 million last April. WBA took a writedown last quarter, a $12.4 billion non-cash impairment charge related to VillageMD goodwill. Cigna also wrote off $1.8 billion of its 2022 $2.2 billion investment which gave it a ‘in the teens’ share [TTA 2 May]. Even CVS is trying to amortize its $10.6 billion buy of its own Money Pit–much smaller Oak Street Health–by finding a joint venture private equity partner [TTA 29 May].

This filing, coupled by the announcement of a third sale of Cencora stock to generate cash [TTA 7 Aug], points to no end in sight of Walgreens’ troubles. The SEC filing took place after markets closed; investors can expect a very down morning in an unstable market. Crain’s Chicago Business, Forbes