Weekend reading: 23andMe’s exploding plastic inevitable fate–and what might have been

April 20, 2024 | by | No Comments

23andMe may go private, break up, or go bankrupt. Not many other options. A major end-of-week news item in healthcare was that 23andMe, the beleaguered genetic testing company, may be taken private by its CEO and founder Anne Wojcicki per an SEC 8-K filing on 18 April and a press release issued the same day. Currently, she is a major shareholder controlling more than 20% of the total outstanding shares with ‘supervoting’ rights that entitle her to approximately 49% voting power. She filed a Schedule 13D the prior day indicating her intent to buy all outstanding shares. No offer value nor timing was specified. Bloomberg, LinkedIn

23andMe shares closed Friday at $0.48 on the Nasdaq Global Select Market. On Wednesday, they closed at an all-time low of $0.36. It has not had a close above $1.00 since 29 September 2023. In November, Nasdaq notified them that the company had 180 days to bring the share price above $1.00 or face delisting–and there is little time remaining on the clock. CNBC

In February, after a disastrous fiscal Q3 with net loss tripling and revenue down 32%, Wojcicki floated the idea of separating the consumer genomics/virtual care and the commercial genomic database/drug discovery businesses but has turned now to taking the company private and fully under her control. Its market cap is now about $200 million with $200 million cash on hand, creating a zero-sum situation. The release states that on 28 March, the board of directors formed a special committee to evaluate alternatives to maximizing shareholder value. But when ‘shareholder value’ has to be approved by one shareholder with 49% of the votes, the BOD’s options may be constrained.  

What a difference in three years. In February 2021 after much anticipation, 23andMe went public in a SPAC founded by Richard Branson and soared to a $3.5 billion valuation. It achieved a $4.8 billion market capitalization after buying in October 2021 Lemonaid, a quick-diagnosis/quick-prescription telehealth company for minor but troublesome conditions that was touted, but never became, a nexus of, to quote the announcement, “healthcare that is based on the combination of your genes, your environment, and your lifestyle.”  At the time, its future seemed unlimited between consumer genetic testing (genotyping, not diagnostic) for health and ancestry, building up Lemonaid into a full-featured virtual diagnostics and health service, while taking the deidentified data and marketing it for commercial research to Big Pharma, initially via a five-year exclusive deal with GSK.

That commercial use proved to be a sticky wicket with consumers concerned about how their data was being protected, with opting out made (deliberately?) opaque and difficult. Other than Lemonaid, 23andMe failed to successfully diversify beyond the core ‘one and done’ genotype testing until very late last year. Last February, after their disastrous 6.9 million record data breach turned the spotlights on, the Wall Street Journal revealed that a pricey subscription program for lifestyle counseling that included clinical exome sequencing plus Lemonaid called Total Health failed to gain traction after its late 2023 debut and their in-house drug discovery moved only two out of 50 into early-stage human trials. The GSK deal expired and was not renewed. 23andMe was also torching through cash. [TTA 2 Feb]. The thick and sticky icing on the cake was 23andMe’s antagonistic response to the breached customers, blaming them for recycling passwords and using multiple features they offered [TTA 19 Jan]. This was rightfully blasted in the industry and the subject of multiple consumer class-action lawsuits.

In this Editor’s opinion, 23andMe’s ship must pass between the Scylla and Charybdis of financial choices. Splitting up a near-worthless company into three money-losing parts, like Gaul, is rearranging deck chairs on the sinking ship (to really scramble our metaphors). In either a Chapter 7 (closure) or Chapter 11 (reorganization) option, Wojcicki would lose control and her spot as CEO, wiping out the shareholders, but she might retain some value in Chapter 11 in the IP, depending on how it is structured. Then finally, there is Wojcicki’s buying out the other shareholders. That is dependent on her having or being able to access the cash from investors. None of this solves the failure of the business model, which was for most customers ‘one and done’ testing, not subscribing to additional services, and unsubscribing from any further data use. They saw nothing attractive or useful in the other services. Then as a member to be hacked and blamed for it? That is a run, do not walk, to the exit.

Chapter 7s are usually forced situations where there is little value left in the company other than intellectual property (as in Pear) and equipment (if applicable), zero confidence in management and product delivery (Olive AI), withdrawal of key client business, collapsing in a heap of litigation (Theranos), and any of the above coupled with overwhelming debt that lenders will no longer carry (Babylon Health).

A Must Read for your weekend is Arundhati Parmar’s gem of an essay on 23andMe in MedCityNews–the company’s current dilemma contrasted with what if co-founder Linda Avey had not been ousted in 2009. She expertly sets off interviews with Avey and Wojcicki into an illuminating virtual debate that should be part of an MBA candidate’s case study. Parmar sets them off with analyst views, the experience of a referred 23andMe customer who illuminates the life-changing nature of genetic testing as well as 23andMe’s service drawbacks, and a sparkling view from an empty 23andMe cocktail reception at this past January’s JPM.

23andMe data breach may have targeted those of Jewish and Chinese heritage; company valuation crashes (updated)

February 2, 2024 | by

23andMe’s hole gets deeper. And deeper. As more dots are connected on their data breach–and financial situation.

Part 1: The data breach that exposed 6.9 million records at genetic testing and data company 23andMe isn’t only being fought in the courts as to who to blame (customers recycling already corrupted passwords versus a site vulnerability to brute-force hacking). It appears the hackers had specifically targeted people with Chinese or Ashkenazi Jewish heritage. Worse, 23andMe is not addressing that. The evidence was there as early as October.

  • 1 October: an unknown person posts on the 23andMe subReddit that they had customer records, posting a sample of the stolen data. Supposedly this is how 23andMe found out that their user data had been hacked and stolen. (Editor’s note–this zero-trust breach beggars credibility in a tech-oriented company.)
  • 6 October: 23andMe’s blog post announcement of the initial 14,000 records hacked in their customer base, which later grew to 6.9 million records revealed through the links to MyHeritage, in adding functionality to Family Tree, or sharing their information by opting into 23andMe’s DNA Relatives feature. 
  • 6 October: Wired’s reveal that earlier in that week, a hacker posted on BreachForums a data sample of what they claimed were 1 million records exclusively on those of Ashkenazi Jewish heritage, plus hundreds of thousands of records on those of Chinese heritage. By Wednesday, the hacker was selling what was claimed as 23andMe profiles with information on display name, sex, birth year, and details on genetic ancestry results, but not raw genetic data. Pricing was between $1 and $10 per account depending on number purchased.
  • By December, 23andMe was squarely blaming users for reusing passwords (credential stuffing), even if they created a unique password, and denigrating their right to demand legal accountability from 23andMe on their lax security procedures. [TTA 6 Dec 23, 19 Jan]

None of the contacts that 23andMe has made with users since October, including the letter sent to breached users (via TechCrunch) refers to any specific ethnic group targeting. 

World events made this targeting and timing very important. The brutal attack by Hamas in the south of Israel was the very next day after the breach was disclosed, 7 October. It killed 1,200 civilians, with over 200 hostages. Israel declared war on Hamas in Gaza which still goes on, as do the demonstrations against Israel and overt anti-semitism. Given the targeting evident in this breach of individuals with information for sale, by 11 January Representative Josh Gottheimer (CD-5, NJ) sent a letter to the director of the FBI to investigate the hacking, specifically because the information could be purchased via sites used by hackers to merch this type of information–and used to target Jews globally.

Third-party data included in the hack? There is also the possibility that DNA information from third parties such as Sequencing entered 23andMe’s database. In Illinois and other states, this type of sharing is illegal without specific consent. This information could also have been stolen without the knowledge of the individual. This has sparked additional class action lawsuits. The Times of Israel

Part 2: 23andMe is in poor shape financially. Like all too many companies that went public in 2021, 23andMe is a cracked SPAC that debuted in February 2021 above $16, with a company valuation of $6 billion, and now is trading on Nasdaq at $0.73 which gives the company a negligible value. Revenue is upside down and the company is torching through the $1.4 billion it raised both in the market and through private investment. The WSJ’s estimate in a far-reaching article is that it is 80% gone. Founder Anne Wojcicki’s stock has supervoting privileges which means she effectively controls the company, not the shareholders.

Both Ancestry (remember them?) and 23andMe had ups and downs from 2015 but the hype, especially after the Theranos implosion that year, was stunning. Genetics became The Next Big Thing That Would Save Health Tech. The large flaw–the market for genetic testing for ancestry and/or health is a ‘one and done’, which TTA predicted back in 2020 and earlier. Wojcicki guessed early on that a revenue model lay in selling de-identified genetic information to pharma. But their five-year exclusive deal with GSK ended last year and led to an 11% layoff [TTA 10 Aug 23]. Subscriptions for lifestyle counseling starting at $200 and exceeding $1,100 never took off. Growing their $4oo million Lemonaid buy from fall 2021 into a more robust and integrated telehealth platform never happened. Her long-term bet was moving into drug discovery using all that DNA data, but only two drugs of 50 have reached early-stage human trials.

Whether 23andMe will climb out of this crater, both financial and data security, as they did several times in early days, is to be seen. But Wojcicki’s personal brand apparently remains in great shape, unlike their data security. Also Futurism

*Updated 2 Feb for additional references, content, and copy editing

Got a data breach? Blame the victims like 23andMe did!

January 19, 2024 | by

23andMe wished its breached customers Happy New Year by putting the blame…on them!

The hacking that started with 14,000 records and grew to exposing the records and personally identifiable information (PII) of 6.9 million users, about half their customer database, has spawned over 30 class action lawsuits in the US, plus lawsuits in Ontario and British Columbia, Canada. 23andMe, in their responses to law firms and on their blog, told lawyers and users–not unexpectedly–that the data breaches were due to 23andMe users recycling log in credentials, such as passwords, that were used on other–breached–websites, and failed to update them on 23andMe after these incidents.

However, as this Editor noted when this first broke in December, this credential stuffing doesn’t account for the targeting nor the hacking of users who claimed they had unique credentials, including the US National Security Agency (NSA) cybersecurity director Rob Joyce who creates a unique email for each of his accounts (!). It also doesn’t account for how 14,000 brute-force hacked records grew exponentially to 6.9 million records. One reason may be data sharing with a partner, MyHeritage, in adding functionality to Family Tree, or sharing their information by opting into 23andMe’s DNA Relatives feature. 

It also does not account for how 23andMe squarely blamed users–that they were negligent in whatever passwords they used, that two-factor authentication was available since 2019 (but optional), that the information taken didn’t include highly sensitive information such as Social Security number, driver’s license number, or financial information. Therefore any lawsuits were futile, per a letter from 23andMe’s Greenberg Traurig to one of the class action firms, Tycko & Zavareei LLP. Afterwards, 23andMe reset all passwords and instituted mandatory multi-factor authentication, closing the barn door after the horse, cow, and goat got out and made it to the next county.

Playing into this is the weakness of US law around what constitutes ‘reasonable security procedures’ for securing personal information–and that is from the wording of the California Privacy Rights Act (CPRA), which may be the US’ toughest privacy law. On one hand, users have responsibility for a decent, unique password every time–but on the other hand, 23andMe bears responsibility for securing its shared data and not letting a breach get wildly out of hand like this one did. And what if next time it’s the actual DNA information?

The insult to injury: In December, 23andMe changed their terms of service to essentially indemnify themselves. Users had to agree, in the terms of service, exactly 30 days to opt out of the right to participate in a class action lawsuit and instead submit to private arbitration in the event of a dispute.

Not owning up to some fault is not the way to build customer confidence. Especially with a company in a faltering sector now trading around $0.70 per share. TechCrunch, ArsTechnica

23andMe hacking may have affected 6.9 million+ users–not 14,000–in massive PII breach

December 6, 2023 | by

What was 14,000 may affect up to 6.9 million users. Genetic testing and information company 23andMe is now admitting that the October data breach that affected 0.1% of their 14 million customer base, or 14,000 users per their SEC filing last Friday, may have exposed the records and personally identifiable information (PII) of 6.9 million users, about half their customer database. In later replies to industry publications TechCrunch and WIRED, a 23andMe spokesperson admitted that hackers accessed the PII of about 5.5 million people who opted-in to 23andMe’s DNA Relatives feature. Add into that an additional 1.4 million “had their Family Tree profile information accessed”. an enhancement to DNA Relatives. The DNA Relatives breach stole individual and family names, birth year, relationship labels, the percentage of DNA shared with relatives, ancestry reports, and self-reported location. Family Tree information exposed display names, relationship labels, birth year, self-reported location, and whether the user decided to share their information.

(Editor’s note: The size of the breach is enough to revive this vintage picture of WWF/WWE wrestler Hulk Hogan in his ‘Hulkamania Running Wild’ persona.)

23andMe has attributed the massive breach to credential stuffing–the reuse of leaked login credentials from other websites and services. But many users have gone public with the information that their logins were unique to 23andMe. 23andMe’s credibility on this issue took a beating from none other than the US National Security Agency (NSA) cybersecurity director Rob Joyce. He wrote on his personal X account that “They disclose the credential stuffing attacks, but they don’t say how the accounts were targeted for stuffing. This was unique and not an account that could be scraped from the web or other sites.” In fact, Mr. Joyce creates a unique email for each account. The cause for the wider breach may lie in data sharing with a partner, MyHeritage, in adding functionality to Family Tree. It seems clear that credential stuffing wasn’t the only technique used to break into the 23andMe user data.

23andMe, as well as Ancestry.com and MyHeritage, now require or strongly recommend two-factor authentication for access to personal accounts. About time. They have also changed terms of service to “encourage a prompt resolution of any disputes”.

What is distressing is that the hacks on the retail side of 23andMe are only the tip of the iceberg–that the really valuable part of their genetic data goes to pharmaceutical companies. Cyberthieves know that motherlode is incredibly valuable to bad actors like the Chinese and the Chinese Communist Party, both key markets for stolen health data. (Developing)

Mid-week short takes: Amwell lowers 2023 outlook, DocGo goes up, Imprivata + PFH win Ireland HSE contract, Oracle Health’s Nashville move, layoffs at 23andMe, Doximity

August 10, 2023 | by

Amwell missed Wall Street earnings analyst estimates and lowered its 2023 outlook. Q2 revenue of $62.4 million was a 3% drop versus prior year. Net loss was $93.5 million, added to a nearly $400 million net loss in Q1. Both quarters included goodwill impairment charges totaling nearly $400 million to reflect losses in stock value and market capitalization. Amwell is projecting downgraded revenue between $257 and $263 million compared with earlier guidance of $275 million to $285 million. Their adjusted EBITDA range for the year was also downgraded to lose $160-165 million from $150-160 million. Much of this is due to payer and provider migrations to their new platform, Converge, which will consolidate its offerings plus third-party tools, in a process that is losing providers and reducing visits. Release, Healthcare Dive

DocGo, a telehealth and medical transportation provider, upped its outlooks. First, they reported a tidy bump in Q2 revenue of $125.5 million, up from $109.5 million in prior year. Once known for mass Covid testing which has largely disappeared, which was $28 million in Q2 2022, non-testing revenue grew 53% versus prior year. Revenue is split between transportation ($45 million) and mobile health ($80 million). Adjusted EBITDA was $9.1 million for Q2, rising from $5.6 million in Q1. With $325 million in contracts not fully rolled out and wins with the NYC Department of Housing, their full-year 2023 revenue guidance is now projected to increase from $500-$510 million to $540-$550 million and monitoring over 50,000 patients. Release, Mobihealthnews

Ireland’s Health Service Executive (HSE) awarded a national framework contract to Imprivata and regional partner PFH Technology Group. Imprivata OneSign is a single sign-on (SSO) enterprise access solution for clinicians logging into various systems which eliminates repeated username/password entries. Logins will be via entering their password once per shift and reauthenticating with a tap of their ID badge, potentially saving 50 minutes per shift. Initial rollout will be to the following: Tallaght University, Beaumont, Rotunda, Galway University, Cork University Maternity, National Forensic Mental Health Service, and National Rehabilitation Hospitals. Imprivata release

Oracle Health on the move. Apparently Oracle Health, largely the former Cerner, will be moving to Nashville, Tennessee. This is a commitment that Oracle made in 2021 before purchasing Cerner. Oracle is building a $1.35 billion facility at a riverfront site, planning to locate 8,500 jobs in Nashville by 2031. Nashville has become a southeastern hub of healthcare companies and development. Oracle Health chair David Feinberg, MD and Seema Verma, a SVP there, were at a healthcare meet and greet there last week.  This adds to the de-Kansas City-ing of Oracle and perhaps more attrition among long-time employees. Becker’s

Two healthcare companies reported layoffs and revenue rethinks this week:

  • Genetic tester and data merchandiser 23andMe announced layoffs of 11%. This affects 71 employees primarily in their therapeutics segment, a cut of 47% in that segment and 11% of the company’s workforce. The staff downsizing reflected the end of a five-year partnership in therapeutics development with GSK and adds to April cuts of 75 jobs. The new cuts will be in Q2 of their 2024 fiscal year ending 31 March 2024 which will be by September this year. Revenues also fell in the quarter ending 30 June (their Q1) 6% to $60.9 million from $64.5 million in prior year, with a net loss of $104.6 million. Interestingly, 70% of their revenue is from direct-to-consumer services in genetic testing, subscriptions, and telehealth.  StreetInsider, GenomeWeb
  • Doximity also is laying off 10% of staff, or about 100 people. A digital platform for medical professionals with online networking tools, scheduling, CMEs, secure messaging and telehealth for consults, it is facing slowing growth and renewals among paying customers that include hospitals, health systems, pharmaceutical companies, and medical recruiting firms that purchase subscriptions for services on Doximity. The company adjusted its FY2024 (March end) financials downward to $452 to $468 million and $468 million from $500-$506 million, with adjusted EBITDA for the year to $193-$209 million from $216-$222 million. Release, FierceHealthcare

 

Mid-week roundup: Promising Langone AI/LLM predicts hospital readmits; Huma gains FDA 510(k) Class II clearance; telepsychiatry’s challenges; layoffs/asset buys/losses from 23andMe, Cityblock, Thirty Madison, Butterfly

June 14, 2023 | by

New York University’s Langone Health’s large language model (LLM) accurately predicting hospital readmissions, more. NYU’s academic medical center NYU Langone Health has developed an LLM using medical language, NYUTron, from unstructured clinical notes in patient records, then fine-tuned it across a wide range of clinical and operational predictive tasks. The dataset was immense:  ‘NYU Notes’ covers 7.25 million clinical notes (for example, radiographic reads, history, and physicals) from 387,144 patients across four hospitals, and more. According to their study published in Nature on 7 June, it was tested for predictive ability in five areas: 30-day all-cause readmissions, in-hospital mortality, comorbidity index, length of stay, and insurance denial. The NYUTron system in testing has achieved results improved over conventional structured models’ baselines. From the Nature study:

  • For 30-day readmission prediction, it had a median area under the curve (AUC) of 79.9% ± 0.168% with a 5.36% improvement
  • On in-hospital mortality prediction, NYUTron had a median AUC of 94.9% ± 0.168% with a 7.43% improvement.
  • On comorbidity index imputation, NYUTron had an OVR median AUC of 89.4% ± 0.275%
  • On binned LOS prediction, NYUTron had a median AUC of 78.7% ± 0.179% with a 12.3% improvement 
  • On insurance denial prediction, NYUTron had a median AUC of 87.2% ± 0.246% with a 14.7% improvement.

In a test of the system during January-April 2022, the system analyzed 29,286 discharged encounters, with 3,271 patients (11.17%) returning within 30 days. NYUTron predicted 2,692 of the 3,271 readmissions (82.30% recall) with 20.58% precision. Also HealthcareITNews

London-based Huma (the former Medopad) gained US FDA 510(k) Class II clearance for their Software as a Medical Device (SaMD) platform. This is defined as disease and age-agnostic digital health pathways through which data are collected from patients for self-management or to be assessed remotely by healthcare professionals. Huma also recently obtained EU MDR Class IIb approval and with Health Canada through the FDA’s joint eStar program. Huma’s tech also includes remote patient monitoring (RPM) systems and companion apps to enable disease management, with third-party device integration. For providers, the platform hosts AI algorithms that use automated data analytics to support screening, diagnosis, dosing recommendations, clinical decision making, and prognostication for identification of at-risk patients and early intervention. In 2020, Huma acquired BioBeats and TLT; more recently, last year iPLATO patient engagement and in January clinical trials data specialist Alcedis.   Huma release, Mobihealthnews

The growth of behavioral health has come to a screeching halt with the demonstrated abuse of online prescribing, then the US Drug Enforcement Administration (DEA)’s uncertainty around controlled substance prescribing. This interview with the CEO of Array Behavioral Care, one of the Ur-companies in telepsychiatry (1999, originally InSight Telepsychiatry and Regroup Telehealth), points out how the DEA’s post-Public Health Emergency (PHE) policies around Schedule II and higher teleprescribing disrupted their operations. The flexibilities established during the PHE have been waivered to 11 November, though a final rule must replace the temporary extension rule and comply with the Federal Ryan-Haight Act [TTA 11 May]. Other issues addressed are dealing with medical affairs (clinical licensure, primary source credentialing, facility privileging, and payer enrollment), and the potential for AI to create new tools to aid clinicians in evaluating mental health, such as natural language processing (NLP) in transcribing video sessions and suggesting clinical notes, as well as scanning patient intake stories and analyzing that information for the likelihood of certain diagnoses. HealthcareITNews

The slow drip-drip-drip of layoffs, folded companies’ asset sales, and company losses that started in 2022 continue, though at a diminished pace compared to consumer companies:

  • Genomics and DNA testing company 23andMe announced layoffs of 9% of staff or 75 people. This will take place by the end of their FY 2024, which ends next 31 March. In a 9 June filing, the company claimed that it would reduce annualized payroll and benefit expenses by $12.8 million, which leads one to wonder about the compensation level of those 75 and from what area they are in. South San Francisco-based 23andMe continues to be money-losing, increasing annual net losses from $217 million to $317 million in the 12 months ending in March, according to its May earnings report despite a 10% revenue gain. 23andMe is yet another ‘cracked SPAC’, having gone that route in 2021 with a Virgin-backed SPAC. Once trading at highs of $12-13 on the NYSE, it closed today at $1.96. However, they don’t have debt, are hanging on to a valuation of $924 million, and their cash position is apparently strong enough to hold it for two years.  Becker’s, SF Chronicle, Yahoo Finance, SimplyWallStreet
  • Another well-financed company, Cityblock Health, is laying off 12%, or 155 staff. Spun off from Sidewalk Labs (Alphabet Health-Google) at the end of 2017, their CEO announced the layoffs in a blog post late last week and effective immediately for those affected. Cityblock serves Medicaid and low-income ‘duals’ with both Medicare and Medicare in value-based care models with a heavy reliance on technology. Their CEO who joined the company in March phrased it as a restructuring, using technology to automate processes, and reducing staff layer. In contrast to others, Cityblock has had no trouble raising funding in the past; in December 2020 they raised $160 million in a December 2020 Series C, plus another $192 million in a Series C extension in March 2021, then a reported $400 million Series D in September 2021 with total raises over $890 million. But their cash burn with high-cost operations in six states (HQ New York, Massachusetts, Indiana, North Carolina, Ohio, and Washington DC) is also likely high. FierceHealthcare
  • Thirty Madison buys assets from bankrupt The Pill Club. The assets? Over 100,000 patient files for $32.3 million. The Pill Club entered Chapter 11 in April after being charged by California authorities of defrauding the state Medicaid program. It paid $18.3 million to settle the charges. But that wasn’t all. According to Mobihealthnews, “the settlement came just days after a state court unsealed a whistleblower complaint against the company in which former nurse practitioners alleged it had defrauded private insurers in at least 38 states. According to a statement from their attorneys regarding the settlement, the whistleblowers would receive approximately $5 million.” The patients covered by The Pill Club’s prescriptions will be converted over to another Thirty Madison brand, Nurx, and offered other services such as behavioral health and dermatology services. The Pill Club raised a lot of money from 2016–$51 million in Series B funding in 2019 and another $41.9 million in 2021. Thirty Madison is a private multi-line of consumer-marketed brands such as Keeps (hair), Picnic (allergies), Cove (migraine), and Facet (psoriasis, eczema) and is at a Series C with a total raise of $209 million. Axios, 
  • Butterfly Network, which some years back developed a hand-held ultrasound device (Butterfly iQ) and entered a crowded field with GE HealthCare’s VScan, Mobisante (apparently defunct), and Philips Lumify, reported Q1 revenue of $15.5 million, flat year-over-year compared to Q1 2022 and which missed analyst estimates (again). Somewhat better news was narrowing last year’s loss to a Q1 loss of $33.5 million which was less than Q1 2022’s loss of $44.5 million. It’s another early SPAC that hasn’t had a great time of it. Since its debut on the NYSE in December 2021, the stock has had the typical drop in altitude from $19.79 to $2.42. It has since expanded to enterprise imaging with Blueprint. Mobihealthnews, Yahoo Finance, Zachs

Serious swerving indeed: 23andMe buys Lemonaid Health for $400 million

October 27, 2021 | by

From genomic testing to telehealth and prescription delivery is quite a swerve. Or a pivot, as they say. 23andMe, the richly financed (via a February SPAC with Virgin Group) and valued ($4.8 billion market cap) DNA tester, originally marketed to trace ancestry and analyze for health information, announced the acquisition of Lemonaid Health. A telehealth company that markets their quick diagnosis of conditions such as mental health, erectile dysfunction, thyroid, and sinus infections with fast delivery of medications, it’s quite a changeup for 23andMe, at least on the surface.

But, as this Editor opined as far back as 2018 in advocating a Genomic Bill of Rights and revisited in 2020, consumer genetic testing for the above as a model was finito just before the pandemic started. (When was the last time you saw a formerly lederhosen-clad actor trumpeting their new kilt or imagining their connection to famous dead people?) There were plenty of questions about the ethics of consumer-driven genomic testing as practiced by 23andMe and Ancestry.com. Consumers found it difficult to opt-out of how their genomic data was being used commercially, and understanding if it was being protected, as it likely was not.

The real gold for 23andMe is, of course, selling all that data to pharmaceutical companies. So in that context, Lemonaid, as really a marketer of meds, is not the stretch that it seems on the surface. But, there’s more. For 23andMe, which has consistently covered its cake of business aims in a thick and sticky icing of customer-focused mission, from their blog and signed by CEO Anne Wojcicki: “We are acquiring Lemonaid Health so that we can bring true personalized healthcare to 23andMe customers. Personalized healthcare means healthcare that is based on the combination of your genes, your environment, and your lifestyle — with recommendations and plans that are specific to you.” Meanwhile, Lemonaid, widely advertised online and on TV with quick telehealth consults, brings in the cash.

The transaction was announced at $400 million in a cash and stock deal, with 25% of the total deal value in cash and the rest in shares. Paul Johnson, CEO and co-founder of Lemonaid Health, will become the General Manager of the 23andMe consumer business and will continue to run Lemonaid Health. Ian Van Every, Managing Director, UK and also a co-founder, will manage and grow UK operations. According to Crunchbase, total investment in Lemonaid was a relatively small $57.5 million in five rounds since 2015, up to a Series B. Release. Reuters

23andMe will go the SPAC route with Virgin Group in a $3.5 bn valuation

February 5, 2021 | by

Have we reached a peak? 23andMe, the genomic testing and genome research company, has struck gold, oil, and platinum in a merger with ‘blank check’ SPAC (special purpose acquisition company) VG Acquisition Corp. VG was formed by Richard Branson’s Virgin Group for the purposes of the acquisition. By end of Q2, the company will be trading on the NYSE under the ticker symbol ME. The company’s valuation is estimated as $3.5 bn.

23andMe’s SPAC follows on December’s $85 million Series F round, bringing their total funding pre-SPAC to about $900 million. The transaction will result in 23andMe having around $984 million in cash to invest. The deal also includes the private investment in public equity (PIPE) transaction in which Richard Branson and 23andMe founder/CEO Anne Wojcicki will invest $25 million each. There is no disclosure of the status of GSK’s ongoing investment in 23andMe, reportedly 50 percent, and Sequoia Capital’s. 

For 23andMe, this is a massive turnaround–and exit from stagnant private ownership–from their precarious state one year ago, which required layoffs of 14 percent of their staff, about 100 people. While the direct-to-consumer testing for diseases and ancestry model fell apart after holiday 2019 (TTA examined why here), the gold in genomics is monetizing that data with large drug and clinical trial companies for drug discovery and therapies. With GSK, they began clinical trials of a cancer drug last year, as well as licensing its first drug candidate to Spanish dermatology drugmaker Almirall. 

Going public via a SPAC and with a PIPE is definitely a one-up on rival Ancestry.com. Last August, they sold 75 percent of the company to Blackstone Group for $4.7 bn. TechCrunch, Becker’s Health IT, Financial Times

New Year’s Deal and Event Roundup: Optum-Change Healthcare, Walgreens-Amerisource Bergen, December’s deal potpourri, CES and JPM

January 7, 2021 | by

Mutated COVID virii may be spreading, the UK locked down tight, but the deals with big numbers just keep on coming….

Change Healthcare not sold for pocket change. $13bn from the coffers of UnitedHealth Group’s Optum took it, though word was that it wasn’t for sale. Change will be part of OptumInsight to reinforce data analytics, technology-enabled services, and revenue cycle management. The deal pays common stock shareholders $25.75 per share in cash plus assumption of Change’s debt. Closing is slated for second half 2021. Neil de Crescenzo, Change’s CEO, will be CEO of OptumInsight which will integrate Change into its structure.

Change houses a dizzying group of diverse businesses including radiology, imaging, revenue cycle and payment management, consumer experience, clinical decision support, workflow integration, communication and payment solutions, network optimization, value-based care enablement….and that is about half of the list. The release emphasized RCM, provider payment, claims transaction analysis, and clinical decision support. It will be interesting what Optum chooses to retain and discard.  Press release, Fierce Healthcare, Forbes. Credit Suisse has also published a lengthy financial analysis (PDF) of the deal which opines that it’s likely to not run afoul of Federal anti-trust interest or significant conflicts of interest (Optum currently serves many payers other than UHC). There may be Federal concern about a concentration of data and transaction information as Change alone serves 19 of 20 major US payers and is a leader in network services and payments.

Walgreens Boots Alliance sells the majority of their Alliance Healthcare pharmaceutical wholesale businesses to AmerisourceBergen, a leading US drug wholesale company, for about $6.5 billion in cash and stock ($6.275 billion in cash and 2 million shares of AmerisourceBergen common stock). Interestingly, Walgreens is the single largest shareholder of Amerisource Bergen at 30 percent of common shares. Both Walgreens and Amerisource Bergen will continue their US distribution agreement until 2029 and Alliance UK with Boots until 2031. One way of interpreting this is fattening their ‘war chest’ for expansion, including their major bet with Village Medical. Perhaps a payer or a health tech company? Press release

December’s potpourri of Big Deals was rounded up by FierceHealthcare:

  • Alphabet’s Verily closed out 2020 with a massive $700 million funding round primarily from Alphabet to fund its commercial work
  • 23andMe got a lifeline of $82.5 million in Series F funding from an offering of $85 million in total equity shares. TTA analyzed why the bloom had faded from the genetic testing rose, so hot only a few years ago, last August and February. Bloomberg
  • New Agey Calm is meditating on $75 million in Series C funding and visualizing a valuation of $2 bn.
  • Pear Therapeutics, developer of prescription apps to treat addiction and insomnia, counted $80 million in Series D sheep. 
  • Provider CityBlock Health raised $160 million to support care for marginalized populations with complex needs and now has an estimated value of $2 bn.
  • On the payer side, Oscar Health raised $140 million in a venture round as we reported before Christmas.
  • And we reported on Everlywell’s digital home testing/telehealth consult Series D of $179 million in early December.

And the Big January Events Roll On, Virtually.  CES 2021 and the JP Morgan Healthcare conference for their clients will be held next week as usual, along with the usual constellation of independent conferences. These are usually a major venue for deals and deal announcements, and even in the virtual space, will likely be no different. One wonders if Haven’s closure [TTA 5 Jan] will be even whispered.

Will the rise of technology mean the fall of privacy–and what can be done? UK seeks a new National Data Guardian.

August 21, 2020 | by

Can we have data sharing and interoperability while retaining control by individuals on what they want shared? This keeps surfacing as a concern in the US, UK, Europe, and Australia, especially with COVID testing.

In recent news, last week’s acquisition of Ancestry by Blackstone [TTA 13 August] raised questions in minds other than this Editor’s of how a business model based on the value of genomic data to others is going to serve two masters–investors and its customers who simply want to know their genetic profile and disease predispositions, and may not be clear about or confused about how to limit where their data is going, however de-identified. The consolidation of digital health companies, practices, and payers–Teladoc and Livongo, CVS Health and Aetna, and even Village MD and Walgreens–are also dependent on data. Terms you hear are ‘tracking the patient journey’, ‘improving population health’, and a Big ’80s term, ‘synergy’. This does not include all the platforms that are solely about the data and making it more available in the healthcare universe.

A recent HIMSS virtual session, reported in Healthcare Finance, addressed the issue in a soft and jargony way which is easy to dismiss. From one of the five panelists:  

Dr. Alex Cahana, chief medical officer at ConsenSys Health.”And so if we are in essence our data, then any third party that takes that data – with a partial or even complete agreement of consent from my end, and uses it, abuses it or loses it – takes actually a piece of me as a human.”

Dignity-Preserving Technology: Addressing Global Health Disparities in Vulnerable Populations

But then when you dig into it and the further comments, it’s absolutely true. Most data sharing, most of the time, is helpful. Not having to keep track of everything on paper, or being able to store your data digitally, or your primary care practice or radiologist having it and interpretation accessible, makes life easier. The average person tends to block the possibility of misuse, except if it turns around and bites us. So what is the solution? Quite a bit of this discussion was about improving “literacy” which is a Catch-22 of vulnerability– ‘lacking skill and ability’ to understand how their data is being used versus ‘the system’ actually creating these vulnerable populations. But when the priority, from the government on to private payers, is ‘value-based care’ and saving money, how does this prevent ‘nefarious use’ of sharing data and identifying de-identified data for which you, the vulnerable, have given consent, to that end? 

It’s exhausting. Why avoid the problem in the first place? Having observed the uses and misuses of genomics data, this Editor will harp on again that we should have a Genomic Data Bill of Rights [TTA 29 Aug 18] for consumers to be fully transparent on where their data is going, how it is being used, and to easily keep their data private without jumping through a ridiculous number of hoops. This could be expandable to all health data. While I’d prefer this to be enforced by private entities, I don’t see it having a chance. In the US, we have HIPAA which is enforced by HHS’ Office of Civil Rights (OCR), which also watchdogs and fines for internal data breaches. Data privacy is also a problem of international scope, what with data hacking coming from state-sponsored entities in China and North Korea, as well as Eastern European pirates.

Thus it is encouraging that the UK’s Department of Health and Social Care is seeking a new national data guardian (NDG) to figure out how to safeguard patient data, based on the December 2018 Act. This replaces Dame Fiona Caldicott who was the first NDG starting in 2014 well before the Act. The specs for the job in Public Appointments are here. You’ll be paid £45,000 per annum, for a 2-3 day per week, primarily working remote with some travel to Leeds and London. (But if you’d like it, apply quickly–it closes 3 Sept!). It’s not full time, which is slightly dismaying given the situation’s growing importance. The HealthcareITNews article has a HIMSS interview video with Dame Fiona discussing the role of trust in this process starting with the clinician, and why the Care.data program was scrapped. Of related interest is Public Health England’s inter-mortem of lessons learned in data management from COVID-19, while reportedly Secretary Matt Hancock is replacing it with a new agency with a sole focus on health protection from pandemics. Hmmmmm…..HealthcareITNews.

News roundup: Ancestry sells 75% to Blackstone, Cornwall NHS partners with Tunstall, most dangerous health IT trends, Slovenski departs from Walmart Health

August 13, 2020 | by

Ancestry sells 75 percent of the genealogy/genetics company to Blackstone for $4.7 bn. The acquisition by the private equity company buys out other equity holders: Silver Lake, GIC, Spectrum Equity, Permira, and others. Ancestry’s business combines their genealogy database with consumer genomics for both heritage and health. The Blackstone release notes that their goals in the acquisition are to expand data, functionality, and product development across the Ancestry platform as part of their investment in growth businesses. If an acquisition cost of $4.7 bn seems high, Ancestry’s revenue is cited as $1 bn annually.

Once blazingly hot, both Ancestry and 23andMe saw their consumer businesses crater late last year, with layoffs in January and February. It’s an example of a quickly saturated market (one test and you’re done) flogged by annoying TV commercials over the holidays [TTA 13 Feb]. Where the profit is, of course, is not in consumer tests but in selling the genomic data to other companies, something which the market leader, 23andMe, realized early on with half-ownership by GSK ($300 million, a real bargain). 23andMe is also intensively marketing as a premium subscription service updates on health information derived from member testing. Ancestry has followed, but reportedly has not been as proactive in linking genetic information to health outcomes. STAT

 This Editor noted back in August 2018 that it was long past time for a Genomic Data Bill of Rights for consumers to be fully transparent on where their data is going, how it is being used, and to easily keep their data private without jumping through a ridiculous number of hoops. It’s a conclusion now being reached by various privacy groups according to MedCityNews. Also noted is that Ancestry, in its complex and long privacy policy, can use your “personal information to market new products from the company or its business partners, but says it will not share users’ genetic information with insurers, employers or third-party marketers without their express consent.” But when your 75 percent owner has real estate and other healthcare holdings, can you trust them?

Cornwall Partnership NHS Foundation Trust partnered with Tunstall Healthcare UK on a 26-week support program during the pandemic for young people 11+ with a range of eating disorders. The patient group used the myMobile app and the ICP triagemanager software to send in weekly reports on their vital signs and answer symptom-related questions, which are tracked over time via a secure portal to monitor progress. The myMobile app has parameters set for individual patients, where readings outside them generate a system alert that is sent to clinicians. The program was able to ascertain that 32 patients were at high risk and have been referred. Cornwall/Tunstall white paper, ATToday.co.uk

As if COVID Fear weren’t bad enough, now we have to be frightened of Dangerous IT Trends. Becker’s Health IT interviewed eight healthcare executives and came up with a list of what keeps them up at night:

  • The sluggish rate at which healthcare systems embrace new technology
  • We won’t be going back to the pre-pandemic normal and how healthcare deals with that
  • Overlooking data security and medical device vulnerabilities
  • Cutting IT staff and budgets without acknowledging the consequences
  • The consequences of hastily moving workers remote and securing their devices

All of the above are not new, and it’s rather shocking that they haven’t been addressed.

And in Comings and Goings, we have a Notable Going. Sean Slovenski, who for the past two years has been heading up Walmart US’ Health and Wellness initiatives, departed the company last week with a replacement to be named in the coming weeks. Mr. Slovenski had been heading up a variety of healthcare initiatives, including in-store primary and dental care clinics which have opened up in four Arkansas and Georgia locations with an additional eight planned plus Florida. Walmart also opened up 100 COVID testing locations in store parking lots. His efforts were acknowledged in Walmart’s departure statement to staff. Mr. Slovenski “and his team have successfully stood up the strategy we hired him to create,” Walmart’s CEO John Furner said in a memo to staff. Walmart has also laid off over 1,000 corporate employees in a recent restructuring. Mr. Slovenski is most noted in digital health circles as CEO of Care Innovations for 2 1/2 years during the Intel-GE ownership. He was also with Healthways-ShareCare and Humana. Walmart is up against a long list of heavyweight challengers in retail health, including Amazon, CVS Aetna, and Walgreens–and may be deciding that an independent run is not worth it.

Is the bloom off the consumer DNA business? It’s past time for a Genomic Bill of Rights. (updated)

February 13, 2020 | by

Perhaps a bit of sanity enters. Ancestry, the largest vendor of home-based tests for genetic testing to trace ancestry and seek health information, announced layoffs of 6 percent, or about 100 people, from its Utah and California offices. This follows on post-New Year layoffs at chief rival 23andMe of 14 percent of its staff, also about 100 people.

The slowdown in the consumer appeal of genetic testing is apparently across the board. While one hears of genetic tests being given for holidays and birthdays, there is little repeat need. The market was easily saturated: the early adopters have done their testing; the second wave of consumers which normalize a technology now are increasingly aware of and have privacy concerns about their genetic information being misused. This Editor would add a lingering wave of silly TV and online commercials with wide-eyed folks imagining their connection to ancient royalty or swapping out lederhosen for kilts after their testing report comes back. 

The bright spot for both companies is where they were really heading–healthcare data. AncestryHealth is not being cut back. As previously noted, GSK owns half of 23andme.

This Editor in 2018 advocated a Genomic Bill of Rights where before testing, a genetics testing client would be told how their genomic data is being used and being protected, informed about de-identification, and easily able to opt-out of commercial use. And the revelations about matching to others in the database or health revelations should be done not only with circumspection and respect for the disruption which may happen in the client’s life, but also held to the highest standard of testing. Sometimes that discovery is the equivalent of tossing a hand grenade into a person’s life. There also hasn’t been a lot said about making de-identifiable data identifiable through the ‘nefarious use’ of genomic data sets available through research networks.

DNA is being used for so much advanced medicine and even home testing (example–Cologuard in the US for colon cancer). It’s regrettable that the most public face of genetic testing rests with two companies whose main sell on your past and health has had unintended consequences, and whose main chance lies in the sale of their consumer data. The Verge, CNBC

Where’s the evidence? Healthcare unicorns lack the proof and credibility of peer-reviewed studies.

January 30, 2019 | by

Another sign that too many healthcare unicorns are decoupled from the rock-solid fundamental reality–that they work. Healthcare unicorns–those startups valued over $1 bn–are unicorns because they have patents, processes, or a line of business that has immense potential to be profitable. The standard in healthcare, unlike other tech, is the peer-reviewed study. Is this process or device effective based upon the study? Does this drug looks like it will work? Is this study validating, encouraging? Peer-reviewed research takes place before a drug or device goes into clinical trials — a precursor. It ensures a certain level of disclosure, validation, and transparency at an early stage.

Instead, these unicorns largely rely on ‘stealth research’–a term coined by Dr. John P.A. Ioannidis, the co-director of the Meta-Research Innovation Center at Stanford University (METRICS). He summed it up in his latest peer-reviewed paper, “Stealth research: lack of peer-reviewed evidence from healthcare unicorns” (co-authored with Ioana A. Cristea and Eli M. Cahan), published in the European Journal of Clinical Investigation 28 Jan: 

In 2014, one of us (JPAI) wrote a viewpoint article coining the term “stealth research” for touted biomedical innovation happening outside the peer-reviewed literature in a confusing mix of “possibly brilliant ideas, aggressive corporate announcements, and mass media hype.”

The term ‘stealth research’ was prompted to the author by the practices of Theranos–ironically, a company that started and was funded in the Stanford nexus. By the time Dr. Ioannidis’ viewpoint paper was published in JAMA in Feb 2015, Theranos had ballooned to a $9 bn valuation. His paper was the first to question Theranos’ science–and Theranos aggressively pushed back against Dr. Ioannidis, including their general counsel attempting to convince the author to recant his own writing. Three years later, we know the outcome.

This latest study concludes that there is a real dearth of peer-reviewed research among healthcare unicorns–and that it’s detrimental. It measured whether these unicorns published peer-reviewed articles and whether they publish highly-cited (in other publications) articles; compared them against companies with lower valuations; and whether founders or board members themselves impacted the scientific literature through their own citations.

The meta-study looked at 18 current and 29 exited healthcare unicorns. Highlights:

  • Two companies–23andMe and Adaptive Biotechnologies published almost half of all unicorn papers–196 combined
  • Three unicorns (Outcome Health, GuaHao and Oscar Health) had no published papers, and two more (Clover Health, Zocdoc) had published just one
  • Seven of the exited unicorns had zero to one papers
  • In fact, ‘there was a negative, non-statistically significant association between company valuation and number of published or highly-cited papers’

As our Readers know, Outcome Health had a little problem around artificially inflated advertising placement wrapped in health ed and placed in doctors’ offices [TTA 29 Jan 18]. Oscar and Clover Health are insurers. Zocdoc…well, we know their business model is to get as many doctors to sign up in their scheduling app and pay as much as possible. But it’s the drug and device companies that are especially worrisome in a stealth research model. The paper points out among other examples StemCentrx, bought for $10.2 bn in 2016 by AbbVie for its Rova T targeted antibody drug for cancer treatment, was halted at Phase III because it was not effective. Acerta Pharma, also focused on cancer treatments, was bought by AstraZeneca for $7.3 bn; two years ago, AstraZeneca had to withdraw the Acerta data and admit that Acerta falsified preclinical data for its drug.

The conclusions are that healthcare unicorns contribute minimally to relevant, high-impact published research, and that greater scrutiny by the scientific community through peer-reviewed research is needed to ensure credibility for the underlying work by these startups. “There is no need for numerous papers. Discrete pivotal, high-impact articles would suffice.”

This Editor returns to #5 on Rock Health’s Bubble Meter: high valuations decoupled from fundamentals. Based on this, the lack of publishing represents risk–to investors and to patients who would benefit from better vetted treatments. To these companies, however, the risk is in having their technology or researched poached–as well as the investment in time and money research represents.

The study authors point out several ways to minimize the risk, including collaborating with academic centers in research, validation without disclosing all technical details, secure patents, and contributing their technology to other research. A higher-risk way is to “withhold significant publications until successful validation from agencies such as the Food and Drug Administration (FDA) or the European Medicines Agency (EMA)” but usually investors won’t wait that long. ‘Stealth Research’ paper, TechCrunch review Hat tip to David Albert, MD, of AliveCor via Twitter

Soapbox: Big Genomics and DNA testing–why we need a Genomic Data Bill of Rights

August 29, 2018 | by
[grow_thumb image=”https://telecareaware.com/wp-content/uploads/2015/03/DNA-do-not-access.jpg” thumb_width=”150″ /]This week, consumer genomics testing company 23andMe announced that outside app developers would no longer have access to raw genomic data, as they have had since 2012. They will continue to have access to data through reports generated by the company. 23andMe cited privacy concerns–wisely, in this Editor’s opinion, to safeguard this burgeoning area of digital health. Seeking Alpha

TimiHealth is an affected firm that seeks to move customer data, with consent, to an allegedly more secure blockchain platform, TimiDNA, citing 23andMe’s monetization of their data and CMS’ Blue Button initiative, a recent meeting in which 23andMe participated as a developer. Blasting away, TimiHealth stated that “It flies in the face of the mission of CMS, and the MyHealthEData initiative and the goal of putting patients first.” Release

However, the consumer marketing of DNA testers such as 23andMe, Ancestry.com, and smaller competitor Helix, has already led to multiple privacy questions on how the data of millions are being used and sold. 

This Editor would feel safe in assuming that most customers do not know nor particularly care that GlaxoSmithKline (GSK) as of July owns 50 percent of 23andMe via a $300 million investment. Both have announced a four-year partnership to use the 23andMe genetic database for drug research. For instance, the LRRK2 gene has been linked to some forms of Parkinson’s disease. GSK needs about 100 for a trial sample of one, but 23andMe has already provided 250 Parkinson’s patients who have agreed to be re-contacted for GlaxoSmithKline’s clinical trials. Scientific American

While most data is de-identified, you can agree to be contacted for further use in clinical trials, which is fine–but most users do not know how to opt out. It’s a surprisingly tricky process, as outlined in this useful Business Insider article, and you may not be able to withdraw all your data or have your saliva sample destroyed.

Data can be hacked and reprocessed. Three years ago, TTA explored reports on exactly how de-identified genomic data could be made identifiable through the ‘nefarious use’ of genomic data sets available through research networks [TTA 31 Oct 15].

Despite the trite, simplistic, and condescending commercials by Ancestry.com on how someone found they had ethnic or national roots they never dreamed of, or were related to royalty, both giving meaning to their presumably mundane life, genetic info has value beyond the feel-good. It’s long past time for a plain language Genomic Data Bill of Rights.

  • Individuals should know how their personal genomic data is being used and how it is being protected
  • They should be able to opt out of use, identified and de-identified, easily–and not have to jump through hoops
  • Reporting/interpretation should also have integrity, consideration, and respect that it may upset a person or that it may not be interpreted correctly, which is a fundamental problem 
  • A more radical view is that the same individuals should be compensated when their data is used

This Editor will settle for the first two bullets, for now. 

StartUp Health’s Q3 is an even crazier $9bn YTD

October 11, 2017 | by

And you thought Q2 was ‘crazy’? There’s no cooling in StartUp Health’s reported digital health funding activity in Q3, which at $9bn is already past 2016’s $8.1bn and is poised to cross the $10bn bar by end of year.

  • Q3 charted $2.5bn in funding, less than Q2 ($3.8bn) but above Q3 2016 ($2.2bn).
  • Series C and D deals led the funding charge at 15 percent of deals, with Series D on average $113 million. It’s an indicator of market maturity, though A rounds were still in the lead at 35 percent and 21 percent in Series B.
  • Deals are bigger than ever at an average $18 million versus $14 million in 2016
  • Half the deals they tracked were in personalized health and patient/consumer experience, a distinct difference from Rock Health’s shift to B2B. Population health held its own.
  • They tracked more mega-deals YTD due to broader category and ex-US. Rock Health’s lead this quarter of 23andMe was only #6 on the list, surpassed by Auris, Peloton, Guardant Health, Outcome Health, and Grail.
  • The Bay Area leads for deals substantially YTD, with NYC, Boston, and Chicago combined still trailing

Remember that StartUp Health takes a wider sample than Rock Health [TTA 3 Oct], tracking over 500 international company deals, including those below $2 million as well as both service and biotech/diagnostic companies. StartUp Health on Slideshare.

Rock Health’s Q3 report: funding and mega-deals cool down

October 3, 2017 | by

Too hot not to cool down? This year’s digital health funding, as reported by Rock Health, may be ‘just one of those things’ depending on what happens next quarter. After a torrid Q2 which brought first half 2017 to an explosive $3.5 bn [TTA 11 July], Q3 added only $1.2 bn for a total $4.7 bn. Bear in mind that this is larger than the full years of 2014-2016, and that Rock Health tracks only US deals over $2 million in value from venture capital, excluding government and grant funding. Rock Health’s report concentrates on deal sizes, trends, and types of companies. Here’s what this Editor found to be interesting:

Here’s what this Editor found to be interesting:

  • Number of deals is at a record: 268 digital health funding deals across 261 companies. In 2016, 240 digital health venture deals had closed by the end of Q3 in 2016.
  • Few mega-deals this quarter: The only ones are 23andMe with a $250 million round in September followed by cancer data company Tempus’ $70M Series C round. Average deal size dropped to $14.6 million. The cooling is great enough for Rock Health to predict that there may not be any IPOs this year–23andMe was considered the leading candidate but instead went for another round.
  • 16 percent of companies funded in Q3 are led by women CEOs, up from 11 percent. Of course, this is influenced by 23andMe’s founder/CEO Anne Wojcicki. But almost more importantly, there’s been a breakthrough in that women’s and reproductive health companies continue to gain funding traction, and most are led by women.
  • The two top categories for funding through Q3 are consumer: health information and personal health and tracking tools.
  • Yet companies are shifting to a B2B business model from B2C, with 23andMe in the lead targeting drug discovery via the Genentech deal they have had for a long time. 61 percent of digital health startups that Rock Health tracks converted from B2C to B2B. No surprise to this Editor as consumer adoption is a slow and costly road.
  • Exits are also cooling down as long-cycle reality hits. The ‘nine-inning ball game’ stated by an investor is, given healthcare’s long cycles, regulation, and slow adoption, is more like 15. 
  • Some recovery in public companies making money in earnings per share (EPS). Teladoc‘s recovered, while NantHealth continues in the doldrums. (Perhaps it’s Cher suing Patrick Soon-Shiong?)

Awaiting StartUp Health‘s always numerically bigger report, but this Editor’s bet is that it won’t be ‘crazy’ like Q2 [TTA 15 July]. Rock Health Q3 report.