Health tech bubble watch: Alphabet-backed One Medical reportedly prepping for 2020 IPO

Another health tech company tests the IPO waters. One Medical, a primary care medical clinic group that digitizes the office experience by offering mobile apps with online scheduling, virtual consults, and same-day appointments–for an annual fee of $200 plus your insurance–is prepping for an IPO filing early next year. The sure sign is that it’s hired banks including J.P. Morgan and Morgan Stanley.

One Medical, backed by Alphabet, has 72 primary care practices in nine major US cities. It currently has a valuation of $1.5 to $2 bn based on private share sales and investment firm estimates. In 2008 it raised $220 million in a 2018 round led by The Carlyle Group for a total raise since 2007 of $408 million, backed by Alphabet’s GV venture arm and VC firm Benchmark. From an initial emphasis on individual enrollment and a ‘lite’ version of concierge medicine, it recently has concentrated on self-insured employers, corporate health plans, and service areas such as mental health and pediatrics. A big question for investors will be its valuation–tech or healthcare?

One Medical would join IPO brethren such as Health Catalyst, Livongo, Phreesia, and Change Healthcare, all of which had fairly strong openings and initial growth but have rollercoastered since then. Still, smaller IPOs such as Progyny, a company that manages fertility benefits for employees at large firms, have filed to IPO by the end of the year. Fierce Healthcare, CNBC, Business Insider

Health tech bubble watch: Rock Health’s mid-2019 funding assessment amid Big IPOs (updated: Health Catalyst, Livongo, more)

Updated for IPOs and analysis. The big time IPOs add extra bubbles to the digital health bath. Rock Health’s mid-year digital health market update continues its frothy way with a topline of $4.2 bn across 180 deals invested in digital health during the first half of 2019. 2019 is tracking to last year’s spending rate across fewer deals and is projected to end the year at $8.4 bn and 360 deals versus 2018’s $8.2 bn and 376 deals.

This year has been notable for Big IPOs, which have been absent from the digital health scene for three years. Exits come in three flavors: mergers and acquisitions (43 in their count so far), IPOs, and shutdowns (like Call9). IPOs are a reasonable outcome of last year’s trend of mega deals over $100 million and a more direct way for VCs to return their money to investors. So far in 2019, 30 percent of venture dollars went to these mega deals. (Rock Health tracks only US digital health deals over $2 million, so not a global picture.)

Reviewing the IPOs and pending IPOs to date:

  • Practice intake and patient management system Phreesia closed its NYSE IPO of 10.7 million shares at $18 per share on 22 July. The company earned approximately $140.6 million and the total gross proceeds to the selling stockholders were approximately $51.6 million for a value over $600 million. The market cap as of 26 July exceeded $949 million with shares rising past $26. Not bad for a company that raised a frugal $92.6 million over seven rounds since 2005.  Yahoo Finance, Crunchbase
  • Chronic condition management company Livongo’s picture is frothier. Their 22 July SEC filing has their IPO at 10.7 million shares at $24 to $26 per share offered on NASDAQ. This would total a $267.5 million raise and a $2.2 bn valuation. This is a stunning amount for a company with reportedly $55 million at the end of its most recent reporting period, increasing losses, and rising cash burn. Livongo raised $235 million since 2014 from private investors. Crunchbase 
  • Analytics company Health Catalyst’s IPO, which will probably take place this week on NASDAQ with Livongo’s, expects to float 7 million shares. Shares will be in a range of $24 to $25 with a raise in excess of $171 million. Their quarterly revenue is above $35 million with an operating loss of $9.8 million. Since 2008, they’ve raised $377 million. IPO analysts call both Livongo’s and Health Catalyst’s IPOs ‘essentially oversubscribed’. Investors Business Daily, Crunchbase
    • UPDATE: Both Livongo and Health Catalyst IPOs debuted on Thursday 25 July, with Livongo raising $356 million on an upsized 12.7 million shares at $28/share, while Health Catalyst’s 7 million shares brought in $182 million at $26/share.  Friday’s shares closed way up from the IPOs Livongo at $38.12 and $38.30 for Health Catalyst. Bubbly indeed! Investors Business Daily, Yahoo Finance
  • Change Healthcare is also planning a NASDAQ IPO at a recently repriced $13 per share, raising $557.7 million from 42.8 million shares. With the IPO, Change is also offering an equity raise and senior amortizing note to pay off its over $5 bn in debt. The excruciating details are here. Investors here are taking a much bigger chance than with the above IPOs, but the market action above will be a definite boost for Change.
  • Connected fitness device company Peloton, after raising $900 million, is scheduled to IPO soon after a confidential SEC filing. (UPDATED–Ed. Note: Included as in the Rock Health report; however this Editor believes that their continued inclusion of Peleton in digital health is specious and should be disregarded by those looking at actual funding trends in health tech.) Forbes

Rock Health itself raised the ‘bubble’ question in considering 2018 results. Their six points of a bubble are:

  1. Hype supersedes business fundamentals
  2. High cash burn rates
  3. High valuations decoupled from fundamentals
  4. Surge of cash from new investors
  5. Fraud or misuse of funds
  6. Unclear exit pathways

This Editor’s further analysis of these six points [TTA 21 Jan] wasn’t quite as reassuring as Rock Health’s. As in 2018, #2, #3, and #6 are rated ‘moderately bubbly’ with even Rock Health admitting that #2 had some added froth. #3–high valuations decoupled from fundamentals–is, in this Editor’s experience, the most daunting, as as it represents the widest divergence from reality and is the least fixable. The three new ‘digital health unicorns’ they cite are companies you’ve likely never heard of and in ‘interesting’ but not exactly mainstream niches in health tech except, perhaps, for the last: Zipline (medicine via drone to clinics in Rwanda and Ghana), Gympass (corporate employee gym passes), and Hims (prescription service and delivery).

Editor’s opinion: When there are too many companies with high valuations paired with a high ‘huh?’ quotient (#3)–that one is slightly incredulous at the valuation granted ‘for that??’–it’s time to take a step back from the screen and do something constructive like rebuild an engine or take a swim. Having observed or worked for companies in bubbles since 1980 in three industries– post-deregulation airlines in the 1980s, internet (dot.com) from the mid-1990s to 2001, first stage telecare/telehealth (2006-8), and healthcare today (Theranos/Outcome Health), a moderate bubble never, ever deflates–it expands, then bursts. The textbook #3 was the dot.com boom/bust; it not only fried internet companies but many vendors all over the US and kicked off a recession.

Rock Health also downplayed #5, fraud and misuse of funds. It’s hard to tell why with troubles around uBiome, Nurx, and Cleo in the news, Teladoc isn’t mentioned, but their lack of disclosure for a public company around critical NCQA accreditation only two months ago and their 2018 accounting problems make for an interesting omission [TTA 16 May]. (And absurdly, they excluded Theranos from 2018’s digital health category, yet include drones, gym passes, connected fitness devices…shall we go on?)

Rock Health’s analysis goes deeper on the private investment picture, particularly their interesting concept of ‘net liquidity overhang’, the amount of money where investors have yet to realize any return, as an indicator of the pressure investors have to exit. Pressure, both in healthcare and in early-stage companies, is a double-edged sword. There’s also a nifty annual IPO Watch List which includes the five above and why buying innovation works for both early-stage and mature healthcare companies. 

(Editor’s final note: The above is not to be excessively critical of Rock Health’s needed analysis, made available to us for free, but in line with our traditionally ‘gimlety’ industry view.)

A short but canny look at consumer behavior as a driver of health technology

Whether the global ‘smart home healthcare’ market actually totals $30bn by 2023, as a Research and Markets study trumpets, is debatable, but one thing that this Editor agrees with is that successful home health devices need to take a chapter from Steve Jobs’ Apple and famed industrial designer Raymond Loewy’s playbooks (search our Loewy references here) and design for how the consumer lives and would use their product. It isn’t flashy design awards, but how that technology can not only fit into a person’s life but also be an asset that they’d miss if someone took it away–a point often forgotten in the rush of initial design, testing, and funding.

Writer Scott Thielman of Product Creation Studio, a Seattle-based industrial design and engineering firm, outlines four health tech products/services that represent technology that is intuitive, easy-to-use, accessible, and, I would add, have a little something extra that makes them indispensable.

  • Athelas, a next-generation immune monitoring device that resembles an Amazon Alexa in being a 3D black cylinder. Instead of playing music, it measures neutrophils, lymphocytes, platelets, white blood cells, morphology, and cell activation all within minutes from a test strip inserted in the cylinder. (Investigational device awaiting FDA review)
  • Rochester Institute of Technology (RIT)’s smart toilet seat (which Editor Charles punningly referred to here) was tested with heart failure patients. It measured nine clinically relevant features, including weight, single-lead ECG, systolic/diastolic blood pressure, blood oxygenation and localized pulse timing, and a ballistocardiogram (BCG) for measuring the mechanical forces associated with the cardiac cycle. Normally, the patient would have to use several devices for these measurements rather than taking a seat. Speaking of the seat, it is standard white and replaces the one in the bathroom. Results were published in JMIR mHealth and uHealth.
  • ResMed’s connection of its continuous positive air pressure (CPAP) sleep apnea treatment devices to the cloud before the patient uses them, plus their patient smartphone app helps them to claim that 84 percent of new users reach the necessary usage threshold for Medicare adherence in the first 90 days of treatment.
  • Clarify Medical’s build-in of user feedback for its home vitiligo and psoriasis treatment that goes direct to their in-house customer service also registers patient usage, needed fixes, and outreach to those who need additional coaching and training.
  • Livongo’s acquisition of myStrength’s behavioral health app [TTA 31 Jan] also points to the importance of consumer behavior in a somewhat different aspect–the 20 percent and more who are struggling with behavioral health issues along with one or more chronic conditions managed by Livongo for employers and health plans.

How to design home healthcare devices that people will use (Medical Design & Outsourcing)

 

Short takes: Livongo buys myStrength, Apple Watch cozies with insurers, Lively hears telehealth and $16 million

Livongo gets behaviorally stronger with myStrength. Extending from their base in diabetes and chronic disease management into behavioral health, Livongo made a logical extension with early-stage behavioral health company myStrength. A large percentage of those with chronic conditions are also struggling with a behavioral health issue–Livongo cites 20 percent but in this Editor’s opinion, the estimate is low. Both Livongo and myStrength have been very successful in the payment game, with both companies achieving payment and reimbursement by employers, insurers, health systems, and state/Federal payers. The other factor is that employers and payers want single, integrated platforms for wellness and disease management. Livongo last year bought Retrofit for its weight management program. Competitor Omada Health recently acquired the behavioral health technology of defunct Lantern. MedCityNews, Fortune, Livongo release

Apple Watch wastes no time in partnering with insurers. Or vice versa! Confirming that Apple Watch’s growth strategy hinges heavily on health via its new features are fresh agreements with Aetna/CVS Health and a rumored reach into three Medicare Advantage plans. The Aetna partnership is with an app called Attain, which blends Apple Watch activity tracking data with users’ health history to create personalized programs. The program is limited to about 250,000 slots plus additional slots for employer plans, and will debut this spring. Late last year, United HealthCare announced Apple Watches would be added to existing wellness program called Motion and their Rally platform. Both Aetna and United have tiered payment programs for the watches, with United adding a HSA reward. For Medicare Advantage plans, Apple is rumored that they will subsidize the watch for use as a health tracker and coach. FierceMobileHealthcare 30 Jan (Aetna), 14 Nov 18 (UHC), and 29 Jan (Medicare Advantage).

Lively adds telehealth to hearing assistance. Lively’s mobile-connected, direct to consumer hearing aids are adding more telehealth features such as remote tuning, virtual video consults with an audiologist, and an online hearing assessment/uploading audiogram for assessment. The NYC-based company also announced closing on a $16 million seed/Series A fundraising round led by Declaration Capital with participation from Tiger Management. There are an estimated 35 million Americans with hearing loss in a $10bn annual market. Hearing aids are rapidly adding digital and DTC features–others in the field are Eargo and ReSound. Lively releaseAlleyWatch, Mobihealthnews. (Lively is not to be confused with Lively!, acquired by GreatCall two years ago)