US/EU 2021 healthcare VC funding soared 65%, but health tech performance slumped 28%–and 2022 surprises

This isn’t the usual Rock Health report of puppies and unicorns. Silicon Valley Bank is a source new to this Editor, but even in topline, the report is pretty bracing. Their coverage is broad and detailed–biopharma, health tech, dx (diagnostic)/tools, and device–on US and European venture capital (VC) funding from 2019 to 2021. There are some warning flags for the health tech sector through their report (summary page; report available for free download here).

What you’d expect: total health care soared in 2021 to over $86 billion–a 65% increase over 2020 (not 30%!). This was led by biopharma at $36.3 billion, then health tech at $28.2 billion. Dx/tools and devices had far more modest funding gains. 

For health tech: 

  • Funding was up 157% versus 2020–42 new ‘unicorns’, four times 2020
  • Provider operations companies comprised a record 35% of total seed/series A funding, up from 20% in 2020. The other hot areas were clinical trial enablement and alternative care. Surprisingly, healthcare navigation was next to last, perhaps indicating that these companies are further along in maturity.
  • Investors were numerous, but high frequency investors were Tiger Global, Andreesen Horowitz, General Catalyst, Casdin, and Gaingels.
  • SPACs slowed in 2021, trying to find the right match before their two-year window to complete a merger and reflecting greater SEC scrutiny of blank checks. Of those who ‘de-SPAC’ed in 2021, Talkspace and Owlet led in market losses, 80% and 73% respectively.
  • Post-IPO performance dropped 28%, led by insurtechs Oscar, Bright Health, and Alignment Health
  • There were 122 M&A deals. The $63 million median value was down 25% from 2020. marking a shift to vertical integrations in care continuums or horizontal to capture consumer bases.

2022 The Year of M&A and Acquire-to-Hire? The end of the report sounds a cautionary note to health tech ‘bulls’. Expect “massive” consolidation. Healthy investment will continue, but the opportunities will be for companies seeking expand product offerings, expand to other markets, or acquire to hire talent (!)–the latter something quite new.

Also FierceHealthcare

A smash Q1 for digital health funding–but the SPAC party may be winding down fast

An Overflowing Tub of Big Funding and Even Bigger Deals. The bubble bath that was Q1 deals and funding is no surprise to our Readers. Your Editor at one point apologized for the often twice-weekly roundups. (Better the Tedium of Deals than COVID and Shutdown, though.)

Rock Health provides a bevy of totals and charts in its usual quarterly summary of US digital health deals.

  • US funding crested $6.7 bn over 147 deals during January through March, more than doubling 2020’s $3.1 bn in Q1 over 107 deals.
  • Trending was on par through February, until it spiked in March with four mega-deals (over $100 million) over two days: Clarify (analytics), Unite Us (SDOH tech), Strive Health (kidney care), and Insitro (drug discovery). These deals also exceeded 2020’s hot Q3 ($4.1 bn) and Q4 ($4.0 bn).
  • Bigger, better. Deals skewed towards the giant economy size. $100 million+ deals represented 66 percent of total Q1 funding
  • Deal sizes in Series B and C were bigger than ever, with a hefty Series B or C not uncommon any more. Series B raises were on average $49 million and C $77 million. One of March’s megadeals was a Series B–Strive Health with a $140 million Series B [TTA 18 Mar].
  • Series A deal size barely kept up with inflation, languishing in the $12 to $15 million range since 2018.
  • Hot sectors were a total turnaround from previous years. Mental health, primary care, and substance use disorders, once the ugly ducklings which would get their founders tossed out of cocktail parties, became Cinderellas Before Midnight at #1, #2, and #3 respectively. Oncology, musculoskeletal (MSK), and gastrointestinal filled out the Top 6 list.
  • M&As were also blistering: 57 acquisitions in Q1, versus Q4 2020’s 45

Given the trends and nine months to go, will it blow the doors off 2020’s total funding of $14 bn? It looks like it…but…We invite your predictions in the Comments below.

Les bon temps may rouler, but that cloud you see on the horizon may have SPAC written on it. A quick review: Special Purpose Acquisition Companies (SPACs) typically are public companies that raise money through their own IPOs for the express purpose of buying other companies. Often called a ‘blank check’, they have no purpose other than buying one or two other companies–in the latter case, merging them like the announced Cloudbreak and UpHealth last November–and converting over to the company’s identity and business. The timeframe is usually two years. Essentially, the active company goes public with a minimum of the messy, long, expensive, and revelatory process of filing directly with the SEC (in the US). This quarter, Rock Health’s stat on SPACs was that they raised $83.1 bn this quarter, exceeding by $0.5 bn all SPAC activity in 2020, mainly late in the year. Their count was two SPACs closing in Q1 and 8 more announced but not yet closed (counting Cloudbreak/UpHealth as one).

As an exit door for investors, it’s worked very well–but is dependent on private equity and public investors having confidence in SPACs. One thinning of the bubble may be the scrutiny of Clover Health’s SPAC by the SEC [TTA 9 Feb] over not revealing that they were under investigation by the Department of Justice (DOJ). Certainly this was a material circumstance that could dissuade investors, among other dodgy business practices later unveiled. Mr. Market tells a tale; Clover went public 8 Jan at $15.90 and closed today at $7.61. Their YahooFinance listing has a long list of law firms filing class-action lawsuits on behalf of shareholders.

Clover may be the leading edge of a SPAC bust. SPACs are losing their luster because there are too many going through, jamming bandwidth at the bank and law firm level. As time ticks by and deals are delayed, the private funders of SPACs are growing squeamish, according to this report in National Review’s Capital Note (yes, National Review has a finance newsletter). “In the past two weeks alone, four blank-check deals have been halted, with SPAC shares declining significantly from their highs early this year. The slowdown follows an influx of short-sellers into the opaque financial vehicles and a sell-off in high-profile SPACs such as Churchill Capital Corp IV.” Reasons why: lower quality of companies available to go public via SPAC–the low hanging ripe fruit has been picked–and the last mile in SPACs, which is PIPE funding (private equity-investment-in-public-equity financing) is getting skittish. The last shoe to drop? The SEC in late March announced an investigation into SPACs, making inquiries into several banks seeking information on their SPAC dealings, which is alluded to near the end of the Rock Health report. CNBC  (Read further down into the NR article for a Harvard Business Review dissection of the boom-bust dynamics of ‘controversial practices’ like reverse mergers as a forecast of what may happen to SPACs. Increased popularity led to increased negativity in reverse mergers.)

And speaking of SPACs...Health tech/digital health eyes are upon what Glen Tullman and the ‘late of Livongo’ team will be doing with their SPAC, Health Assurance Acquisition Corp., which is backed by Hemant Taneja’s General Catalyst, also a former Livongo funder. Brian Dolan, who is now publishing Exits and Outcomes. His opinion is their buy will be Color, formerly Color Genomics: opinion piece is here. Messrs Tullman and Taneja are also leading Transcarent, a company that brings together employers, employees, and providers in a seamless, app-driven integrated care model. Forbes

The cool-off in SPACs may burst a few bubbles in the bath–and that may be all to the good in the long term.

US Department of Justice decides additional scrutiny needed of $13bn Optum acquisition of Change Healthcare

Change, so to speak, will not be fast for Optum. On Friday, Change Healthcare filed with the Securities and Exchange Commission (SEC) a Form 8-K (PDF link) that confirms that the Department of Justice (DOJ) has asked for additional information pertinent to their proposed acquisition by UnitedHealthcare Group and integration into their Optum unit. On 24 March, both received a request from the DOJ for additional information and documentary materials (called a “Second Request”) as part of DOJ’s review of the merger under the Hart-Scott-Rodino Antitrust Act (HSR). The Second Request extends the waiting period for 30 days after UHG and Change comply with the review, unless either the DOJ shortens it or it is extended by the two companies (para. 3).

The integration of Change Healthcare into Optum already had significant competitive concerns for DOJ to consider. OptumInsight, Optum’s data analytics unit, and Change provide a similar range of services in health IT and revenue cycle management (RCM). However, Change is one of the largest independent companies providing these services to major providers, with access to the data of 1 out of 3 patients. Optum’s parent, UnitedHealthcare, is the largest US payer. These were the factors that made those represented by the American Hospital Association (AHA) very nervous indeed [TTA 25 Mar] regarding pricing of these services–and they expressed their misgivings cogently in a seven-page letter (PDF link) to DOJ on 17 March. In their view, Change integrated into OptumInsight would reduce competition and increase pricing in RCM, claims clearinghouse and payment accuracy services, and clinical decision support services.

Why it’s important. The closing of the $13 bn deal, originally forecast as second half 2021, now has a decent likelihood of being postponed. As CVS and Aetna found between 2017 and 2019, once the objections start in the flashpoint called US Healthcare, they tend to snowball into delays, even if it can be managed to a successful conclusion. (Extreme examples: the doomed to fail Aetna-Humana and Anthem-Cigna mergers) While RCM and data analytics are not as high profile as health plans and retail health, industry groups have a lot of clout in the DC Swamp when the cause is higher cost and DOJ, in this administration, is likely to be more activist. Another reason: if UHG or Change have to divest themselves of too much (UHG set a boundary of $650 million), they may Call The Whole Thing Off. Also Healthcare Dive and FierceHealthcare

Funding, acquisition news roundup, round 2: Lyra Health’s $187M Series E, DarioHealth-Upright, GetWellNetwork-Docent Health, Hillrom-BardyDx (updated)

Our cowgirl has been keeping busy rounding up more news on funding and acquisitions. Significance? Nearly all are major rounds only dreamed of a year ago for these relatively small companies boosting valuations into the stratosphere. The acquisitions also extend these companies into multiple lines of business.

Lyra Health, a mental health therapy benefit company for employers, closed an additional $187 million in a Series E round led by Addition Capital. This adds to a torrid 2020 $185 million Series C and D bringing their total funding to $475 million. The company claims a valuation of $2.3 billion and doubling its customer base in 2020 to 2 million members, with marquee clients such as Genentech, Morgan Stanley, and Zoom. Lyra Health uses cognitive-based therapy (CBT) models using virtual self-care, coaching, and therapists. Also announced was a partnership with ICAS World, an employee-assistance provider. Lyra is one of many companies in an increasingly crowded category using the CBT model to save employers and payers money on employee and member mental health with and without chronic conditions such as diabetes. Earlier this month, the Talkspace app, which focuses on direct to consumer therapy, announced they were going public through a ‘blank check’ SPAC with Hudson Executive Investment Corp, in a deal valued at $1.4 billion, including debt. Release, Mobihealthnews

DarioHealth, an Israeli-US company concentrating on digital diabetes and hypertension management, extended into musculoskeletal (MSK) therapeutics with the $31 million acquisition of Upright Technologies Ltd., another Israeli-US company. Upright uses a $100 sensor that provides biofeedback and vibration reminders to correct posture plus digital coaching. Last year, Upright was heavily advertised on US television. The buy will transfer to Upright $1.5 million in cash and $29.5 million in stock, and is expected to close in about 10 days. Dario also completed a $70 million private placement for 3,278,688 shares of its common stock at a purchase price of $21.35 per share. Dario has about 150,000 users and Upright 90,000 users. Dario is projecting a 2020 revenue of $7.6 million. Release, Mobihealthnews

GetWellNetwork, a relatively small player in patient engagement and communications in the inpatient care journey, announced it has acquired patient-messaging company Docent Health for an undisclosed sum, beefing up capabilities in data analytics and directing patients to additional services. According to Crunchbase, GetWellNetwork has funding to date of $19 million.  Release, Mobihealthnews

Wrapping it up is cardiac monitoring giant Hillrom’s acquisition of Bardy Diagnostics for $375 million plus future potential payments based on the achievement of certain commercial milestones. Hillrom is also acquiring net operating losses valued at more than $20 million and 230 employees. The BardyDx Carnation Ambulatory Monitor (CAM) is a lightweight cardiac patch monitor for heart rhythm diagnostics using P-wave-centric ECG detection. The irony here is that BardyDx positioned itself squarely against Hillrom’s Holter monitors. Nothing like buying out the competition! Release, MedCityNews

$6.8 bn in digital health funding through Q3 blows the doors off 2017: Rock Health

And the money rolls in. All Rock Health had to do was wait a quarter to get breathless [TTA 4 July], because digital health funding through Q3 is now exceeding the full year 2017 by $1.1 bn. The average deal size has accelerated substantially–$23.6 million versus last year’s $16.4 million. The deals are bigger but fewer–290 so far versus 357 last year–and the length of time between funding rounds has consistently grown shorter. 

Another proportional shift is the growth of Series B and C startups, at long last, and a more than doubling of D+ deals.

A big shift in this quarter were that the stars lined up, perhaps for the first time, with at-home and on demand health. American Well of course at $291 M loaded these dice, but also benefiting from the throw were the similar Doctor on Demand, Honor (home care), and NowRx med delivery service. Faster meds at lower cost have become a major area of action (Amazon with PillPack, TelePharm, others). Digital therapeutics that help to monitor health at home followed from Pear Therapeutics, Click Therapeutics, Akili Interactive, Virta Health, Propeller Health, and Hinge Health. 

And where the money comes from? Independent venture funds still account for 63 percent, and corporate VCs for 15 percent.  Some of those CVCs are major names such as GSK, Abbott, and Cigna. Big tech is also moving into healthcare, with Amazon’s $1bn acquisition of PillPack, the Apple Watch 4, Google’s Nest.

Rock Health’s trend prediction is continued consolidation in digital health, with companies continuing to acquire each other. “With available capital and a desire to build out product lines, talent, and client bases, it’s not surprising to see a great deal of M&A activity within digital health.” One example given is Welltok, which plays in the consumer health ‘activation’ area, and their acquisitions from corporate health management programs to Wellpass, which has created such as Text4Baby, Text2Quit and Care4Life and whose largest customer is state Medicaid plans.

Keep in mind that Rock Health tracks deals over $2 million in value from venture capital, excluding government and grant funding. They omit non-US deals, even if heavily US funded.

Rock Health’s report. Healthcare Dive.  Mobilhealthnews‘ own top 17 M&As, which include Best Buy-GreatCall and Logisticare-Circulation in the burgeoning area of non-emergency medical transport (NEMT).

2015 digital health VC funding flat, consolidations nearly double: Rock Health

Rock Health published yesterday their 2015 annual Digital Health Funding report, and perhaps it is good news that 2015 activity maintained the blazing 2014 total at $4.3 bn. Still, it represents a compound annual growth (CAGR) from 2011-2015 of 30 percent.

Consumer digital health is thriving, with healthcare consumer engagement, personal health tools and tracking accounting for 23 percent of overall funding. Two of the six largest deals were won by consumer-driven genetic companies, 23andMe and Helix.

The one new record was that there were 278 deals across 248 companies, with an record-breaking average deal size of $15.6m. What continued is that the vast majority of funding deals (70 percent) were Series B and below, but C and C+ deals increased slightly.  It was also a big year for exits. M&A activity nearly doubled in volume with 180 deals and $6B in disclosed activity. Their index comprising shares of publicly traded digital health companies was off over 5 percent with two of this year’s IPOs trading lower than their opening prices.

According to the Rock Health newsletter, early-funded companies had a few zombies among them. Rock Health looked at companies up to five years ago, and found that 11 percent they classified as either dead or “zombies” (which have not raised a round in 3+ years). “Most likely to die? A disproportionate number of these zombie companies are in the care coordination, EHR, or clinical workflow space.”

The web page with a link to the full study is here. Unfortunately, the download is not free, but $99.

First M&A roundup for 3rd quarter: more action, less value, whither digital health?

VC/research firm TripleTree is first out of the gate with its roundup of merger and acquisition activity in healthcare, July through September. The news and directions are mixed. Deals are up 28 percent from the two previous quarters but down 12 percent in total deal value. Most are in the healthcare facilities area with home care giant Gentiva acquiring Harden Healthcare and insurance giant Humana adding to its LTC, Medicaid/Medicare portfolio with American Eldercare. 19 healthcare companies had successful IPOs totaling ~$3 billion of transaction value. Two highlighted here are Envision Healthcare Holdings (ambulance and outsourced physician services) and Benefitfocus (benefit administration software and tracking). Given that they are the creator of the iAwards at the annual Wireless-Life Sciences Alliance in May which focuses on digital health, the decidedly non-buzzy companies getting the action here are perhaps another indicator of the funding cooling preceding M&A as projected by Rock Health back in July [TTA 9 July], with their 3rd Quarter report due out shortly.