Rock Health’s first half funding roundup adjusts the bath temperature to tepid, the bubbles to flat

July 11, 2023 | by

The ‘new normal’ continues, as the bubbles vanish and the poor duck’s feathers are getting soggy and cold. Rock Health’s roundup of digital health funding (US only) continues the chilly flat-to-downward trend to funding. What money and fewer funders are out there which persist in their dedication to healthcare are betting cautiously, minimizing their risk on the table in lower unlabeled funding rounds and pre-vetted concepts. 

  • First half 2023 (H1) funding closed at $6.1 billion across 244 deals. Average deal size was $24.8 million, the lowest since 2019.
  • Breaking down by quarter, Q2 2023 funding hit a new low– $2.5 billion in funding across 113 deals, lower than Q4 2022’s ‘hole’ of $2.7 billion. By comparison, Q1 2023 funding totaled $3.5 billion over 131 deals, adjusted from the earlier report of 132 deals [TTA 5 Apr]. The collapse of three banks, most notably Silicon Valley Bank in March, clearly affected Q2.
  • Given the trend, Rock Health projects that 2023 funding will fall well below 2022, between 2019’s $8.1 billion and 2020’s $14.3 billion

Delving into the numbers:

  • Those ‘generalists’ who jumped into the digital health pool in 2021-22 jumped out. H1’s 555 investors had a 71% repeat rate, meaning that those who knew the water saw some opportunity or put on their wet suits. The overall total dropped from 775 in H1 2022 and 832 in H1 2021.
  • Unlabeled raises were suddenly the way to go. 101 of 244 deals–41%–had no series or round attached. This unprecedented move avoids the spectre of down rounds for companies needing to raise funds–down rounds affect valuation. Interestingly, 67% of these companies’ prior raises were in 2021 and 2022. 37 of them were Series B or lower. 
  • Mega deals inhabit a different territory. H1 had 12 mega deals, 37% of total funding dollars, and was at the 2021 norm of $185 million. Half were at Series D and growth/PE. They clustered in value-based care, non-clinical workflow, and that former mouse in the pumpkin coach, in-home and senior care. This level of funding also gravitated to the pre-vetted: incubated by VCs included Paradigm (clinical trials) and Monogram Health (kidney care).  Recently funded Author Health, long in stealth, will operate in a narrow slice of mental health funded by Medicare plans.
  • Zero IPOs, but acquisitions and shutdowns/selloffs continue. Acquisitions continued on a track of about a dozen per month, down from 2022’s average of 15. On the gloomier side, quite a few companies simply ran out of runway after raising a little or a lot of funding. These hit the lights at the end resulting in hull loss: Pear Therapeutics, SimpleHealth, The Pill Club, Hurdle, and Quil Health. If they were lucky, they had intellectual property worth something to someone–Pear to four buyers including a former founder, 98point6’s AI platform business to Transcarent–or subscriber bases worth acquiring, such as Pill Club to Nurx, SimpleHealth to TwentyEight Health. This does not count Amazon shuttering Halo and leaving subscribers in the lurch. (Nor Amazon’s dodgy approach to privacy getting Federal and private scrutiny, which this Editor explores here and here.)

To this Editor, 2023 will be a ‘grind it out and survive’ year for most health tech and digital health companies. Survivors will carefully tend their spend, their customers (who will be doing their own cutbacks), and watch their banks. The signature phrase this year was written in 1950, another uncertain time, by Joseph L. Mankiewicz and uttered with flair by Bette Davis in a classic film about the theatre, ‘All About Eve‘: “Fasten your seatbelts; it’s going to be a bumpy night.”   Rock Health Insights

Wednesday roundup: Owlet BabySat monitor clears FDA; Rosarium Health seed $1.7M led by Rock Health; Optum Startup Studio shuts; CareRev lays off 100, changes CEOs; pet telehealth Fuzzy shuts, leaves workers and vendors in lurch

June 21, 2023 | by

Owlet’s BabySat medical pulse-oximetry device receives FDA clearance. The wire-free sock design connects to a mobile app and tracks pulse rate and oxygen saturation level. The app alerts parents and caregivers when those readings fall outside ranges set by a physician. Launch is projected for later in 2023. Unlike other Owlet socks and systems, it will be by physician prescription only for babies that the doctor determines should have additional monitoring at home. There is a button for interested consumers (and presumably clinicians) to be notified of release information. Owlet release, Owlet product page, Mobihealthnews.  The original Smart Sock continues to be offered as a consumer product outside of the US and Canada. Owlet’s Dream Sock tracks non-clinical quality sleep quality indicators, including heart rate, average oxygen, wakings, and baby movements. In December 2022, FDA accepted Owlet’s de novo application for an enhancement to Dream Sock that provides heart rate and oxygen notifications in addition to sleep monitoring tools [TTA 18 Mar]. Perhaps these mean a turnaround is in the offing in this now much smaller company. They received a $30 million private placement lifeline in February, but the stock on the NYSE, while rising, is still well below $1. [TTA 16 May].

Rosarium Health receives a pre-seed round of $1.7 million from Rock Health and two other investors. It’s surprising because Rosarium is in the business of medically necessary home modifications to enable safe aging at home. Not your typical digital healthy, sexy, techy, buzzy Rock Health investment. But one that bears a few important checkmarks: since 2019, the Centers for Medicare & Medicaid Services (CMS) has covered home modifications in two different programs: Medicare Advantage (MA) through supplemental benefits, and Medicaid, through Medicaid Waivers (Section 1115 Waivers) or Medicaid Managed Care programs. In the current environment, that assurance of payment makes it most attractive indeed. Rock Health was joined by Primetime Partners with participation from Flare Capital. Rock Health release

Just when you think it’s getting better….

  • Optum Startup Studio fades to black–report. Startup Studio was Optum’s startup incubator and graduated over 100 early-stage companies that received mentorship and a chance to pilot their offerings through Optum’s companies and systems plus receive $25,000 to $50,000 in non-dilutive grant funding. The report in Axios attributed the program’s end to a reorganization within Optum that left mentors like Liz Selvig, who joined it in 2022, out in the cold. The timing could not have been worse for just-shuttered fertility planning startup Bunnii. Optum’s abandonment quickly killed interest from a potential lead investor who looked at Optum’s program and piloting as a vote of confidence. This Editor notes that the website and application pages are still live.  If this report is incorrect, we invite Optum to contact us.
  • CareRev, a short-term nursing/CNA staffing app platform, reportedly is laying off 100 employees or one-third of its staff. The same reports claim $100 million raised to date, but Crunchbase lists ~$50 million through a Series A in April 2021. Earlier this month, CareRev’s co-founder and CEO, Will Patterson, BSN, RN, resigned after The Information inquired on allegations that he used drugs and encouraged employees to try LSD and cannabis. CareRev subsequently named Brandon Atkinson, formerly COO of cardiac digital health Cleerly Health. Release. Becker’s
  • Fuzzy, a veterinary care digital health/e-commerce startup based in San Francisco, folded last week without paying employees or vendors. It raised about $80 million through a Series C from 2016. Backers included Icon Ventures, Greycroft, Crosscut, and Matrix Partners, private vet practices in the US, UK and Germany plus individual investors. Its $15/month subscription-based model included 24/7 live chat and telehealth, ship-to-home prescriptions, educational content, vet-curated pet items, and programs for nutrition, training, and obedience. The bad part: reports from employees on Twitter and Glassdoor indicated that the company stopped paying health insurance and salaries two weeks ago but were not formally notified of the company shutting until Saturday 16 June, and that vendors as well as contractors were misled on payment for weeks. The website is dark and CEO Zubin Bhettay’s LinkedIn profile plus Twitter handle are gone. Coverager

Digital health’s funding time machine dialed back to 2019–before the SVB implosion: Rock Health

April 5, 2023 | by

Rock Health’s 2023 Q1 report tries to put a good face on an implosion. The good: Q1 followed their Retro Time projection; the 2020-first half 2022 bubble was over, but digital health was snapping back to 2019 funding levels. The bad: while things were snapping back, Silicon Valley Bank (SVB), the favored bank of most Silicon Valley VCs and the companies they funded, imploded due to mismanagement.  This Editor would add two corollary nervous-making bank failures on SVB’s heels: Signature Bank (some East Coast healthcare, but too many uninsured deposits and a lot in crypto, taken over by Flagstar Bank/NYCB) and Credit Suisse (pending a Swiss government shotgun marriage with UBS). Add another unnecessary Federal Reserve rate hike to kill growth and the end of the pandemic PHE regulation suspensions that fueled telemental health, plus inflation at about 8-10%…. Like that 1949 Studebaker Starlight coupe, are we coming, or going?

Sidebar: This Editor has heard from other sources (not Rock Health) that ‘dry powder’ (funds) are low for VCs and barely existent on the provider (health system) side. Their own investors, now leery, are cutting back on their exposure. Where there is dry powder, fintech and biopharma are seen as better bets. VCs sense the bottom hasn’t yet been found in digital health valuations. Payers like UHG and CVS are making big deals but not in digital health. If they are, they are small ‘pocket lint’ pickups. Private equity? Largely kicking tires. Family offices and high net worth individuals are generally staying out of the healthcare picture unless there are other compelling (usually personal) reasons to invest. (Theranos still hangs heavy over these last two funders.)

Back to Rock Health, total Q1 funding was $3.4 billion across 132 deals. Yet only six mega deals (over $100 million) accounted for 40% of the funding early in the quarter: Monogram Health (in-home care, $375M), ShiftKey (PRN nurse scheduling, $300M), Paradigm (drug trials, $203M), ShiftMed (another healthcare workforce scheduler, $200M), Gravie (broker benefit solution, $179M) and Vytalize Health (MSO for providers, $100M). To call these ‘mega deals’ is an overstatement. In 2021 or even in 2022 these would have been seen as outstanding Series A and decent Series B-D+ raises. In 2021, the top mega deals crested $500 million.

The remaining 126 sliced up the remainder ($2.043 billion) of the pie, with a median value of only $16 million per deal. Throwing in the six ‘mega deals’, the overall median increased to $25.9 million. That tracks closely with 2019/2022, allowing for some inflation. Comparisons with full year medians: 2019–$19.8 million, 2020–$31.9 million,  2021–$39.9 million, 2022–$26.7 million. 

The IPO window remains closed tight. No easy exits for investors in late-stage companies. Those that went public during the bubble, with few exceptions, have cracked. From the report: “Digital health stocks started 2023 trading almost 50% lower than they did at the start of 2021, pushing some recently-exited players like Pear Therapeutics to explore going private.” (Under $1.00 per share, Pear is currently exploring a sale in toto, in parts, or merger.) According to this chart shown by Arundhati Parmar, MedCity News’ editor-in-chief, during his VC panel at ViVE [TTA 31 Mar], only two of 17 publicly traded digital health companies that went public have share prices in excess of their IPO: Progyny (also profitable) and HealthEquity. Many are near or below the critical $1.00 mark. (This chart does not include Babylon Health which is trading around $5 and reorganizing to become a US company.) He also pointed out that only two of the 17 are profitable.

These deals now also come with strings attached: valuation adjustments and operational revamps which usually mean staff layoffs, but can also be operational in closing/selling off lines of business. Growth is not the key metric anymore–profitability or a road to it is. Recent examples are Komodo Health and Carbon Health, where their substantial fundings ($200 and $100 million respectively) were tied to jettisoning LOB and staff. 

Last but certainly not least in putting a damper on digital health funding and growth is the end of the prolonged pandemic PHE. This relaxed rules for telehealth platforms around HIPAA compliance and also in mental health prescribing without in-person visits of DEA-controlled substances in Schedule 2 and 3-V. This puts a definite halt to telemental health’s expansion, fueled by drug prescriptions and none-too-fussy signups (see: Cerebral) but also too many virtual players in one niche (Mindstrong ceasing business with remaining assets bought out by SonderMind). New telehealth platforms largely complied with HIPAA but penalties for non-compliance are returning and platforms have to secure data. FTC is an added factor with its own privacy microscope.

Even the eternally optimistic Rock Health likens 2023 in digital health to a stormy sea with “turbulent waters’ resulting in “patched up ships and resilient mindsets.” Now that is a stunning mix of metaphors. Your Editor chooses a classic phrase penned by Joseph L. Mankiewicz and uttered with flair by Bette Davis in ‘All About Eve‘: “Fasten your seatbelts; it’s going to be a bumpy night.” And it’s only Q1. Also Mobihealthnews

Rock Health puts a kind-of-positive spin on digital health’s ‘annus horribilis’ 2022–a boring 2023

January 13, 2023 | by

Your Editor will be blunt. 2022 was a bucket of cold water, a bursting of bubbles, and generally an annus horribilis (as the late Queen Elizabeth referred to 1992, 30 years prior) for digital health, healthcare tech, and healthcare in general.

Here are the highlights of Rock Health’s 2022 full-year report on digital health funding for US-based digital health companies, published late last week and presented this week at JPM, through the gimlet eye of your Editor: 

Total funding for 2022 was $15.3 billion. There were 572 deals, averaging a deal size of $27 million.

  • 2022 was just over half in activity compared to 2021’s “to the moon”: $29.3 billion over 738 deals averaging $39.7 million.
  • 2022 also barely made it past the pandemic year of 2020 with $14.7 billion over 480 deals averaging $30.6 million.
  • 2022 Q4 fell into a hole: $2.7 billion versus 2021’s $7.4 billion

If 2021 matched prior growth trends instead of the bubble it was, 2022 would have been viewed as flat or slightly down. 

Late stage mega deals fell into the same hole. In 2022, 35 digital health startups raised rounds of $100M or more, compared to 2021’s 88 and even 2020’s 43. 

The Covid-driven investment boom across digital health that characterized 2021 is over. The economy with a 6-8% rate of inflation, energy shortages in much of the world, supply chain disruptions, rising interest rates on money, and the rising possibility of recession led to investor cold feet. It ended the 2019-2021 takeoff and started a down cycle.

Recalibration to a ‘more sustainable run rate’ when it comes to investment

“Disrupting healthcare” may sound good, but it has a spotty track record of success. What’s attractive long term? Incremental transformation within conventional healthcare operations that in this Editor’s view cut time, cost, increase reliability, simplify processes and/or workflows, improve interoperability, reduce operational burden, or improve communication. Preferably, a combination of several of the previous!

D2C startups are particularly vulnerable to the economy–they run hot, multiple companies jump in, and then they’re cold. They have to invest a lot of money to establish a presence with consumers and that money is no longer cheap or available. Some with a decent consumer footprint can focus on B2B entry, though that is a long-buy cycle move.

Most companies will be focusing on the near term, with some of the smarter ones planting some ‘seeds’ for the future

A witty note in their report: “In the current VC climate, strong horses will beat out unicorns…though investors run the risk of betting on the wrong equine.” (Editor’s note–it may be hard to tell the difference. And unicorns have horns that poke bubbles.)

What was hot?

  • Series A deals, the conservative bets of VCs. Yet, in Rock Health’s view, these may be riskier: “investors are more likely to pay more on a risk-adjusted basis for a startup than its later-stage funders, twisting the risk-adjusted valuation upside down.” 
  • In clinical indications, mental health stayed top of the pops. Cardiovascular and oncology rose along with dark horse reproductive and maternal health. What fell? Diabetes.
  • In value propositions (sic), on-demand healthcare and R&D flipped positions from 2021. Dark horses nonclinical workflow, disease monitoring, and care coordination moved into the top 5

And what players had problems? Health systems and the tech giants seeking to move into healthcare and away from ad-based or transactional revenue. As we’ve seen, Amazon dumped Care and is facing scrutiny over One Medical, Alphabet is cutting Verily, and Meta is overall pulling back. Microsoft seems to be concentrating on incrementals and Apple has other concerns over sourcing and patents.

Rock Health’s conclusion is ‘kind-of-positive’. (What, you expected doom and gloom?) “We expect that 2023 will be built up on slow, steady, and maybe even boring strategies for healthcare startups and enterprises alike: managing cash, re-structuring to accommodate revenue volatility, and investing in technology infrastructure.”

Is there a way out of the digital health funding black hole? Can it rebound to…2020?

October 28, 2022 | by

The latest CB Insights report tracking global health funding isn’t cheery reading for VCs and their young analysts, associates, and principals. CB’s tracking of Q3 spending, like Rock Health’s [TTA 5 Oct], indicates it’s Back to 2019–not even 2020–with funding of $4.6 billion snapping back to Q1 2019.

In CB Insights’ tracking, 2022 Q1 had funding of $16.1 billion with Q2 slumping to $7.2 billion. Q3 funding was a 36% drop from Q2. (Editor’s note: CB Insights tracks global funding, while Rock Health is US only, with lower totals.) The most affected sectors: clinical trials tech, telehealth, and health IT, though the last two still have high levels of funding.

Unlike Rock Health’s analysis, mental health funding is struggling with 72 deals, a small gain after two straight quarters of decline. CB also identified only three new unicorns (over $1 billion) in Q3: health startup accelerator Redesign Health (which since September has had some reverses), nurse staffing platform Incredible Health, both with $1.7 billion, and UK-based Spectrum Health, with $1.2 billion. M&A/exits have also slumped to 48, the lowest level in five years. IPOs were also down to seven.

It doesn’t look bright for Q4, especially when you look at the miseries of healthcare-related companies like Philips, which reported a €1.3 billion operational loss this past quarter and immediately moved to reduce its global workforce by 4,000. For the young analysts and associates who were just starting or advancing their careers in the VC field, it snapped shut with a suddenness that would make a crocodile envious.

Healthcare Dive, CB Insights (paywalled)

Q3 digital health funding craters nearly 50% to $2.2B: Rock Health

October 5, 2022 | by | 1 Comment

Returning to 2020 and prior trends? The recession and expensive money have hit quite comprehensively in digital health, with Rock Health’s quarterly/YTD tracking that Q3’s digital health funding of $2.2 billion declined to a little over half of Q2’s $4.1 billion. It is the lowest quarter in funding since Q4 2019’s $2.1 billion. Q3’s performance is also reflected in the number of deals completed, tracking at a scant 125 deals.

Are we returning to a prior norm? In looking at YTD 2022 funding ($12.6 billion, 458 deals), it is trending very close to the full year of 2020 at $14.7 billion and 481 deals which in turn was a decent increase from 2019. Allowing that it was kickstarted by carryover from 2021 (Q1 of $6.1 billion), it puts 2021 in sharp relief as a Covid-driven and (in this Editor’s estimation) ‘silly money’ outlier since Rock Health’s tracking started in 2012.

Reviewing Rock Health’s numbers:

  • They project that 2022 will not even attain half of 2021’s funding levels
  • Average deal size YTD is $27 million, $3 million less than 2020 and $12 million less than 2021
  • Raises of Series C and above nearly vanished: only 6, accounting for less than 5% of total funding. Q2, by contrast, had 19 Series C+ raises. And there were only two digital health mega raises of $100M or more compared to 2021’s average of 22 per quarter. Rock Health speculates on the reasons why, including that some were diverted into other funding types such as round extensions and venture debt.
  • Mental health continues to lead the composition of funding by clinical indications, with oncology and cardiovascular moving into the #2 and #3 spots YTD versus 2021, with diabetes moving back to #4. In value propositions, non-clinical workflow jumped to #1 with on-demand healthcare holding on to the #2 spot. R&D fell back to #3 from last year’s #1 spot.

Certainly for those seeking funding, this confirms that the open wallet days for anything labeled digital health are over and not returning.   

The clunk continues: Q2 2022 digital health funding fades to $4.1B in Q2, down 50% from 2021

July 13, 2022 | by

Digital health funding continues to take a plunge. Knocked about by the hangover from the pandemic, a grinding war between Russia and Ukraine, gasoline prices jacked up worldwide, and knock-on inflation and looming stagflation, funding continues to slide. The decline in Q2 digital health deals and funding to $4.1 billion more truly reflects the downturn than Q1’s relatively buoyant $6.1 billion, which benefited from the carryover of deals negotiated during 2021’s boom and closing then [TTA 6 April]. Year over year, it was half of 2021’s high of $8.3 billion.

  • 2022’s first half (H1) total of $10.3 billion was down 31% from 2021’s $15 billion. Despite this, it is 63% above the pandemic-stricken 2020’s H1 $6.3 billion. 
  • Average deal size has dropped to $31.2 million from 2021’s full-year $39.5 million and even 2020’s $30.6 million, accounting for inflation in the past two years. Looking at funding size by series year over year, Series A funding is flat but funding for Series B, C, and D+ have dropped substantially.
  • No startups went public but four digital health companies announced plans to go public or were reported to be planning public exits. One SPAC was announced in June to close in Q3, that of VSee and iDoc Telehealth with Digital Health Acquisition Corporation. SPACs, as this Editor has noted, have gone from Funding Hero to Zero under 2022’s economics, causing many SPACs to crack (Owlet, Talkspace) and increased scrutiny by the Feds [TTA 9 June]. SOC Telehealth, an early SPAC, went private after a 90% share price drop [TTA 8 Feb].
  • Average monthly M&A has dropped substantially. 2021’s monthly average of 23 has dropped to 20 in Q1 and 13 in Q2, for a H1 average of 16.
  • Most popular funding areas are mental health (a far ahead #1 at $1.3 billion), oncology, and cardiovascular. Diabetes dropped from #2 to #4, skewed last year by Teladoc’s acquisition of Livongo. Oncology rose to #2 from #6 in 2021. For mental health, given increased Federal scrutiny and legal problems of companies like Cerebral plus the expansion of Teladoc and Amwell into the area, this Editor does not expect telemental health companies to continue to attract this level of funding but may be attractive for M&A.
  • Disease monitoring (a/k/a RPM) as a value proposition moved from #8 to #3 in investment at $1.4 billion. R&D and on-demand healthcare remained in their #1 and #2 positions.

As TTA has noted previously, this was all to be expected. Will 2022 funding perk up like 2020’s did through Q3 and Q4, or fall off like in 2019 as money sits on the sidelines? Rock Health does try to put a rosier shine on the retrenchment in its roundup, as has venture capital–reality can be good for you. Another depressive factor is regulatory uncertainty in multiple areas and Federal involvement, which some companies can work to their advantage. The Rock Health summary discusses this at length. Also Mobihealthnews. 

Digital health funding’s Q1 hangover from 2021’s bender–and Q2 is a question mark, even for Rock Health

April 6, 2022 | by

Chug the Pedialyte and pickle juice, down those milk thistle caps for the liver. It’s a morning after quarter that we knew was coming. After 2021’s mighty year for health tech investment, doubling 2020’s, capped by a $29.1 billion total across 729 deals [TTA 29 Jan], the slump we knew would arrive, did. Rock Health’s tracking of 2022’s Q1 proved to be a less than stellar $6.0 billion across 183 deals. It mildly lagged 2021’s Q1 but was still 75% more than 2020’s depressed Q1 at the start of the pandemic.

Even in January, the 2022 projections were iffy. Silicon Valley Bank projected, based on anemic post-IPO performance, that there would be ‘massive consolidation’ and even acquiring companies to hire talent [TTA 14 Jan]. Rock Health and Silicon Valley Bank noted the waning of SPACs as an easy way to IPO for a variety of reasons, including SEC scrutiny. A combination of both was SOC Telemed. which IPO’d via a SPAC at $10, and was taken private seven months later at $3 per share–after trading at $0.64. SOC was not an outlier–larger telehealth brothers Amwell and Teladoc had taken major share price kicks in the head at 50% and more by February [TTA 8 Feb].

The rest of the story is mixed as the economy continues to open up with the pandemic over, but the stock market is wobbly, inflation soars as does a Russia-Ukraine war. 

  • Average deal size was $32.8 million, again below 2021
  • January was a cheerier month than the following two, with companies raising $3.0 billion. Some of this was carryover from 2021 deals that didn’t quite make it past the post. February slumped to $1.4 billion while March ticked up to $1.6 billion, not a good trend going into Q2.
  • Rock Health’s Digital Health Index (RHDHI), a composite of publicly traded digital health securities, fell 38%, far below the S&P 500’s 5% dip over that same time period.
  • SPACs tumbled along with the market, continuing their fall since 2021. Deals were canceled, taken private (SOC Telemed), and companies sued for misleading investors (Talkspace).
  • Late stage deals continued to roll: mega Series D+ deals in Q1 2022 included TigerConnect ($300M), Lyra ($235M), Alto Pharmacy ($200M), Omada Health ($192M), and Ro ($150M). D and above deal size fell by $16 million. But average deal size fell off at every Series, less so for B and C.
  • Lead clinical investment areas were mental health continuing far in the lead, followed by oncology, cardiovascular, and diabetes. Oncology rose from the fifth spot in 2021 to #2 in Q1, displacing cardio. In value proposition, the top three were on-demand healthcare, R&D, and clinical workflow–this up from the 11th spot.

A weak start for 2022, but only compared to 2021. Q2 and maybe even Q3 will be the test in this mid-term election year. Rock Health Q1 report

Will ’22 digital health investment be historic? Or a question mark? The jury is out.

January 29, 2022 | by

Some say historic, or will it be a historic question mark? It’s only January…Earlier this month, a Silicon Valley healthcare VC funding analysis [TTA 14 Jan] looked at 2021 funding — up over 150%–that was skewed to biopharma and health tech. It noted the SPAC slowdown, anemic post-IPO performance, and a decline in M&A value, while consolidation and buying for expansion will be the trend.

Healthcare Dive spoke to some industry mavens, and came up with a split picture. Some see turbulence ahead due to rising interest rates, a fluctuating market, and political instability leading to tighter purse strings, others see blue skies and lots of money flooding in from new investors in love with health, following the Amazons and Microsofts, fearing that they’ll miss out. Certainly, 2021 was more than warm. Both Silicon Valley Bank in the previous analysis and Rock Health came up with just under $30 billion in 2021 investment.

The feather in the wind: Rock Health’s numbers indicated skyrocketing exits–with SPACs nearly double that of IPOs. Funding hit record mega rounds of $100 million+ that spread to early rounds–10 Series B and one Series A. Mega money means mega pressure to perform in young companies. The SPAC highway increasingly narrowed to a two-lane road by end of year based on regulatory scrutiny and even some timing out (SPACs have to consummate a deal in two years). Exits for investors are to take back money or write off losses, if they get shaky about a company or category, even if they find a more attractive squirrel. Yet the fact is that $13 billion raised by VCs this month has to go somewhere–but will it be in health tech? Time will reveal all.  Also Healthcare Dive on the Rock Health year-end report.

2021’s bubbly $14.7 billion in digital health funding–six months that beat all of 2020

August 3, 2021 | by

Rock Health’s roundup for the first half of 2021 definitely floats that rubber ducky. $14.7 billion in funding went to digital health companies in the US, breaking through full year 2020’s $14.1 billion, itself a record. However, the year to date is skewed by mega deals that may proved to front-load the year.

The first half boasted:

  • 372 deals and an average deal size of $39.6M
  • 48 mega deals which accounted for 59% of total H1 2021 funding
  • 11 closed IPOs and SPACs, with another 11 SPACs expected to close in 2021
  • Tripling prior year in the final month: June 2021 $3.1 billion versus $1.1 billion June 2020

It was no surprise that mental health continued in the lead for the second year, with cardiovascular, diabetes, primary care, and oncology following. Rock Health also tracks ‘value propositions’ which are led by research and development, plus on-demand healthcare neck-and-neck.

Size and stage of deals continued to enlarge. 

  • Average deals per week in 2021 totaled 11 and $548 million, compared to 2020’s seven deals and $285 million
  • The funding shift to Series D and higher levels was profound–$76 to $131 million for about the same number (51 to 54) deals. Series A through C had positive gains but relatively flat
  • Private equity firms and growth funds were more active in digital health venture investment versus venture capital
  • $100+million rounds are becoming ‘average’, comprising 59% of total funding–prompting one to think that the definition of ‘mega’ needs to be upscaled

The mix of businesses is also changing towards B2C. Direct to consumer (B2C) digital health is gaining and now is 27% of all investment, with B2B/B2C and B2B-only declining. This change was driven by big B2C players Noom ($540M), Ro ($500M), and Capsule ($300M).

Consolidation is real. Providers with broad scope are buying niche startups to fill gaps, as well as giants like Microsoft snapping up a Nuance medical transcription. To be expected when there’s pressure to acquire and sell, but often these acquisitions don’t integrate well into large parents. (Ask Philips how Lifeline worked out for them.)

One company–New York City-based Tiger Capital or Tiger Global Management–is a name that popped up repeatedly this year. Their strategy is ‘blitz-funding’: participating in 14 funding rounds totaling $1.8 billion–12% of digital health funding in first half and generally at C or D. OODA, Hinge Health, Komodo Health, and ACO organizer Aledade (not digital health) received investments from Tiger. This isn’t unprecedented, but may scare off other investors except in earlier rounds.

And SPAC salad days are likely over. The easy pickings are over, as investment funding flows in, IPOs remain attractive, the SEC’s increased scrutiny, plus SPAC investment insurance premiums are more costly.

No forecast yet for the year though. (A mistake from a few years ago they won’t repeat!) But if July is any indication, not much is cooling down unless COVID really hits again. Rock Health H1 2021 Report

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

April 7, 2021 | by

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.

Rock Health/Stanford U Digital Health Adoption Report: high gear for telemedicine, digital health, but little broadening of demographics

March 3, 2021 | by

It’s good news–and an antidote to the bubble at the same time. Rock Health and Stanford University Medicine-Center for Digital Health’s just-released report found that, unsurprisingly, that telemedicine/telehealth use rocketed during the pandemic and gained ground that would not have been true for years otherwise, as of September 2020. However, the growth was not largely from new demographics, but largely among the adopters of telehealth in 2019 and prior. It also rolled back to about 6 percent of visits. Wearable use also boosted, especially for better sleep, as did self-tracking. But overall healthcare utilization cratered from March onward, barely reviving in the late summer, and telemedicine use declined to a steady state of about 6 percent of all visits–far more than the near-zero it was pre-pandemic. Here’s our rundown of the highlights.

Telemedicine user demographics haven’t changed significantly. It accelerated among those in the 2019 and prior (through 2015) profile: higher-income earners ($150K+), middle-aged adults aged 35-54, highly educated (masters degree and higher), urban residents, slightly male skewed (74 percent men/66 percent women/67 percent non-binary)and those with one or more chronic conditions (78 percent) and high utilizers (87 percent with 6+ visits/year). This profile apparently sustains across racial and ethnicity lines. (page 15) The non-user profile tends to be female, over 55, lower-income, rural, not on a prescription, and Hispanic. (page 23)

More usage of live virtual video visits than before–11 points up from 32 to 43 percent. These reduced reliance on non-video communications: telephonic, text, asynchronous pictures/video, and email. (page 12) And respondents largely accessed live video and phone visits through their doctor, indicating a pivot on practices’ parts: 70 percent of live video telemedicine users and 60 percent of live phone telemedicine users. (page 17) But the reasons why were more acute than this Editor expected: 33 percent for medical emergency, then minor illness (25 percent), then chronic condition (19 percent). (page 16)

Barriers to use remain significant in telemedicine and have not changed year to year except for awareness of options. (page 22-23)

  • Prefer to discuss health in-person (52 percent)
  • Not aware of options (much less this year)
  • Provider didn’t recommend
  • Cost
  • Poor cellular or broadband connection is minimal (3 percent). There is also no barrier of ‘inability to use’, though this may be skewed by the survey group being online (see methodology).

Wearables and digital information tracking accelerated, but ‘churn’ continued. 54 percent of respondents adopted wearables, up 10 points, while information tracking increased by 12 points.  (page 11) Unpacking this:

  • The populations with the highest rate of digital tracking were those with heart disease, diabetes, and obesity as chronic conditions
  • The leading reasons for wearables remained fitness training and weight loss. However, right behind these were major year-to-year spikes in better sleep (27 to 52 percent), managing a diagnosed condition (28 to 51 percent), and managing stress (24 to 44 percent).
  • The surprise uses of wearables? Managing fertility tracking and menstrual cycle.
  • Yet wearables churn continues. From the study: 55 percent of respondents who owned a wearable in 2020 stopped using it for one or more purposes (though they may continue using it for another purpose). The demographics tend to mirror telemedicine users for adoption and stopping use. (pages 24-28)

Healthcare utilization overall, telemedicine or not, has barely revived versus the March baseline, using the Commonwealth Fund data TTA profiled here. The report usefully digs into the groups that delayed care: 50 percent of 35-54-year-olds, women, Northeast residents, chronic conditions, and mental health. (page 34)

Yet trust in health information remains with the person’s physician, family, hospital, payer, and pharmacy. Overall, there is a reluctance to share data with entities beyond these. Health tech and tech companies aren’t trusted sources, along with social media, and lag to less than 25 percent, along with less willingness to share data with them. COVID-19 data is broken out in sharing, generally following these trends except for more willingness to share this data with governmental entities and research. (pages 29-31) 

The report recommends that for telemedicine to go deeper into adoption, refocusing is in order: (page 21)

  • Shift from a transactional model to a continuous virtual care or ‘full-stack’ model
  • Seek a different kind of customer. One-third of telemedicine visits were for emergencies. A more sustainable model would concentrate on chronic condition management and lower-acuity care.
  • Accept that new care models are disintermediating the patient-provider relationship especially in the younger age groups

The methodology of the survey: N=7,980 US adults, matched to US demographics; dates conducted 4 September-2 October 2020; online survey in English only. Rock Health summary, link to free survey report download, Mobihealthnews article.

Digital health investment smashes the ceiling: $9.4 bn invested through 3rd Q

October 8, 2020 | by

$9.4 bn is a whole lot of bubbly! To no one’s surprise in the industry, kick-started by telehealth, Rock Health’s tracking of US digital health company investment through 3rd Q smashed through 2018’s full-year high point ($8.2 bn) with a cannonball of a total. Adding $4.0 bn to first half’s $5.4 bn, it represents 311 deals and is 27 percent above last year’s oddly fading-in-the-stretch $7.4 bn [TTA 7 Feb]. Rock Health projects the year total to be about $12 million and 400 deals. 

  • Average deal size topped $30.2 million, 150 percent greater than the $19.7 million average in 2019.
  • Driving this total were “mega deals” of $100 million or more, accounting for 41 percent of all deals (compared with 30 percent for year 2019). Even with the inclusion of fitness companies that this Editor does not consider true health tech, such as Zwift (interactive fitness entertainment), ClassPass (online fitness), and Tonal (more online fitness), the 20+ remaining companies indicate a concentration of Big Capital into Big Deals. The Big Deals concentrate in three sectors: on-demand virtual care delivery, R&D process enablement, and fitness/wellness.
  • Not surprisingly, telehealth and telemedicine are soaring: $1.6 bn in funding compared to $662 million same period 2019
  • Also pointing to concentration: 64 percent of this year’s investors have previously made investments in digital health, which exceeds any prior year. Institutional venture firms have the largest share of transactions (62 percent), with corporate venture capital accounting for 15 percent of transactions.
  • Given COVID and election year craziness, IPO action has moved right along and matched 2019’s six. Accolade and GoHealth in July; Amwell, Outset Medical, and GoodRx in September. Hims Inc. is merging with a blank-check company as SOC Telemed did in August. MDLive may be going public in early 2021.
  • What is down so far this year is merger and acquisition activity. Through September, there are only 63 acquisitions, which will likely trail by year’s end 2019’s 113. Teladoc is the 9,000 Elephant in M&A, with InTouch Health closing in August ($1 bn final due to the stock value soaring) and Livongo at $18.5 bn dwarfs the remainder. Optum-AbleTo has been reported in ‘advanced talks’ but there’s no confirmation of closing; it was reported to be at $470 million. 

Note: Rock Health only counts US deals in excess of $2 million, so international activity by companies like Doro are not included.

Also Mobihealthews.

News Roundup: Doctor on Demand’s $75M Series D, Google’s Fitbit buy scrutinized, $5.4 bn digital health funding breaks record

July 9, 2020 | by

More evidence that telehealth has advanced 10 years in Pandemic Time. Doctor on Demand, estimated to be the #3 telemedicine provider behind Teladoc and Amwell, announced a Series D raise of $75 million, led by VC General Atlantic plus their prior investors. This increases their total funding to $240 million.

Unlike the latter two, DOD actively courts individual users in addition to companies and health plans. In May, they announced that they were the first to be covered under Medicare Part B as part of the CMS expansion of telehealth services in response to the pandemic (and for the duration, which is likely to be extended past July), which would reach 33 million beneficiaries. Other recent partnerships include a pilot with Walmart for Virtual Primary Care in three states (Colorado, Minnesota, Wisconsin) in conjunction with Grand Rounds and HEALTHScope Benefits as well as with Humana for On Hand Virtual Primary Care (regrettably only a video clip on the DOD press site with the noisome Jim Cramer). DOD covers urgent, chronic, preventative care, and behavioral health and claims about 98 million users, doubled the number of covered lives in 1st half 2020, and passed 3 million visits. Crunchbase News,  Mobihealthnews

Google’s Fitbit acquisition scrutinized by EU and Australia regulators, beaten up by consumer groups in US, EU, Canada, Australia, and Brazil. None too happy about this acquisition is a swath of powerful opponents.

  • EU regulators have sent 60-page questionnaires to both Google and Fitbit competitors asking re the effect the $2.1 bn acquisition will have on the wearables space, whether it will present disadvantages to competitors in Google’s Play store, and how Google will use the data in their advertising and targeting businesses. While #2 and 3 are no-brainers (of course it will present a competitive disadvantage! of course, they’ll use the data!), it signals further investigation. The next waypost is 20 July where EU regulators will present their decision.
  • The Australian Competition and Consumer Commission (ACCC) announced in mid-June their concerns in a preliminary decision, though they don’t have the jurisdiction to block it. “Buying Fitbit will allow Google to build an even more comprehensive set of user data, further cementing its position and raising barriers to entry to potential rivals,” according to ACCC Chairman Rod Sims. This adds to the controversy Down Under on how Google and other internet companies use personal information. Final statement is 13 August. Reuters
  • The US Department of Justice is also evaluating it, as is the Federal Trade Commission. But an acquisition like this doesn’t easily fall under antitrust regulation as Google and Fitbit aren’t direct competitors. Fitbit has only about 5 percent of the fitness wearable market. However, this plays into another related investigation by DOJ — Google’s abuse of advertising data and its dominance of the market in tech tools such as Google Ad Manager in the US. DOJ asked competitors for information at the end of June. There are separate investigations by state attorneys general and also by Congress of Google and Apple. Reuters. 
  • The consumer group opposition rounds up the usual suspects like Open Markets Institute, Omidyar Network, Center for Digital Democracy, Open Knowledge and Public Citizen in the US, and in the EU Open Society European Policy Institute and Access Now. Their grounds expressed in a letter to regulators in the above countries are the usual dire-sounding collection of “exceptionally valuable health and location datasets, and data collection capabilities.” Sound and fury….

It will keep Google’s attorneys in DC, Brussels, and elsewhere quite busy for a lot longer than perhaps Google anticipated. Meanwhile, Fitbit is in the Twilight Zone. The Verge, Android Authority, FierceHealthcare 

US digital health companies smash funding records in 1st half 2020. Despite–or because of–the pandemic, US digital health investment funding tracked by Rock Health is at a torrid pace of $5.4 bn–$1.2 bn above the record first half posted in 2019.  That is despite a pullback in 1st Q + April.

Investors came roaring back in May and June, spurred by telehealth success and a rallying market, closing 2nd Q with $2.4 bn in investment. That was 33 percent higher than the $1.8 bn quarterly average for the prior three years. And the deals were big: on average $25.1 million, with the big boosts in Series C and bridge financing. M&A is still cloudy, but what isn’t? Notably, Rock Health is not projecting a final year number, a good move after they stubbed their collective toe on last year’s final investment total, down from both forecast and 2018. [TTA 7 Feb]

The big moves of 1st half in real digital health (not fitness) were Teladoc-InTouch Health (just closed at $600 million stock and cash) and Optum-AbleTo (at a staggering $470 million, which has apparently not moved past the ‘advanced talks’ state). Two of last year’s Big IPOs–Phreesia and Livongo— are doing just fine; Health Catalyst not so much. The bubble bath we predicted turned out to be a cleansing one–but there’s six months more to go. Also Mobihealthnews

Considering 2019’s digital health investment picture: leveling off may be a Good Thing

February 7, 2020 | by

2019 proved to be a leveling-off year for digital health investment. The bath may prove to be more cleansing than bubbly.

We noted that the always-fizzy Rock Health engaged in some revisionist history on its forecasts when the final numbers came in–$7.4bn in total investment and 359 deals, a 10 percent drop versus 2018. When we looked back at our 2019 mid-year article on Rock Health’s forecast [TTA 25 July], they projected that the year would end at $8.4 bn and 360 deals versus 2018’s $8.2 bn and 376 deals. That is a full $1bn under forecast and $0.8 below 2018. Ouch!

In their account, the 10 percent dip versus 2018 is due to average deal size–decreasing to $19.8M in 2019–and a drop in late-stage deals. Their analysts attribute this to wobbliness around some high-profile IPOs, citing Uber, Lyft, and Slack, as well as the near-collapse of WeWork right before its IPO towards the end of 2019.

New investors and repeat investors increased to 627 from 585 in 2018, with no real change in composition.

The headliners of 2019 were:

  • Amazon’s acquisition of Health Navigator adding symptom-checking tools to its health offerings
  • Google’s buy of Fitbit
  • Optum’s purchase of Vivify Health, which gives it a full remote patient monitoring (RPM) suite (right when CMS is setting reimbursement codes for RPM in Medicare)
  • Best Buy’s addition of Critical Signal Technologies for RPM
  • Phreesia, Livongo’s and Health Catalyst’s IPOs. For Livongo and Health Catalyst, current share prices are off from their IPOs and shortly after: past $25 for LVGO and $31 for HCAT. Phreesia closed today at a healthy $33, substantially up from PHR’s debut at $15. (Change Healthcare, on the other hand, is up a little from its IPO at $16, which isn’t bad considering their circumstances on their financing.)

Rock Health only counts US deals in excess of $2 million, which excludes the global picture, but includes some questionable (in this Editor’s estimation) ‘digital health’ players like Peloton, explained in the 25 July article.

Rock Health’s analysts close (and justify their revisions) through discussions with VCs expecting further headwinds in the market–then turn around and positively note the Federal backing of further developments in building the foundation for connected health as tailwinds. No bubbly forecasts for 2020–we’ll have to wait.

Is this necessarily bad? This Editor likes an occasional dose of reason and is not displeased at Rock Health’s absence of kvelling.

Confirming the picture is Mercom Capital’s analysis which also recorded a 6 percent dip 2019/2018: $8.9bn with 615 deals, dropping from the $9.5bn and 698 deals in 2018. Their ‘catchment’ is more global than Rock Health, and encompasses consumer-centric and patient-centric technologies and sub-technologies. Total corporate funding reached $10.1bn.

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

July 25, 2019 | by

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.)