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

Week-end update: Breaking–Theranos lab director suing Hulu, Disney for defamation; ‘green shoots’ for SonderMind, Cognito, Vital, MedArrive; 3 in Asia; Telstra Australia’s new CTO

March 24, 2023 | by

Key Theranos prosecution witness suing Disney and Hulu for misrepresentation and defamation. It’s not only the FTC but also Adam Rosendorff, MD, the former lab director for Theranos who quit in late 2014, who is fighting against misrepresentation, in this case a fictionalized portrayal of the lab director character. l’affaire Theranos was lightly fictionalized in the docudrama ‘The Dropout” that ran on Hulu in 2022. Dr. Rosendorff is suing both Hulu, its corporate parent, Disney, plus other listed producers, in a New York State Supreme Court lawsuit (link and PDF) for defamation. The summons was filed in New York County (Manhattan) Thursday.

While his name was not used, the lab director named ‘Mark Roessler’ in “The Dropout” was portrayed, according to the summons, as unethical and unfit. He was “shown as covering up Theranos’ fraudulent scheme, thereby endangering patients’ lives … and as otherwise unfit to practice medicine,” “falsely portrayed as a perjurer, a criminal, and of being completely unfit to practice his profession.” In the docudrama, Roessler orders the destruction of damaging lab results, falsifies records, and engages in dishonest behavior. The reality was that Dr. Rosendorff testified against both Elizabeth Holmes and Sunny Balwani in their trials as an invaluable prosecution witness, detailing the failures of the lab tests in his testimony and affidavits [TTA 1 Oct and 6 Oct 2021]. He quit Theranos on these issues and more after 18 months when Holmes and Balwani refused to correct them. “Both the media and defendants’ reckless disregard is sufficient evidence of the malice which a public figure must show to establish claims for defamation.”

Being a whistleblower ain’t for sissies. Being tagged as part of Theranos’ demise and years in endless legal proceedings broke him professionally and fractured him mentally, as revealed after Holmes’ conviction. It became grist for yet more defense appeals that failed [TTA 20 Oct, 26 Oct 2022]. Reuters, New York Post

A (remainder) sale, partnership, and funding roundup–a few green shoots of spring

SonderMind buys out the remains of Mindstrong. The deal is for the remainder of Mindstrong’s tech assets and about 20 related staff. Price was not disclosed. Mindstrong ceased operations as of 10 March and announced they would lay off 100+ employees including the CEO and CFO no later than 15 April according to their filed WARN notice. It raised over $160 million since 2014 including a $100 million Series C in 2020. SonderMind is also in virtual mental health, assessing potential patients, matching them with a therapist in their state, who will see the patient virtually or in-person. According to SonderMind, Mindstrong’s tech will add to personalized care journeys, clinical notes templates, and improved measurement-based services.  SonderMind has had its own series of layoffs, with a 15% cut late in 2022. The deflation of telemental health continues. Mobihealthnews, Digital Health Business & Technology

Neurotech company Cognito Therapeutics raised $73 million in a Series B. It was led by FoundersX Ventures, adding new investors Starbloom Capital, Alzheimer’s Drug Discovery Foundation, WS Investment Company, and IAG Capital. Total funding is now $93 million. Cognito has developed an external neuromodulation device for neurologically degenerative diseases. It uses sensory stimulation to evoke gamma oscillations, which are believed to play a part in memory operations. It is concentrating on improving cognition and memory in Alzheimer’s Disease early-to-mid-stage patients. Cognito is being investigated as part of the HOPE study for Alzheimer’s Disease.  It received FDA Breakthrough Device Designation in 2021 and has completed a Phase 2 trial. Mobihealthnews, Business Wire release

Vital, a patient experience software developer, raised $24.7 million in a Series B. The funding was led by Transformation Capital, with support from Threshold Ventures, strategic health system investors and Vital CEO/Mint.com creator Aaron Patzer. Total funding is now over $40 million. Vital provides real-time patient updates and messaging services for patients and families admitted to hospitals and EDs, as well as follow-ups such as appointments. Business Wire release

MedArrive, an in-home care provider, is partnering with Ouma Health, for maternal-fetal care of women on Medicaid coverage. MedArrive deploys a field provider network for in-home care including testing, assessments, SDOH, and extension of provider services. The technology includes a fully integrated care management platform. Ouma Health is a maternal-fetal telehealth service including behavioral health. Release

And some Asia-Pacific updates…

In Vietnam, online pharmacy Medigo received $2 million in Series A funding, led by East Ventures, with participation from Pavilion Capital and Touchstone Partners. Intellect, a telemental health startup based out of Singapore, received undisclosed funding from global healthcare provider IHH Healthcare for its regional expansion. In India, EHR startup DocPlix raised Rs 5 crore ($600,000) in a pre-series A funding round led by Eris Lifesciences. Mobihealthnews

In Australia, Telstra Health’s new CTO is Farhoud Salimi. He joins in April from eHealth NSW where he held the position of Executive Director, Service Delivery (CTO) among others in a 15-year tenure. Mr. Salimi replaces Russel Duncan, who retired at the end of last year. Telstra release, Mobihealthnews

News and deal roundup: another big mental health app funding, Happify Health’s prescription therapy app debuts, Alcuris approved by Scottish Digital Telecare for cybersecurity

July 30, 2021 | by

It does seem that behavioral health apps are falling from the trees and into pots of gold. Unicorns have become so…everyday. The latest is SonderMind, a Denver-based therapist matchmaking site for both video telehealth or in-person sessions. With a $150 million Series C round, it is claiming a valuation ‘well north’ of $1 billion. Main funders were Drive Capital and PremjiInvest. Previous funding was $32 million since 2017. The new funding will support expansion from the current 10 states to national. SonderMind first asks the prospective patient to complete a short questionnaire on care needs, insurance, and payment information, then connects them to a licensed mental health professional within a day or two. For their approved therapist group, they work with them to determine the types of patients they’d like to treat. FierceHealthcare

Another behavioral health company, Happify Health, announced Ensemble, its first prescription app. Formally called a PDTx (Prescription Digital Therapeutic), it will be for Major Depressive Disorder (MDD) and Generalized Anxiety Disorder (GAD). It’s a cognitive therapy with ‘Anna’, an intuitive support app with a patented dialogue flow. Ensemble is classified as an investigational medical device at this point. Happify plans to seek a 510(k) clearance in the future. It is designed to be used in support of other mental health treatments and can be integrated into a physician’s EHR.

The app’s development was facilitated by a recently renewed FDA guidance issued in April of 2020 that lets digital health companies go to market without clearance for digital health treatments for eight psychiatric disorders including those in Ensemble. Chris Wasden, head of DTx at Happify Health, was interviewed by Mobihealthnews. We note that Happify has been around since 2012 when mental health wouldn’t get you more than one free drink at a digital health conference. In March, they scored a $73 million Series D.

And in the UK, social alarm system Alcuris announced that their Memo Hub, Memo App and the Connec+ platform have been added to the list of Scottish Digital Telecare security-assessed suppliers. They were reviewed as part of cybersecurity for third parties which process personal data. Digital Telecare is part of the Scottish Local Government Digital Office and evaluates suppliers on their business processes as well as requiring independent Penetration testing (PEN testing). In their statement, “Alcuris welcomes the Digital Offices’ “Once for Scotland” approach and recognises the value it provides across Scotland. We would like to see a “Once for the UK” approach adopted and today we have written to the Telecare Services Association (TSA), to ask if they can collaborate with the Digital Office to enable the benefits of their security assessment programme to be available across the rest of the UK.”  Hat tip to Adrian Scaife of Alcuris for the release.