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

April 20, 2024 | by | No Comments

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

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

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

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

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

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

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

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

Short takes: Intuition Robotics gains $25M funding, Akili Interactive abandons digital Rx therapeutics, NextGen goes private for $1.8B, ATA’s DC advocacy ‘fly in’ + launches new tools on disparities

September 19, 2023 | by

Catching up on the catchup…

Israel-based Intuition Robotics raised $25 million. The unlettered round closed at end of August with $20 million in venture capital plus $5 million in venture debt. According to the release, the funding was led by Woven Capital, the growth fund of Toyota, with participation from Toyota Ventures, OurCrowd, Western Technology Investment, and additional investors. Intuition Robotics is the developer of ElliQ, an interactive desktop companion robot targeted to older adults and those with assistive needs, last covered in their 2.0 update last December and their involvement with New York’s Office for the Aging [TTA 25 May 22 and WSHU]. The Area Agency on Aging of Broward County, the Olympic Area Agency on Aging, and California’s Agency on Aging in Area 4 have also worked with Intuition Robotics on distributing the companion to older adults in their programs. According to the company, older adults who successfully engage with it average over 30 daily interactions with ElliQ and reduce the devastation of loneliness for 95% of users. 

Akili Interactive exits prescription digital therapeutics (PDT), pivots to consumer, drops 40% of staff. Much like Better Therapeutics and the now sliced-up Pear Therapeutics, the company realized that PDT was not a winning strategy for its interactive video game-based therapy for adults with ADHD. The EndeavorOTC version, released in June, is available via a subscription (SaaS) through the Apple App Store and the Google Play Store for $24.99 for a monthly plan or $129.00 for an annual plan. According to their release, Akili will pursue regulatory approval for over-the-counter labeling of its treatment products. Akili is yet another cracked SPAC facing a reckoning, currently trading on Nasdaq at $0.66 from its debut in August 2022 at $14 with a quick fall to $4.   HIStalk 15 Sept, Rock Health Weekly Newsletter

NextGen acquired by private equity firm Thoma Bravo for $1.8 billion, ending 41 years of public market trading. The offer price is $23.95 per share in cash, an over 46% premium to the Nasdaq share price on 22 August. NextGen Healthcare is an EHR with population health and practice management features designed primarily for specialty medical practices. NextGen went public as Quality Systems an eon ago in 1982.  Release, FierceHealthcare

And…the American Telemedicine Association (ATA) celebrates the third annual Telehealth Awareness Week (17-23 September) with a telehealth advocacy ‘fly in’ to meet with Congressional offices and Members in Washington DC on 18-19 September, plus their three tools to eliminate disparities in telehealth services developed by ATA’s Advisory Group on Using Telehealth to Eliminate Disparities and Inequities. They are a Digital Infrastructure Disparities Score and Map, an Economic and Social Value-Added Calculator, and a toolkit with all ATA and advisory group-developed resources. Releases 19 July (fly-in) and 18 Sept (disparities tools)

Babylon Health to go private in June as shares plummet, Q1 loss increases 117%

May 11, 2023 | by

Babylon Health revealed its long-expected move to go back private, in conjunction with rising revenue, but also losses. Today (10 May) Babylon announced an agreement between it and AlbaCore Capital LLP that provided interim funding of $34.5 million. This buys time to implement a framework agreement between Babylon and AlbaCore to restructure and recapitalize the company to strengthen their balance sheet and provide additional liquidity. The ‘Take Private Proposal’ has the core operating subsidiaries of Babylon returning to private ownership as the ‘Go-Forward Business’ and sold to a newly formed entity capitalized by AlbaCore and other investors. Their additional debt will be amended and/or extended, such as AlbaCore’s $300 million principal amount of AlbaCore notes due 2026.

Timing: interim funding is May-early June and the Take Private Proposal is later in June. Class A and other equity shareholders will be left out in the cold as no payments will be made to them as AlbaCore will be exercising rights under its debt agreements with Babylon. 10 May release

After a cracked SPAC on the NYSE via Alkuri Global Acquisition that Ali Parsa finally admitted was a mistake with a share price that declined from $272 per share to around $11, selling non-core businesses like the Meritage IPA, reorganizing as a foreign private issuer to a domestic one, and the reverse share split on 15 December, a temporary fix that barely boosted the price, the remaining rabbit out of a hat is to go private. Mr. Market did not much care for the move, with the shares taking a further crack from Tuesday’s close of $6.88 to today’s close of $2.05.

Babylon’s Q1 results were further confirmation that all the bad news is being lumped together with some progress. Their total revenue was $311.1 million which was a tidy $44.7 million (16.7%) increase over Q1 2022’s $266.4 million, but missed Street expectations by $25.8 million. Their problem was that the net loss of $63.2 million, a (20.3)% net loss margin, was 117% greater than last year’s loss of $29.1 million or (10.9%) margin. Net income in Q1 2022 included a $78.8 million gain primarily relating to the Company going public, which made it look better than it was. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) totaled $45.8 million, compared with $82.6 million in Q1 2022. 

Progress was made on their value-based care revenue mix with a brand new digital-first commercial exchange product, Ambetter (Centene), that moved non-Medicaid VBC revenue to 60%. It also exceeded projections with 38% membership growth YTD with encouraging engagement numbers: members are 12+ times faster to register and have demonstrated 8x engagement rates. There was also some impressive growth in their UK Private business, with appointment growth of 83% to 186,000.

With the announcement that they are going private, Babylon withdrew its full-year 2023 revenue (originally targeted to be over $1 billion), adjusted EBITDA guidance, plus its mid-2024 target for adjusted EBITDA profitability that was issued on 9 March–and canceled their earnings call scheduled for today (10 May). Earnings release.  Also Mobihealthnews

When ‘the centre cannot hold’: three board members exit at Cano Health, failure looms at Bright Health Group

April 7, 2023 | by

Surely some revelation is at hand? The first: the high-profile board troubles at primary care provider Cano Health. Last Friday, three directors resigned loudly from the board: Barry Sternlicht, Elliot Cooperstone, and Lewis Gold. Sternlicht, the chairman of Starwood Capital Group and for some years the CEO of Starwood Hotels in the 1990s, is a ‘name’ real estate and private investor. The other two are hardly slouches: Cooperstone is founder and managing partner of private equity firm InTandem Capital Partners; Gold is co-founder and board chairman of behavioral health company Advanced Recovery Systems. They resigned as a group due to differences with the CEO and management. 

The trio filed a 13-D with the Securities and Exchange Commission as a partnership to change things, “including, but not limited to, the replacement of the CEO, sale of non-core assets and enhancement of shareholder value.” Sternlicht’s release detailed their grievances with CEO Marlow Hernandez, including dubious transactions with a Miami medical claims recovery company, MSP Recovery (also known as LifeWallet), but mainly around the burn-through of the $800 million PIPE raised along with the June 2021 SPAC via Sternlicht’s JAWS Acquisition Corp.–an eye-watering total of $1.4 billion for a valuation at that time of $4.4 billion. From his release, Sternlicht apparently could not get the time of day from Hernandez. “I have never witnessed such poor corporate governance at any company, let alone a public company, and I have been involved in at least nine and served as chairman or CEO of six.”

Certainly, there is a case around shareholder value. The stock has cracked by over 90% from the initial price of $15. Sternlicht also had $50 million reasons to be mad as an investor of that amount in the PIPE. Cano Health called his “method of resignation particularly reckless.” But one wonders what Cano’s physicians are thinking, as well as the health plans with which they work, when three high-profile board members bolt the company, one of them with a stellar track record and some fame, with prejudice. Yet the majority of the board members were seemingly fine with how the company was run.

Last October, Cano, a 4,000 employee value-based primary care provider to mainly underserved markets, had its tires kicked by CVS Health [TTA 21 Oct 22] but the deal never got beyond discussions, and Humana, which has a right-of-first-refusal, made no moves. Share price fell from that time from just above $8 to today’s close of $1.25 on the NYSE. The time may be right for a payer or a provider group to make a cheap pickup, but not if the company has intractable troubles–and now there is a deep-pocketed rival. MedCityNews, New Times (Miami)  The New Times article digs deeper into the MSP Recovery relationship and CEO John Ruiz. MSP Recovery specializes in collecting from primary insurers that don’t pay and put the burden on commercial or public plans like Medicare or Medicaid. As of December 2022, the company owed Cano roughly $60 million in receivables, not a drop in their bucket.

Now to Bright Health Group, an insurtech which may well be on the brink of utter failure and the dubious distinction of being one of the largest failures of a Minnesota business, if their local media (Star-Tribune, unfortunately tightly paywalled) is accurate. Reports one month ago were dire: investors were told that Bright was facing credit insolvency, having run through $350 million in revolving credit. It also violated a liquidity covenant and desperately needed $300 million to cover it by end of April.  This did not stop the company from paying out about $4 million in bonuses to its management team–outrageously at 100%. Two of the bonuses are to ex-company members. Meanwhile, hundreds of their once 2,800+ employee group are being discharged.

18 months ago, Bright Health seemed to be the most promising insurtech out there, with a healthy Medicare Advantage (MA) plan base, family and individual plans, substantial growth, acquisitions of Zipnosis (‘white label’ telehealth triage for health systems), development of the NeueHealth value-based care provider management network, and a blue-chip management group. But it also lost $1.5 billion in 2022 on top of $1.2 billion in 2021 and has $1.2 billion in debt. Bright exited individual and family plans in six states plus cut back MA expansion plans and will no longer offer individual, family, or Medicare Advantage plans outside of California.

With Bright Health shares down to $0.20 and delisting looming, Bright asked shareholders to attend a 4 May meeting to approve a reverse stock switch “at a ratio of not less than 1-for-15 and not greater than 1-for-80.” It’s just a small problem of the share price….

Far more disastrously for Bright, state departments of banking and insurance are taking action. Tennessee and Florida placed the company under supervision; reportedly Illinois is considering the same. Texas may precipitate matters. According to strategic analyst Ari Gottlieb, the Texas Department of Insurance is preparing to place Bright Health’s Texas subsidiary into receivership. Such an action will constitute an immediate Event of Default under Bright’s Credit Agreement. Bright can then choose default–or seek bankruptcy protection.

Shockingly, over a million Americans have had to find a new health plan due to what is happening at Bright. Now, where’s the Barry Sternlicht they need on the board to take action? Are the directors from investors like Bessemer and New Enterprise Associates in cloud-cuckoo land with management?

FierceHealthcare. Both Fierce’s and this article quote liberally from Ari Gottlieb’s posts on LinkedIn, the most incisive coverage this Editor has seen so far: Since Bright Health’s executive compensation approach is best described as pay-for-failure from one month ago, Bright Health’s $4 million pay-for-failure cash bonuses… from two weeks ago, and from earlier this week, The Texas Department of Insurance is preparing for anticipated litigation…  Others are listed in his feed here. 

“Big Story” update: where Elizabeth Holmes will spend 11 years, Cerebral sues former CEO Robertson, Amwell buying Talkspace?

November 30, 2022 | by | 1 Comment

Where will Elizabeth Holmes serve her sentence, whatever it is? A story that got lost in the Thanksgiving shuffle was Bloomberg News’ (paywalled) report that Judge Edward Davila recommended that she be remanded to a minimum security Federal women’s prison in Bryan, Texas, outside of Houston. What has previously been mentioned in the press and by legal commentators is that she would likely serve her time in a northern California minimum security prison about an hour from her present home, the Federal Correctional Institution in Dublin, California. According to commentators, the larger Bryan facility may be better than Dublin, which is a satellite camp. Bryan  “…compared to other places in the prison system, this place is heaven. If you have to go it’s a good place to go,” Alan Ellis, a criminal defense lawyer, told Bloomberg. The final say will be made by the Federal Bureau of Prisons. The selection is important because Federal inmates typically serve a minimum of 85% of their time, unlike time served in state prisons. Gizmodo reports on Bloomberg’s reveal

Holmes’ reporting to prison is scheduled for 27 April 2023. Her appeal to the Ninth Circuit Court of Appeals must be filed within two weeks of sentencing, which by this Editor’s calendar is 2 December but may be later due to the holiday. Holmes may be permitted to stay out of custody pending appeal if it extends beyond the surrender date if the judge permits. 

Editor’s commentary: One wonders whether Holmes’ appeal will be successful. One factor is what Judge Davila acknowledged: “What is the pathology of fraud? Is it the inability to accept responsibility?” Even in her personal statement during the sentencing, there is evasion. Holmes did admit some sorrow about patients and investors relating to her own failings (back to her again), but sorrow is not responsibility. Moreover, Holmes did not refer to making amends for that sorrow created by the Fraud That Was Theranos. Her defense continues to blame others, like Sunny Balwani, former president and live-in. Even the 130 character letters, many from others who knew her only briefly, blamed others including Balwani, almost tracking to the defense’s talking points. The case proved conspiracy with Balwani, who will likely be sentenced on 7 December for what is expected to be something close to the full 20 years as convicted on all 12 counts.

The tables are turned by Cerebral on co-founder/former CEO Kyle Robertson. Only a week or so ago, Robertson (through his attorneys) reportedly sent a letter to Cerebral management demanding access to documents detailing “possible breaches of fiduciary duty, mismanagement and other violations of law.” [TTA 18 Nov] Now Cerebral is suing Robertson for his default on a $49.8 million loan taken this past January to buy 1.06 million shares of common stock in the company. According to the filing in New York Supreme Court, he is personally liable for $25.4 million, plus interest and attorney’s fees. After his dismissal 18 May, he had six months to repay the loan or direct Cerebral to repurchase or cancel the shares. According to the lawsuit, “Robertson repeatedly asserted that he would not repay the loan.” The troubled company laid off 400 or more in October and is now valued at a fraction of last year’s $4.8 billion valuation.  Stay tuned. HealthcareDive, Mobihealthnews

A cracked SPAC may get itself sold. Talkspace, which has had a year of challenges since its SPAC, apparently is in talks to be acquired by Amwell. According to Calcalist, an Israeli business publication, Amwell is in advanced talks to acquire it for $1.50 per share, or about $200 million. This is quite a comedown from when Talkspace was valued in January 2021 at $1.4 billion. It executed its SPAC in June [TTA 25 June 2021] and hit Nasdaq at $8.90 per share. Today it closed at $0.88, so Amwell’s offer would be close to double. It would also remove another problem. Nasdaq notified Talkspace on 18 November that they were on the verge of delisting their stock, as it was trading for over 30 consecutive business days at under $1.00 per share.

The ‘advanced’ term is interesting because this past June, reports indicated that Talkspace rejected overtures by Amwell and Mindpath. The amount bandied about at that time was $500 million and a sale was expected during the summer. (What a difference six months of economic uncertainty makes.) 

In November 2021, founders Roni and Oren Frank stepped down and their COO resigned shortly thereafter on a conduct-related allegation. Shareholders started to sue starting then. YTD results have also been dismal, with losses of $61 million on revenues of $89 million.

Talkspace would bolster Amwell’s mental health capabilities in telepsychiatry with a DTC and enterprise product. If the company hung on to most of their $184 million in cash reported in June (of the SPAC’s $250 million), for Amwell it also would be a deal that almost pays for itself. HealthcareDive, FierceHealthcare

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. 

Thursday news roundup: dimming SPACs, hospital-at-home pilots in DFW, Connected Health debuts bespoke home care services configurator in NIR

June 9, 2022 | by

The prognosis for SPACs? Like Lucas electrics, dim. Too many went public on last year’s overdose of moonbeams and celery stalks at midnight, to this year’s plummeting share prices and red ink. Not only are SPACs now targets of Federal, including SEC, scrutiny, but they have Elizabeth Warren, the Senatorial Scourge of Finance, after them promising legislation with even tighter regulations than the SEC. But let’s face it, most SPAC’d companies have yet to stumble their way into profitability. From financing Hero to Zero in two years. This short article in PrivCo’s Daily Stack will confirm all of this.  

Hospital-at-home pilots in the Dallas-Fort Worth, Texas area. Biofourmis is piloting an initiative with Wise Health System for its Hospital@Home end-to-end solution that combines artificial intelligence (AI)-based remote patient monitoring (RPM) technology and clinical support services. This is to qualify for Centers for Medicare and Medicaid Services’ (CMS) Acute Hospital Care at Home program. Select patients can choose to be admitted to home versus the hospital, then monitored by the Biofourmis Virtual Bed Kit based on a wearable biosensor feeding into a digital tablet pre-loaded with the patient-facing Biovitals Hospital@Home app. Wise’s staff will visit the patient at least twice daily to conduct in-person examinations, assessments, and additional testing as needed. Wise Health is a four-hospital, integrated care network. Biofourmis release

What you pick is what you get. Domiciliary care provider Connected Health is debuting Connected Health 2.0, a ‘home care configurator’ which will enable clients and families to build a package of services for home care. Launched during Carer’s Week in Northern Ireland, it custom-packages physical care, wearables, medication devices and virtual care services. Once the client or family member configures the care package, Connected Health calls them to review suitability then follows up with an on-site risk assessment in the home before service begins. The Irish News article is light on details like when it begins in Northern Ireland, but Connected Health’s timetable is to roll it out in the UK and Ireland over the next two years.

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

Owlet gets back into the baby zzzzz’s market with Dream Sock and Dream Duo–but now not medical devices!

February 16, 2022 | by

Without a splash or fuss, Owlet reintroduced its baby monitoring sock as the Dream Sock last month. Formerly known as the Smart Sock, Owlet got into FDA Hot Water in October [TTA 4 Dec 21] with their marketing the Smart Sock, which monitored sleep patterns, blood oxygen saturation, and pulse rate, as a medical device that would fall under 510(k) marketing clearance requirements, including premarket approval (PMA). The Smart Sock and Smart Duo were pulled from market on 22 November.

The Dream Sock, according to Owlet’s product page, is all about baby sleep, measuring sleep quality indicators, including wakings, heart rate, and movement. It provides a sleep quality score via a sleep coaching app. The difference between the old sock and app is that the blood oxygen saturation (SpO2) measuring capability is deleted. The SpO2 monitoring and the claims they were making were likely causes of the FDA’s warning.

The web store listing is for $299 for a Dream Sock fitting up to 18 months, with the Dream Sock Plus, which fits 0-5 years, at $359. The Dream Duo adds the Cam video baby monitor to the system for babies up to 18 months for $399. Sales are restricted to the US at this time. The products can also be found on the usual web stores.

On both the home page and on the product pages, the disclaimer statement is loud and clear:

WARNING: Owlet products are not medical devices. They are not intended for use as medical devices or to replace medical devices. They do not and are not intended to diagnose, cure, treat, mitigate, alleviate or prevent any disease or health condition, or investigate, replace or modify anatomy or any physiological process. [snip]

Digging into the website, Owlet states that they are “actively pursuing submitting a medical device application to the FDA to bring the Smart Sock technology to medical and consumer markets in the future.”

Owlet shares (OWLT:NYSE) have taken a massive value drop since it completed its SPAC with Sandbridge Acquisition Corporation and parked in the Unicorn Lot last July. It opened at $8, crested to over $10 in mid-August, then started to drop precipitously before Labor Day. It closed on Tuesday at $1.83. If only for the Cute Factor, one wishes them luck.

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

January 14, 2022 | by

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

Sharecare expands health education capabilities, acquires CareLinx home care for $65M (updated)

August 19, 2021 | by

Sharecare, a free/paid app platform that enables users to consolidate and manage all their health and wellness data, is adding to its health management platform additional tools for patient engagement, including more health education. These four will be available on the Sharecare platform in Q4 this year, based on their release:

  • “All Together Better” social aggregator – a dynamic, curated collection of social media content containing relevant conversations, influencers, and news.
  • Condition-specific chatbot – this lets users explore their condition-specific questions through a range of questions and topics related to their health concerns
  • Condition-specific virtual assistant – a virtual assistant to help navigate questions, answers, and resources
  • Interactive data visualization and mapping – this new mobile- and web-based experience takes users on a highly interactive data-driven health education journey with animated graphics and national- to community-level maps.

Interestingly, both care management and health education are converging in services such as Emmi Wolters Kluwer, Milliman HealthIO, and even apps such as Wellframe which have added biometric alerts and RPM. Release, Mobihealthnews

Last week, Sharecare had its own ‘shake’ of the home care market with the acquisition of CareLinx, a home care provider with a network of 450,000 caregivers. The CareLinx platform facilitates care team management and delivery of a wide variety of home support services. Sharecare acquired it from Europ Assistance for $65 million–$54.6 million in cash and $10.4 million in Sharecare common stock. Another shakeup of the otherwise sleepy home care market, in size smaller than the Honor-Home Instead deal that also took place last week. Release

Earlier this year [TTA 18 Feb], Sharecare went the SPAC route with Falcon Capital Acquisition Corp., trading on NASDAQ under SHCR as of 2 July. Sharecare received $571 million in gross proceeds and is reported to have a valuation of $3.9 billion. Management is staying in place. Release, Capital 

Speaking of aggregation, in the past two years, Sharecare has become an aggregator, or perhaps a conglomerate, of multiple digital health companies that operate separately or are integrated within the company. Their recent purchases include two AI platforms–doc.ai.in capturing data; WhiteHatAI, which is now Sharecare Payment Integrity; MindSciences (DrJud.com) in behavioral health and smoking cessation; and value-based care gap closer Visualize Health into their provider dashboard.

Comprehensive “clinic-on-the-wrist” digital health sensor system debuts. Apple Watch of future? (UK/US)

August 18, 2021 | by

The likely future of the Apple Watch and medical monitoring. Rockley Photonics, a silicon photonics company based in Oxford England and Pasadena, has debuted a sensor module that can enable wearable devices to monitor multiple biomarkers, including core body temperature, blood pressure, body hydration, alcohol, lactate, and glucose trends, among others. The module (exterior above far left and mid-right) combines with hardware and application firmware for consumer applications, such as wrist-worn diagnostics.

The mid-left-hand view shows the reverse (skin) side of the module with the photonic ICs and application firmware. Current sensors use green-light emitting diodes (LEDs) and the Rockley system uses an infrared (IR) spectrophotometer that generates a large number of discrete laser outputs from a single silicon chip covering a broad optical band which can penetrate underneath the skin. The module communicates with custom cloud-based analytical engines via a Rockley smartphone app (far right).  

Obviously, Rockley is seeking to commercialize this through partnerships with consumer electronics companies in digital health and fitness monitoring. Rockley is a key supplier to Apple for sensors. Release, FierceHealthcare 

Financially, on 9 August they closed their SPAC with SC Health Corp. of Singapore after the UK courts approved the business combination. As of 13 August, it is trading on the NYSE as Rockley Photonics Holdings, Ltd. (RKLY). Rockley received $167.8 million in gross proceeds, including $17.8 million from SC Health, as well as $150 million from the financing completed in connection with the announcement of the business combination, led by top-tier institutional investors including Senvest Management LLC and UBS O’Connor and participation from Medtronic. According to their 22 July shareholders letter, all their revenue is attributable to two companies: Apple and Hengtong Rockley, a Chinese joint venture, and an accumulated deficit of $298 million.   Release

Deals and news roundup, April Fool’s Edition: SOC Telemed’s $196M acute care telehealth buy, HIMSS takes over SCAN Health, Livongo’s Burke joins Owlet board, CirrusMD text app raises $20M

April 2, 2021 | by

(We’ve gone bug-eyed for 1 April!)

SOC Telemed ponies up a Spritely $196 million for competitor Access Physicians. The completed combination forms, according to SOC, the largest acute care telemedicine provider in the US serving 1,000 facilities, including over 700 hospitals, across 47 states. The deal is cash and stock. No transitional information other than the CEO of Access Physicians joins the SOC Telemed board. Both companies are in the enterprise acute care telemedicine area, facilitating virtual consults between specialists and to patient bedsides. In its SEC 10-K filing released earlier this week, SOC Telemed reported $59 million in 2020 revenue, up from $66.2 million in 2019. Q4 was a mixed bag: a 95 percent increase in Q4 bookings but a 13 percent revenue decline due to reduced hospital visits. Losses are limited–a net loss per share of $3.55 which is light for like telehealth companies (more in SOC release). For 2021, the projection is $107 to $113 million in pro forma annual revenue. SOC Telemed was one of the first digital health companies to use a SPAC to go public (amazingly) less than one year ago and with substantial assets at formation [TTA 4 Aug 20]. The combined company connects specialists in neurology, psychiatry, critical care, infectious disease, cardiology, maternal-fetal medicine, and nephrology. SOC Telemed release, Mobihealthnews, Becker’s Hospital Review 

HIMSS assumes the operations of SCAN Health, a networking and events company concentrating on best practices in the healthcare supply chain. SCAN was founded by the Canadian government out of the University of Windsor’s Odette School of Business. Their events are held with over 100 partners in North America and Europe, and will transfer to HIMSS effective immediately. SCAN’s founder, Dr. Anne Snowdon, launched the Clinically Integrated Supply Outcomes Model, a supply chain infrastructure strategic roadmap, with HIMSS Analytics in 2019. HIMSS release, Healthcare IT News.

Zane Burke, former CEO of Livongo, has joined another board–this time, with ‘sock’. Mr. Burke joins the board of Owlet, the baby monitoring sock company. In February [TTA 17 Feb], Owlet announced their SPAC estimated at $325 million. The transaction is expected to complete in Q2. Becker’s Health IT

CirrusMD, an on-demand text-first telehealth app, raised $20 million for its Series C led by The Blue Venture Fund and 7wire Ventures. Total funding to date is $47 million. Visits cover primary or urgent care, chronic condition management, women’s health, pediatrics, and behavioral health with text first then connection to a board-certified physician within one minute. Release, Mobihealthnews

Deal and news roundup, 17-18 Feb: Sharecare goes SPAC for hefty $3.9 bn valuation; Humana Care Support pilots; AliveCor, AstraZeneca partner on renal, cardiac; Current Health RPM in clinical trials

February 18, 2021 | by

Sharecare, a free/paid app platform that enables users to consolidate all their health and wellness data in one location and use proprietary health management tools, is going the SPAC route with Falcon Capital Acquisition Corp. It will trade on NASDAQ under SHCR. Initial enterprise value is expected to be $3.9 bn with approximately $400 million in growth capital. Closing is expected to be in Q2 of this year.

Founded in 2010 by celebrity doctor Mehmet Oz, MD (now on the board and not in active management) and WebMD founder Jeff Arnold, the current CEO, Sharecare will also have an undisclosed investment by strategic partners Anthem and Digital Alpha. Anthem is looking at the AI value plus consumer engagement and personalized care. Helping to fund both the public equity and cash position is a fully committed private investment in public equity (PIPE) of $425 million at $10.00 per share which is below market value. Falcon Capital will retain about 20 percent of the company. Mr. Arnold will join the board and be retained as CEO. After the closing, Sharecare and Falcon will donate about $4 million in stock to Sharecare’s charitable foundation.

Sharecare sells the platform to enterprises such as providers, employers, health plans, government organizations, and communities, as well as individuals on their free apps. Release, FierceHealthcare, Becker’s

Rival health plan Humana is also adding to its care management tools with a pilot of the Humana Care Support program. The platform creates an integrated, personalized experience for members, including a multi-disciplinary care team and SDOH integration. The pilot targets select groups of Medicare Advantage members in Kentucky, Pennsylvania, and West Virginia with multiple chronic conditions, complex congestive heart failure, and diabetes, with multi-disciplinary care teams. Humana Care Pilot is built on Salesforce’s Health Cloud platform for viewing the patient’s medical history and integrating clinician workflows. Its analytics are powered by Microsoft’s Azure and Power BI. The goal is lowering costs and improving outcomes for this high-cost group of patients. If successful, the program will roll out to other markets this year. Humana release, FierceHealthcare

AliveCor, the developer of the KardiaMobile mobile ECG/EKG, and AstraZeneca are partnering on research for new disease management solutions in cardiovascular, renal, and metabolism (CVRM) therapeutic areas. This will use AliveCor’s monitoring system for blood potassium. The Kardia-K AI platform uses ECG/EKG neural network analysis to measure a patient’s potassium levels without a patient blood draw. Hyperkalemia (elevated blood potassium) is linked to renal issues and kidney disease as well as cardiac issues. Kardia-K received Breakthrough Device Designation status from the FDA to screen for elevated levels of blood potassium in September 2018, and was validated in a study with Mayo Clinic published in 2019. Release, Mobihealthnews

Current Health, a monitoring and care management RPM system for enterprise-level health organizations, announced its “Community” initiative to build diverse longitudinal datasets for decentralized clinical trials. Their platform is FDA-cleared and used at scale in phase III and phase IV drug trials by major pharmaceutical organizations for remote endpoint collection and for virtual trial delivery. Monitoring is performed through wearables and sent to the electronic data capture (EDC) vendor for the clinical research organization (CRO). Current Health is using Community for its own COVID-19 study to predict hospitalizations and inform clinical treatment. The study is recruiting US participants diagnosed with the virus in the last 48 hours. Current has locations in Edinburgh, London, Boston, and San Francisco according to their website. Mobihealthnews

‘Neoinsurer’ Oscar Health goes for $100 million IPO; Clover Health’s big SPAC under SEC microscope

February 9, 2021 | by

Oscar Health, one of a number of US ‘insurtech’ or ‘neoinsurance’ private health insurance companies that have nipped at the heels of the Big 9, announced late Friday an IPO on the NYSE. The number of shares and their value is not on the SEC S-1 filing but the estimate of the raise is $100 million. Timing is not disclosed but rumored to be by March or early Q2. The offering is underwritten by Goldman Sachs, Morgan Stanley, and Allen and Company.

Oscar was one of the first to offer members apps, telehealth, and fitness trackers–revolutionary back in 2012 but routine now. Expanding beyond its original base of individual health insurance coverage, it now offers Medicare Advantage and small group coverage in 18 states to over 500,000 members. Oscar remains a virtual-first platform with the majority of its members in Florida, Texas, and California. Oscar makes much of member engagement and its partnerships; 47 percent of its overall subscribing membership and 44 percent of its 55-and-up subscribers are monthly active users. Oscar has also partnered with Cleveland Clinic and other larger insurers like Cigna. 

Financing for Oscar to date is over $1.5 bn. It has tidily grown in geographic coverage, members, and revenue–$1.67 billion in 2020 and $1.04 billion in 2019–no simple feat against the Big 9. Oscar’s problem is profitability–operating losses grew proportionately, $402.3 million (+56% from $259.4 million). Operating expenses also grew by 16 percent. TechCrunch gives additional crunch in the financial analysis (article in part, full paid access). Mobihealthnews

Oscar is one of a few health-tech heavy survivors of insurance companies that bloomed like flowers–and wilted–during and post-Obamacare. Clover Health, which thrived in a slice of the Medicare Advantage market, went the SPAC (blank check) route 8 January with Social Capital Hedosophia Holdings. Now with an enterprise value of approximately $3.7 billion, the SPAC indeed put Clover in the clover [TTA 14 Jan].

But perhaps short-lived. Clover’s SPAC is now being scrutinized by the SEC based on last week’s explosive charges by short-seller maven Hindenburg Research (!). Hindenburg’s research report alleges that Clover “lured retail investors into a broken business” by not disclosing a Department of Justice (DOJ) investigation that started (at least) last fall. Clover countered that the investigation is “routine” since Clover is in the Medicare business. Thus, it was not disclosed by Clover to investors as ‘non-material’. DOJ investigations are far more serious than CMS fines for compliance violations, which are not uncommon. Back in 2016, Clover was fined just over $106,000 by CMS on misleading marketing practices.

In short, DOJ investigations are never routine. They usually are the start point for enhanced claims scrutiny and a concatenation of charges, as WellCare, then a scrappy upstart insurer, found out over six agonizing years, 2006-2012, that were serious enough to send much of top management to Club Fed.  The Hindenburg paper (linked above) details other business practices that if true, are dodgy at best and fuel for further investigations.

The SEC notice of investigation was disclosed by Clover last Friday evening, usually a good time to disclose Bad News. This SPAC may have feet of clay.  PYMNTS.com, CNBC

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

February 5, 2021 | by

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

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

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

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