Deals and news roundup: Ginger’s $100M, myNEXUS to Anthem, Everlywell snaps up PWN, Amwell’s banner year for revenue–and loss, VA reviews Cerner rollout, voice visits for MA, GE’s vScan goes wireless, uBiome founders indicted

Deals–and news–are piling up like Easter eggs before the hunt. Mental health and cognitive digital therapy scored another raise with Ginger‘s $100 million Series E to fund expansion into health plan and government partnerships. Blackstone Growth led the round. Total funding to date is $220 million. It’s entered unicorn status with a valuation just north of $1 bn. Ginger to date has concentrated on corporate mental healthcare. From being an ugly duckling only a few years ago, digital mental therapies are this year’s ‘it’. But competition is fierce: the traditional telehealth companies such as Teladoc, Doctor on Demand, and Amwell are closing in on the early entrants such as AbleTo. Direct-to-consumer models like Talkspace; UK/Ireland’s SilverCloud Health; and Lyra, Spring Health, and Happify, which just closed a $73 million Series D, all step out with slightly different ‘differentiators’ but target the same companies, health plans, and health systems. FierceHealthcare, Ginger release

Home health is also another former ugly duckling transformed into a swan. Anthem is acquiring home health/nursing management company myNEXUS, which manages home-based nursing services for 1.7 million Medicare Advantage members across 20 states. Their digital authorization and visit management couples with a nationwide network of providers and nursing agencies for local care. Exiting myNEXUS are private equity investors led by New York’s WindRose Health Investors, after four rounds and a conservative $31 million in funding (Crunchbase). Neither terms nor management transitions were disclosed. myNEXUS will join Anthem’s Diversified Business Group. FierceHealthcare, release.

Home testing+telehealth company Everlywell (not connected with the Everly Brothers) has a different take on home health. They are now integrating their self-test kits with fully owned lab testing. New acquisitions PWNHealth and its subsidiary Home Access Health Corporation will join Everlywell in Everly Group. PWN was Everlywell’s main telehealth partner and diagnostic testing partner since 2016. It will become Everly Health Solutions with their testing data kept separate from Everlywell’s. Home Access was PWN’s self-collected lab test company. Everly Health now will support more than 20 million people annually in all 50 U.S. states, Canada, and Puerto Rico. Acquisition terms were not disclosed. PWN’s CEO will take a seat on the Everly Group board to assist integration. Valuation is now estimated at $2.9 bn.  Mobihealthnews, Everly release, Bloomberg News

And in other news…

Amwell reported a Very Good Year in their telehealth services, with visits growing to 5.9 million from 2019’s 1.1 million. Total revenue was up over 65 percent to $245.3 million. However, profitability continues to be elusive, with net loss almost equaling revenue. Release

The Department of Veterans Affairs (VA) finally announced a review of the Cerner-Leidos EHR integration. Back in February, VA was hanging tough on the rollout after the GAO report questioning its wisdom and recommending postponement until high severity issues were corrected. Secretary Denis McDonough, new VA head, has directed the undertaking of a 12 week strategic review without pausing the project. Taking bets on that 12 weeks! Healthcare Dive

Payers and their lobbyists are supporting a newly reintroduced House bill that would permit telephonic-only telehealth visits to be reimbursed for their Medicare Advantage plans after HHS closes the pandemic period. There is considerable information that video/audio virtual visits still have limitations with the 65+ group, clustered around high-speed internet or good data connections, smartphones, and computers with cameras, making video visits difficult or impossible. Which begs the question about continuing coverage for those on Original Medicare. Healthcare Dive

Those readers with long memories will recall GE Healthcare’s heralded introduction of the VScan handheld clinical-grade ultrasound device–back in 2010, complete with Eric Topol rave and demo. Not much has been heard from GEHC since till this month, and other competitors, such as the Butterfly IQ from 4Catalyzer, have made handheld ultrasound common and affordable. GEHC announced Vscan Air, a fully wireless version that connects to iOS or Android. It was FDA cleared in November 2020 and will be shipping its dual-headed probe and accessories starting 1 April for a US-listed target price of $4,495. GEHC page (with the cute domain vscan.rocks), Mobihealthnews

And in our Scandal Sheet section, a Federal grand jury in the Northern District of California has indicted the founders of now-bankrupt uBiome on 40-odd counts encompassing conspiracy to commit securities fraud, conspiracy to commit health care fraud, money laundering, and identity theft. Separately, the Securities and Exchange Commission (SEC) also filed charges. Between 2016 and 2018, uBiome had raised $100 million through a Series C, and was likened to Theranos, after its fall, in the Big Claim (‘inventing the microbiome industry’). Its business was analyzing the DNA of fecal and other biological matter to sequence the bacteria of the body’s microbiome. Starting with low-cost, limited data comparison for at-home tests, the founders progressed to claiming to doctors that their diagnostic tests were clinical-quality and would be reimbursed by payers. Payers did–for awhile–and the investors piled in. By 2019, the wheels fell off their scheme and the FBI came knocking at their Silicon Valley offices after the founders cashed in. Chapter 7 followed in late 2019. The Register reports that the two married founders are on the run, whereabouts unknown. US Attorney’s Office release, SEC filing (PDF)

 

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

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

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

Reviewing the IPOs and pending IPOs to date:

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

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

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

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

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

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

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

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

The Theranos Story, ch. 60: becoming a Cautionary Tale of Silicon Valley Ethics

It’s just weird. It’s just a bit surreal. When you see someone have this situation and pretend that everything is normal. It’s so bizarre.–Erika Cheung, former Theranos lab associate, whistleblower

Will health tech learn its lesson? As in Chapter 58, we are now in Full Retrospective on Theranos, with Cautionary Tales abounding. One of the better ones is from one of the two young whistleblowers profiled in John Carreyrou’s ‘Bad Blood’, Erika Cheung. She was the young (23) lab associate who saw patient samples from Walgreens and other patients constantly fail quality controls, finally reported it to regulators when nobody listened, then quit. The interview in STAT is refreshing. Ms. Cheung’s contrast of what she saw on the lab bench and in her encounters with Ms. Holmes versus the wide-eyed hype of Elizabeth Holmes in Fortune and Forbes circa 2014 is worth the read, along with her restart at 28 in Hong Kong founding an accelerator, Betatron, and a non-profit with fellow Theranos whistleblower Tyler Shultz, Ethics in Entrepreneurship, to try to pin the Jello On The (Shady) Wall that embodies Silicon Valley Ethics. Also Mobihealthnews on Ms. Cheung’s appearance at The Atlantic’s Pulse event. (The Atlantic still has a pulse?–Ed.)

Cautionary Tales continue, with the recent examples of Nurx, an e-prescriber specializing in women’s health, storing returned birth control pills in a closet shoe organizer and illegally remailing them to new customers (NY Times) and uBiome, a company that sells tests that sequence the bacteria of the body’s microbiome, on fraudulent billing that triggered an FBI raid. Both companies raised significant funding of late: Nurx over $41 million and uBiome over $100 million. The Silicon Valley rules–fake it to make it, and move fast, break things–once again blowing back on what may be good companies. The temptation may be too great for these health tech startups, something reflected on in this CNBC article.

TechCrunch, which breathlessly hyped Theranos back in the day, while duly noting and linking to the programs on How Theranos Fell, puts on its hair shirt for Dear Hollywood, here are 5 female founders to showcase instead of Elizabeth Holmes. Interestingly, one is not Anne Wojcicki of 23andme. 

Silicon Valley’s betting on ‘citizen doctors’, ‘citizen science’ and useful data

A fascinating and slightly cynical overview of Silicon Valley’s ideological view of health tech that will fix our ‘deeply flawed healthcare system’ and what is getting funded (or not) is in next month’s San Francisco magazine. It profiles the ‘citizen doctor’ founders of vital signs ‘tricorder’ Scanadu (Sam–who’s not often mentioned–and Walter De Brouwer), bacteria tracker uBiome, ‘personal data recorder’ and experience charter We Are Curious (founded by Linda Avey, a long-departed co-founder of 23andme) and touches on the Theranos debacle. While these stories are bracing and in the instance of the De Brouwers, courageous, the notion of ‘citizen science’ (defined as direct-to-consumer health data) and its companion, Dr Eric Topol’s patient-centered/controlled medicine, has its drawbacks, viewed through the slightly gimlety ‘digital doctor’ eye of UC San Francisco’s Dr Robert Wachter. “The overarching message—not just from Theranos but from other companies struggling to get a toehold—is that, ultimately, the laws of economic gravity hold. The companies will have to produce products that add real value, either to patients or to payers. If they don’t, the market—or the regulators—won’t treat them kindly.” Flatly, there aren’t enough Quantified Selfers right now to support these companies. And Mr Market is a hard master. 23andme is back in the good graces of the FDA after a two-year scuffle and back doing direct response TV here in the US. Scanadu’s two products, Vitals (formerly Scout) and Urine are still not through the long slog of FDA clearance. The jury’s out on Theranos. And all these companies, including ‘unicorn’ Theranos, are bleeding cash and nowhere near turning a profit. ModernLuxury. Hat tip to Dr Topol via Twitter, who had a patient-centered conversation with Dr Wachter that we covered back in September.  Another recent podcast with Dr Wachter is here (Community Health Center radio).

Update: ‘Citizen science’ is nothing new, as revealed by the Science Museum (London)–it’s over 300 years old. While it entered the OED in 2014, ‘in 1715, Edmund Halley used Philosophical Transactions to ask colleagues to help him observe a total solar eclipse, prompting observers from all over the country to respond.’ Other examples are from Benjamin Robins in the same publication in 1749 on fireworks, Charles Darwin and evolution, to the present day. The difference is the flow–similar to what we now call crowdsourcing versus the individual using the data to affect their care.