1 big thing: Warburg's ModMed mulls stake sale

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2. The BFD: OS Acquisition pulls out

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3. Deals o' the day

4. It's Personnel

5. 🗞 Catch up quick

🇺🇸 Programming note: Axios will be taking Veterans Day off to show our appreciation for those who served. 

Some personal news: 👋 Hey, Sarah here. Today’s my last on the Axios Health Tech Deals beat. It’s been an awesome ride, but I’m off to try something new. Thanks for reading, and a special thanks to all my talented colleagues. Stay in touch!

🚨 Claire Rychlewski, our savvy editor, will be stepping in. Send her your tips and say hello! 

👩‍🍳 Sarah this week baked this delicious vegan banana bread recipe, started (and is obsessed with) "White Lotus 2" and hiked the rocky, 5-mile trail around Watson Lake in Prescott, Ariz. 

🙏🏻 Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Brad Bonhall. Please ask your friends and colleagues to sign up.  

Health Tech Deals

Standard

1 big thing: Local Infusion bags $4M in debut 

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State of play: Infusion care

2. The BFD: GHO and Vistria snap up Alcami

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🇺🇸 It's Tuesday, Health Tech readers, and Election Day, so get to your polling place or drop off that ballot, and follow axios.com for midterm coverage tonight.

🧪Situational awareness: A federal judge has rejected a bid for a new trial for former Theranos CEO Elizabeth Holmes. She faces up to 20 years in prison. 

🙏🏻 Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Brad Bonhall. Please ask your friends and colleagues to sign up.

1. Yes Hearing catches $10M Series A

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2. Blackstone's HealthEdge in play

 3. Women's health dominates midterm talk

4. Guaranteed a dignified death

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5. Hint buys AeroDPC

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Welcome to Friday, Health Tech readers. Newsletter editor Claire Rychlewski here with your weekly deals digest.

But first ... Erin's exclusive on a new hearing tech company. 

That's all, folks. Sarah and Erin return to your inboxes on Monday.

1 big thing: Fathom files $46M for billing tech

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2. The BFD: CNSI and Kepro to merge 

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🚴 Situational awareness: Erin is moderating a late addition at HLTH in Las Vegas next week. She'll be sitting down Monday evening with Lance Armstrong to talk about facing adversity, from cycling to health tech investing.

🌇 Erin gave in to the hype and binged three episodes of "Selling Sunset," which was a fun escape from "real" life. 

✅ Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Brad Bonhall. Please ask your friends, family and colleagues to sign up.

1 big thing: Sequencing your (whole) genome

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2. The BFD: WBA's VillageMD bags Summit Health-CityMD

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3. Archy gets $10M for dental payments

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4. Arsenal buys back EQT's Certara stake

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5. Deals o' the day

6. It's Personnel

Happy Monday, Health Tech readers! Let's jump in. 

☀️ Erin left a snowstorm in Truckee, Calif., for sunny Los Angeles, where she's spending the week before heading to Vegas for HLTH.

✅ Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Brad Bonhall. Please ask your friends and colleagues to sign up.

Investors' senior care playbook is ever-changing amid the growth and maturation of Medicare Advantage, which is driving the health care industry's broader move and bigger spend toward value-based care.

Driving the news: Capital is flooding into early-stage startups experimenting with various approaches. "The cool thing about value-based care?" General Atlantic managing director Robb Vorhoff says. "There’s hundreds of business models." 

Senior care-related startups commanding fresh funds this year include CareBridge, Upward Health, Biofourmis, ConcertoCare, and Vytalize Health. Others, including Wellvana and Lifespark, are seeking investment.

Simultaneously, we've seen many PE bets around Medicare Advantage primary care, with the ecosystem spanning public companies including Cano Health and Oak Street Health and privately held players like Bain Capital's InnovaCare or Kinderhook Industries' Physician Partners. 

Reality check: Scaling remains a challenge for new models looking to shake up the senior care market.

"There are a lot of options out there that you don’t know about," Town Hall Venture’s Andy Slavitt says. "Some are the best-kept secrets; some are not worth knowing about." 

Meanwhile, private equity investors have deep pockets in many traditional home care models that remain predominantly fee-for-service. 

In an effort to take more risk, sponsors are signing partnerships that leverage their in-home patient relationships.

Consider Centerbridge Partners and Vistria-backed Help at Home, whose in-home caregivers identify preventative measures and risk factors to help seniors coordinate with other professionals that are taking capitated risk. 

"We’re not providing the primary care, but we can be the eyes and ears in the home that are letting [provider and payor partners] know what that patient’s condition is on a daily basis,"  Centerbridge senior managing director Jeremy Gelber says.

Advent International managing director Carmine Petrone thinks about his portfolio company AccentCare — which is working with benefit managers — as a logistics provider that can curate all the care services that go into the home. 

"If you want other clinical services that we don’t provide, we can be on the hook for finding that in our network," Petrone says.

Yes, and: Both investors and traditional home health players are leaning into integrated dual-eligible programs like The Program of All-Inclusive Care for the Elderly (PACE), a fully capitated, comprehensive care substitute for nursing home care. 

Between the lines: Companies are bringing more offerings under one house.

When it comes to risk-bearing primary care, for example, Welsh, Carson, Anderson & Stowe vice president Ann Hickey sees a large omni approach opportunity. 

"I do think we’ll start to see some of the more clinic-based platforms develop in-home capabilities in addition to virtual capabilities," she says. 

Gelber anticipates more consolidation of various services in the home or services and technology in the home. (Consider Amedisys buying Contessa Health, a hospital-at-home company, or ModivCare buying VRI Intermediate Holdings, a provider of remote patient monitoring.)

Although Petrone isn't typically a believer in a service provider owning and incubating its own technology, he sees a big investment opportunity around technology that optimizes labor, such as remote patient monitoring. 

The other side: Caregivers are also getting more attention.

Duos, which connects older adults and caretakers to dedicated personal assistant and a constellation of service providers, landed $15 million in Series A funding in April. 

There's also been an uptick in activity (from firms like DW Healthcare Partners and Linden Capital Partners) around self-directed home care, which enables the compensation of family caregivers of Medicaid-eligible patients.

The bottom line: We're going to see a ton more capital, M&A and company creation focused on rearchitecting senior care. 

State of play: Value-based care for seniors

Capital is flooding into early-stage startups experimenting with various approaches.

Illustration of a cane forming the center staff of a caduceus.

Health tech

Investors&#x27; senior care playbook is ever-changing amid the<a class="gtmContentClick" data-vars-link-text=" growth and maturation of Medicare Advantage" data-vars-click-url="https://www.axios.com/2022/08/26/medicare-advantage-enrollment-growing" data-vars-content-id="09aad6c2-2ec8-4af0-ae74-e23b561ac87e" data-vars-headline="State of play: Value-based care for seniors" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/2022/08/26/medicare-advantage-enrollment-growing" target="_self"> growth and maturation of Medicare Advantage</a>, which is driving the health care industry&#x27;s broader move and bigger spend toward value-based care.Driving the news: Capital is flooding into early-stage startups experimenting with various approaches. &quot;The cool thing about value-based care?&quot; General Atlantic managing director Robb Vorhoff says. &quot;There’s hundreds of business models.&quot;

Modernizing Medicine and its largest investor, Warburg Pincus, are evaluating a partial-stake sale of the specialty electronic health records giant, sources familiar with the matter tell Axios. 

Why it matters: ModMed, along with Blackstone's HealthEdge Software, will represent a good test case for the new valuation reality in health tech investing if a deal gets done. It's been several months since we've seen scaled, growth-oriented SaaS companies test the market. 

What's happening: The Boca Raton, Florida-based company formally hit the market in October, with first-round bids from sponsors due around mid-November, sources say.

Evercore is providing financial advice to Warburg and ModMed.  

Sources caution that Warburg and the company may choose not to transact, depending on where interest levels and valuation appetite land. 

By the numbers: ModMed, which has been investing heavily into R&D to fuel future growth, generates around $400 million of ARR, sources say.

Warburg's current stake lies at roughly 40%, sources say.

Other small minority investors that invested early in ModMed's evolution include Pentland Group, Summit Partners and Sands Capital.

Flashback: A year ago, sources pegged ModMed as a likely IPO candidate, but that was a much different market. 

How it works: ModMed designs cloud-based and data-driven EHR software products tailored to a vast range of medical specialties — including dermatology, gastroenterology, plastic surgery and orthopedics.

Warburg invested an initial $231 million in the company in 2017. 

The bottom line: ModMed is a bellwether for other growth-focused SaaS investors, who will be watching closely to see if the company overcomes market woes to attract a 2021-like valuation — or lands something much more conservative. 

Warburg declined to comment. ModMed did not immediately respond to a request for comment. 

Scoop: Warburg's ModMed explores partial-stake sale

The owners of the specialty-specific EHR company look to take some chips off the table.

Health tech deals

Modernizing Medicine and its largest investor, Warburg Pincus, are evaluating a partial-stake sale of the specialty electronic health records giant, sources familiar with the matter tell Axios. Why it matters: ModMed, <a class="gtmContentClick" data-vars-link-text="along with Blackstone&#x27;s HealthEdge Software" data-vars-click-url="https://www.axios.com/pro/health-tech-deals/2022/10/31/healthedge-blackstone-stake-sale-health-tech-insurers" data-vars-content-id="0af0d4c9-0e9c-4c29-be18-7c53969f12e8" data-vars-headline="Scoop: Warburg&#x27;s ModMed explores partial-stake sale" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.axios.com/pro/health-tech-deals/2022/10/31/healthedge-blackstone-stake-sale-health-tech-insurers" target="_self">along with Blackstone&#x27;s HealthEdge Software</a>, will represent a good test case for the new valuation reality in health tech investing if a deal gets done. It&#x27;s been several months since we&#x27;ve seen scaled, growth-oriented SaaS companies test the market.

GHO Capital and Vistria Group are joining hands to acquire Alcami, a contract development and manufacturing organization serving biotech and pharma companies, from Madison Dearborn Partners and Ampersand Capital Partners.

Why it matters: The transaction illustrates that companies perceived as high-quality, profitable and growing — buoyed by strong industry tailwinds (there are many in pharma services) — can still get financed amid the current debt drought.  

Details: The new investors will assume a 50/50 controlling interest, with Ampersand and Alcami management reinvesting significant equity as part of the acquisition. 

Terms were not disclosed, but North Carolina-based Alcami is ramping up toward $100 million of EBITDA going into next year, sources say. 

There was not formal auction process, with the deal coming together on a bilateral basis, they say.

Flashback: Madison Dearborn in 2018 won the William Blair-run auction for Alcami, acquiring the business from Ares Capital's credit arm in 2018 at a roughly $675 million valuation. 

Ampersand in 2020 joined as an investor via Alcami's acquisition of its portfolio company TriPharm Services.

How it works: Alcami is focused on sterile fill-finish of both biologics and small molecules, formulation development, lab services, and cGMP biostorage of high-value temperature-sensitive biologics, pharmaceuticals and materials.

Alcami has more than 1,000 clients globally.

What they're saying: Already an investor in three post-commercial pharma services companies, Vistria had been hunting for the right opportunity to kickstart a new platform in the clinical services space, senior partner Jon Maschmeyer says. 

Sterile fill-finish is a high-growth market, Maschmeyer says, and in the wake of pandemic-accelerated trends including on-shoring, "we think its manufacturing space is unique." 

Context: Alcami has invested $140 million-plus in capital expenditures to develop five new sterile fill-finish manufacturing lines and additional laboratory space to support both biologic and small molecule programs. 

Alcami has 675,000 square feet across the country.

What's next:  Year one is tilted toward organic growth and ramping up its new manufacturing capacity, and then M&A could be in the cards, Maschmeyer says.

Alcami will consider acquisitions that expand on its core CDMO capabilities and/or those that, leveraging GHO's deep pharma services experience in the European market, give it an entry point in Europe. 

Who advised: Jefferies and OES were buy-side financial advisers, while Morgan Stanley worked with Alcami.

Credit funds managed by Ares Management provided financing. 

GHO and Vistria snap up Madison Dearborn's Alcami

Alcami is ramping up toward $100 million of EBITDA going into next year.

Illustration of a hand in a medical glove passing a beaker to another hand in a glove with lines through them both

GHO Capital and Vistria Group are joining hands to acquire Alcami, a contract development and manufacturing organization serving biotech and pharma companies, from Madison Dearborn Partners and Ampersand Capital Partners.Why it matters: The transaction illustrates that companies perceived as high-quality, profitable and growing — buoyed by strong industry tailwinds (there are many in pharma services) — can still get financed amid the current debt drought.

National

Data: Pitchbook; Chart: Jared Whalen/Axios

A financial arms race is forming in senior care as private capital pours into the reshaping of elder care. 

Why it matters: The perceived dangers of private equity entering senior care have largely focused on nursing homes, but the truth is, the dollars are flowing elsewhere. 

Reality check: In fact, PE firms are estimated to own just 5% of U.S. nursing homes, per an industry trade group.

"Most of the innovation and new business models that have been developed have been about trying to keep people out of long-term-care facilities," said Devin O'Reilly, managing director at Bain Capital.

The capital is following that innovation.

The big picture: Older Americans are the biggest cost bucket in health care, but care delivery and outcomes are inconsistent. 

"This is a crisis for seniors to get better access to care because it's costing all of us a fortune," Advent International managing director Carmine Petrone said. 

The trend of people living longer, and the extended post-work lifestyle, means that "increasingly, society is understanding that their living situation is also really important to their health care situation," added Welsh, Carson, Anderson & Stowe general partner Sean Traynor.

Between the lines: COVID shed light on the disparities in health care across rural communities and low-income and marginalized populations.

Addressing health inequities is low-hanging fruit for some investors and entrepreneurs, said General Atlantic managing director and global head of health care Robbert Vorhoff.

His firm, alongside Town Hall Ventures, recently invested in Suvida Healthcare, dedicated to Hispanic seniors.

"Where is the most potential to create value? It's finding people that have been least well served by the existing infrastructure."

"We've got to figure out an efficient way to deliver care to rural America," Jeremy Gelber, senior managing director at Centerbridge Partners, said. "On average, America is older and sicker."

Context: Investors are focused on funding care delivery and technology companies that address every facet that can help people live independently and longer. 

In-home and community-based care dominate much of the thinking.

Other large investment pockets are Medicare Advantage primary care, along with various home-based services and technologies ranging from infusion therapy to medication management.

The investment angle is huge, said Meera Mani of Town Hall Ventures. "When you're talking about 50 million people and growing that are over the age of 65, that's multiple segments with multiple needs."

Zoom in: The high utilization of health care among the over-65 population makes for a gold rush that can't be matched elsewhere.

On the Medicare side, there's scale and durability of spending, whereas investing behind sicker members of younger populations is trickier, Vorhoff said.

And ultimately, "those are small dollars compared to the senior dollars," said Gelber. "[Investors] go where the dollars are because if you can manage those dollars better, in a value-based way, you have the opportunity to get paid well for it."

The bottom line: Elder care isn't a one-size-fits-all approach, and neither is the ever-evolving investment opportunity. 

Private equity's elder care race

Private capital is pouring into the reshaping of elder care.

Deep Dive - Elder Care

A financial arms race is forming in senior care as private capital pours into the reshaping of elder care. Why it matters: The perceived dangers of private equity entering senior care have largely focused on <a class="gtmContentClick" data-vars-link-text="nursing homes" data-vars-click-url="http://newyorker.com/news/dispatch/when-private-equity-takes-over-a-nursing-home" data-vars-content-id="bae67f7c-c00f-46a5-a6cc-65fcd49092c9" data-vars-headline="Private equity&#x27;s elder care race" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="http://newyorker.com/news/dispatch/when-private-equity-takes-over-a-nursing-home" target="_blank">nursing homes</a>, but the truth is, the dollars are flowing elsewhere.

The U.S. faces a range of health care flashpoints — unaffordable drugs, opioids, vaping — as we debate whether to adopt universal care. For now, the Affordable Care Act is the law of the land, but Republicans want to issue it a final death blow.

Health

Despite private equity owning only an estimated 5% of the nursing home industry, its high-profile problems in the sector have made it a bogeyman to politicians and the public.

Why it matters: Even as studies show that 9 of 10 adults prefer to age in place, the need for an institutionalized setting will persist. But the climate has long made investing a challenge for PE. 

Driving the news: In his State of the Union address, President Biden called out private equity investors for their role in raising costs and reducing quality at nursing homes, despite their small presence.

More recently, the Biden administration unveiled a new publicly available database displaying ownership of all Medicare-certified nursing homes.   

Carlyle Group's disastrous ownership of HCR ManorCare — which among other things included allegations of patient neglect — hasn’t helped the case for further investment into nursing homes, nor have the COVID horror stories.

What they're saying: The challenge with investing behind the status quo? “Right now the real estate component is so separate from the health care component,” Welsh, Carson, Anderson & Stowe vice president Ann Hickey says.  

That means you’re not seeing developers meshing the operations of a physical institutional center with forward-thinking strategies to reduce total cost of care and living for a given population, she says. 

The market's reimbursement landscape (largely dependent on state Medicaid programs) is also under scrutiny.

Plus, Centerbridge Partners senior managing director Jeremy Gelber says, like all facility-based care (i.e., hospitals), nursing homes have high overhead costs: “It’s very hard to innovate.” 

The challenge is figuring out how to orchestrate more offerings around the nursing home, Advent International managing director Carmine Petrone adds. “They're hard to staff, and you need high occupancy rates to create real operating income that you could then use to invest behind some of these other initiatives.”

What we’re watching: The nursing home today is largely considered a real estate play, so what does the next generation of the nursing home look like, and where does the health-care-centric investor fit in or around it? 

Likelihood is, it's more than just providing a bed for seniors. 

Zoom in: “I think the model of institutionalized care has to include some sort of individualized care management attention," says Town Hall Ventures general partner Andy Slavitt.

Between the lines: The Program of All-Inclusive Care for the Elderly (PACE) is considered one of the best alternatives to the institutional-level care received in nursing homes, but factors including its capital intensity and regulatory structure have hampered the growth opportunity.

This model marries medical and physical care to social determinants, the non-medical environmental factors tied to health care, enabling seniors to age safely at home while addressing their wellbeing. 

Whether it's providing an avenue for socialization or offering seniors meals from nine ethnicities, "you can take the game up pretty significantly," says Slavitt, whose firm backs WelbeHealth, a PACE provider. 

PACE isn’t that well understood by the public, adds Slavitt, “so people take the status quo, which isn’t nearly as good for them.” 

Meanwhile, we did witness one example of tech innovation around nursing homes just a few months ago.

Sage, a startup hoping to replace nurse call systems at senior living facilities, notched $9 million in seed funding in July. 

Be smart: Amid the increased focus on nursing home ownership, publicly traded Brookdale Senior Living is up for sale.

Our thought bubble: We expect that Brookdale won't draw a robust field of competitive bids from private equity, not only because of investors' tainted history in the industry, but also ... the nursing home model isn't deemed very investable. 

The bottom line: The dominant themes in senior care include in-home and community-based care, value-based care, social determinants and tech-enabled approaches that address issues including labor shortages and access and health inequities.

Nursing homes still a PE challenge

Other sectors of elder care come top of mind for investors.

Illustration of a pillow with a health plus on a rocking chair.

Despite private equity owning only an estimated 5% of the nursing home industry, its high-profile problems in the sector have made it a bogeyman to politicians and the public.Why it matters: Even as studies show that <a class="gtmContentClick" data-vars-link-text="9 of 10 adults" data-vars-click-url="https://www.globenewswire.com/news-release/2021/05/10/2226492/0/en/NEARLY-90-OF-AMERICANS-AGE-50-AND-OLDER-WANT-TO-AGE-IN-PLACE.html" data-vars-content-id="bfd84bfb-67b7-49e4-8299-501f865a2bbb" data-vars-headline="Nursing homes still a PE challenge" data-vars-event-category="story" data-vars-sub-category="story" data-vars-item="in_content_link" href="https://www.globenewswire.com/news-release/2021/05/10/2226492/0/en/NEARLY-90-OF-AMERICANS-AGE-50-AND-OLDER-WANT-TO-AGE-IN-PLACE.html" target="_blank">9 of 10 adults</a> prefer to age in place, the need for an institutionalized setting will persist. But the climate has long made investing a challenge for PE.

Sarah Pringle

Stories

State of play: Value-based care for seniors

Nursing homes still a PE challenge

Private equity's elder care race

Scoop: Warburg's ModMed explores partial-stake sale

GHO and Vistria snap up Madison Dearborn's Alcami

Newsletter editions

Health Tech: ModMed hits block

Health Tech: CNSI, Kepro merge

Health Tech: Infusion debuts

Health Tech: Walgreens at the Summit

Health Tech: 🗞 Catch up quick