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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

Centene is rationalizing its portfolio, with Magellan Rx and PANTHERx divestitures in the cards and more to come over the course of the year, sources tell Sarah. 

Why it matters: The government-sponsored managed care company is revisiting its strategy amid a major refacing of its board that includes a changing of the guard at the center. Noncore asset sales may suggest where its priorities will (and will not) lie during the company’s next, newly governed era. 

What’s happening: Processes have kicked off for both Magellan Rx and PANTHERx, via Evercore and Barclays, respectively, with the two likely to draw a different universe of buyers, sources say. 

Centene in December said it was exploring divesting its international operations as part of a broader noncore portfolio review process. 

Zoom in: First-round bids are coming up for Magellan Rx, the pharmacy benefit manager inherited through Centene's $2.2 billion acquisition of Magellan, which closed in January. 

Sources estimate Magellan Rx in totality comprises $100 million-plus in EBITDA.

What we're watching: Will any big strategics — like Rite Aid via elixir or the in-house PBMs of Humana or Anthem — show up for Magellan Rx, or will new PE money ultimately take home the unit? 

Middle market PBM companies need scale to achieve major synergies, such as the ability to push for a greater share of rebates, one source notes. 

State of play: PE would take interest with a view around rolling up other targets, but will likely “want to come in with another angle so there’s more than just consolidation” to unlock value, this source says.  

Midsized PBM players including Carlyle’s WellDyneRx, BPOC’s Maxor or Court Square Capital’s Integrated Prescription Management are likely sellers and not buyers.  

There’s also Advent International- and Great Hill Partners-backed RxBenefits, last valued at $1 billion-plus, that has “taken share from the middle market PBMs,” the source notes.

Meanwhile, Centene is exploring the sale of PANTHERx, a specialty pharmacy business specializing in orphan drugs and rare disease treatment. 

PANTHERx is projecting approximately $75 million in 2022 EBITDA, up from around $60 million last year, sources say.  

Centene only 14 months ago closed its acquisition of PANTHERx.

Private equity is perhaps the most logical buyer. Still, one person adds that there could be PBMs looking for growth that take interest.

Between the lines: Rare disease drug development is accelerating, and specialty pharmacies play a critical role in getting these niche drugs to those who need them most. 

Most recently, Carlyle acquired a stake in Consonance Capital’s Orsini Specialty Pharmacy.

In January, TPG Growth took a minority stake in Memphis-based AnovaRx.

Catch up quick: Centene in December settled with activist investor Politan Capital Management, appointing five new board directors amid Michael Neidorff’s plans to retire. 

Ending 25 years at the helm, Centene said Thursday that 79-year-old Neirdoff would take medical leave, effective immediately. 

James Dallas is stepping in as interim chairman, and the company expects to appoint a permanent CEO by Q2.   

Centene did not return Axios' requests for comment. Evercore and Barclays declined to comment.

1 big thing: Centene starts pruning portfolio

Illustration of a pair of scissors about to cut a manila folder with a red cross on it.

Thomas H. Lee Partners led a $50 million growth investment in Qventus, whose software automates operational decisions across large health systems, community hospitals and academic medical centers, the parties tell Axios.

Why it matters: The pandemic-fueled labor crisis has added pressure to the country’s already resource-constrained hospitals, underscoring the need for greater operational efficiencies.  

Technology that automates patient flow is one solution to reducing unnecessary costs, improving patient experience, optimizing hospital capacity and decreasing provider burnout.  

What they're saying: Doctors and nurses have been "the glue" holding the health care system together amid advances in medicine and treatment, but operational processes have not kept up, CEO Mudit Garg tells Sarah.

“If you go anywhere across the world with a complex problem you come to the U.S., yet the experience of any average patient is far from the best," Garg says. "It’s such a dichotomy [for each to] exist simultaneously.”  

The capital injection will help Qventus both reach more providers and expand on top of existing AI-based offerings, he says.

Yes, and: Premier Inc., a health care improvement company, is both partnering and investing alongside THL. 

The company's vast data sets and some 4,400 hospital alliances will both enhance Qventus' go-to-market strategy while complementing its tech platform to create new solutions.  

How it works: Qventus applies AI and machine learning tools to simplify decision-making and remove bottlenecks.

It boasts that its software reduces excess days in the hospital by 30% to 50%, decreasing the length of stay by up to one full day, and generating two additional cases per operating room per month.

In 2021, Qventus eliminated over 200 years of excess days in the hospitals. 

By the numbers:  The THL-led investment brings the Mountain View, California-based company’s total funding to date to $93 million, Garg says.

THL is investing through its dedicated automation fund, which closed in 2020 on $900 million. 

Joining THL and Premier in the investment are Thedacare, Bessemer Venture Partners, Mayfield Fund and Norwest Venture Partners.  

The bottom line: Automation in health care is gaining steam, but there's still a long way to go. 

Most automation in health care has centered around the back office, with tools aimed at time and attendance or payroll, for instance. 

Qventus reflects the evolution of automation-focused companies in the nonclinical care operations bucket, which also includes a proliferation of companies focused on patient and provider communications as well as supply chain processes.

"There's sufficient space to not only build one but many public companies" of this vein, Garg says.   

2. The BFD: Thomas H. Lee leads $50M Qventus investment

Digital health’s largest deal in history isn’t looking like an immediate financial win for Teladoc, which spent $18.5 billion to acquire chronic care company Livongo in 2020, Insider reports.

Driving the news: In a 10-K filing, Teladoc's leaders caution of a sizable coming financial loss, on the order of $800 million to $4 billion.

Teladoc is poised to unveil the noncash charge or goodwill write-down in April during Q1 earnings, Insider reports, citing an employee with direct knowledge of the matter.

It's possible the charge could be avoided if market conditions change, but the employee tells Insider that's unlikely.

Flashback: Livongo founder and former CEO and chair Glen Tullman told Erin last fall of misgivings about the merger, which was intended to marry Teladoc's strengths in primary care with Livongo's capabilities in chronic care.

"The jury is still out on [Teladoc's] ability to provide a comprehensive offering," Tullman told Erin, adding that the "experience hasn't met the standards I’d hoped it would."

Yes but: Industry observers say the filing is a response to changes in valuations in the digital health and telemedicine sectors writ large rather than a dark mark on Teladoc specifically.

Like many investor bets in digital health, Teladoc may be playing a long game with the merger as opposed to chasing short-term profits.

For example, this morning Teladoc launched voice-activated virtual care with Amazon Alexa, something Cowen analysts say they view as "validation that Teladoc has one of the most robust and scaled capabilities as a telehealth platform."

Teladoc "is selling to a fantastic audience — employers and health plans — and that's a great and growing budget," says Steven Wardell, a managing partner at Wardell Advisors and a consultant to health tech companies, tells Erin.

The bottom line: The jury is out on how well Teladoc will integrate Livongo, but industry observers think the company maintains promise with strengths in primary and chronic care.

"Teladoc is ahead in two major suites — telehealth and disease management," says Wardell, "and not everyone else can follow."

3. Boom meets bump

Altaris Capital Partners agreed to take private Intricon (Nasdaq: IIN), a joint development device manufacturer, for $24.25 per share. The transaction equates to an equity value of approximately $241m. https://intricon.com/

The Rise Fund, TPG's impact investing strategy, acquired Blue Cloud Pediatric Surgery Centers, the country's largest pediatric dental ambulatory surgery center platform. https://bluecloudpsc.com/

Global Healthcare Exchange acquired Syft, an AI supply chain management software and services platform. GHX investors include Temasek and Warburg Pincus. https://www.syftco.com/

Wallaby Medical, a Chinese device maker for stroke treatment, is in talks to buy German neurovascular med-tech company Phenox for about €500m, per Bloomberg. Wallaby investors include Hillhouse Capital and Citic Capital. http://axios.link/ahy5 

Maravai LifeSciences (Nasdaq: MRVI), a San Diego-based maker of capping reagents for COVID-19 vaccines, quietly rejected an $11b all-cash takeover offer from German lab supplies vendor Sartorius (ETR: SRT), per Reuters. http://axios.link/eZ6t

Health Catalyst (Nasdaq: HCAT), a provider data analytics platform, agreed to acquire KPI Ninja, a Lincoln, Nebraska-based provider of interoperability and population health analytics tools. https://www.healthcatalyst.com

XRHealth, a health care metaverse startup, raised $10m in funding from HTC, Bridges Israel impact investment fund, AARP, and crowdfunding on StartEngine.com. https://www.xr.health/

OhMD, a Burlington, Vermont-based maker of patient communication and collaboration tools, raised an undisclosed amount in a round led by FCA Venture Partners and supported by a co-investment from the Dudley Fund. 

4. Deals o' the day

Situational awareness: Several high-profile life science investors are calling for the sector's business leaders to divest economically from Russia amid the war with Ukraine. 

In a letter, authors including Ovid Therapeutics CEO Jeremy Levin, RA Capital managing partner Peter Kolchinsky and Global Blood Therapeutics CEO Ted Love write: "We must take action to make clear our abhorrence of Russia’s actions. Immediate and complete economic disengagement is required." 

The statement has been signed by 350+ life science investors and executives.

One last thing: We have our first Pro Insights events this week, and Ryan Lawler and Lucinda Shen from our Fintech team will be interviewing Circle's Jeremy Allaire on March 2. Sign up for Fintech Deals by EOD to gain access to this great event!

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February 28, 2022

1 big thing: Centene starts pruning portfolio