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BFD Expert Voices - Health Tech Deals

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SVB Securities entered the big leagues of health care deal-making this week, serving as lead adviser to home care company LHC Group on its $5.4 billion sale to UnitedHealth Group’s Optum.

Why it matters: That sort of entry demonstrates that large-cap (and public company) M&A matters to SVB, whereas boutique investment banks are often associated with smaller deals.

Driving the news:  SVB is on a hiring tear, adding more than 50 investment bankers focused on health care services and health tech over the last year, sources familiar with the bank tell Sarah. 

Flashback: Historically known for its dominant role in biopharma and life sciences equity underwriting, SVB’s big push into M&A advisory started with the February 2021 appointment of heavy hitter Barry Blake. 

The bank poached Blake from Guggenheim Securities, naming him global co-head of investment banking. Shortly after, Robert Minear from Guggenheim jumped ship to steer SVB’s financial sponsor origination efforts. 

In the months that followed, Toby King and Robert Jackey joined from Citigroup, Jon Swope from BofA, Howard Dingle from RBC Capital Markets, Whit Mayo from Credit Suisse, Ben Brown from Baird, and Thad Davis from HSBC. 

Its latest big get is Jed Brody, a veteran banker who was most recently Barclays' co-head of healthcare Americas and global head of healthcare M&A. He joined in December.

Yes, and: Beyond the Optum-LHC deal, which it co-led with Jefferies, the newly onboarded bench of bankers has scored other big co-advisory roles in recent months. 

That includes Trinity Life Sciences, which Axios wrote in December was valued at $1.4 billion on its sale to Kohlberg & Co. 

Meanwhile, Komodo Health recently tapped Goldman Sachs and SVB as lead book-runners for an upcoming IPO, Axios wrote. 

Axios couldn’t confirm if LHC is the bank’s largest M&A advisory mandate in history, but it presumably is. 

Meanwhile, the bank has been aggressively building out its technology investment banking team, starting by poaching a team of UBS technology, media and telecom bankers, including group head Jason Auerbach.

The bottom line: SVB is quickly becoming a competitive force in health care and technology banking.

SVB did not immediately return a request for comment. 

1 big thing: SVB flexes M&A muscle 

Illustration of the flex muscle emoji with a dollar sign tattoo.

Tabula Rasa HealthCare (TRHC) is exploring options for its PrescribeWellness and medication therapy management (MTM) businesses, sources tell Sarah.

Why it’s the BFD: Amid deteriorating share performance, Tabula in recent months has been vocal about its intent to divest non-core assets to improve profitability, strengthen the balance sheet and become cash flow positive by Q3.

After announcing in February a letter of intent to sell DoseMeRx, a precision dosing tool used by pharmacists and physicians, this is another potential step in that direction. 

Shares of Tabula Rasa have fallen nearly 87% over the last 12 months.

What’s happening: Advanced discussions are underway with a focused group of potential strategic buyers that includes logical PE-backed players, sources say. Citigroup is providing financial advice on the potential divestitures, they say. 

PrescribeWellness, a CRM (customer relationship management) tool that’s integrated with over 10,000 independent pharmacy operating systems, “has grown well, is a great asset, but it probably could have grown faster,” one source notes.

Tabula Rasa scooped up PrescribeWellness less than three years ago for $150 million.

Its MTM business has been more challenged, having lost its CVS contract last year.  

Be smart: The timing is not only logical given Tabula’s share performance. Pharmacy-focused technology solutions such as PrescribeWellness are a much more understood area of the market than it was 18 months ago. 

Why? There’s been a lot of relevant investment activity. 

Zoom in: Sources say the best comp for PrescribeWellness is OmniSYS, which NexPhase Capital in December agreed to sell to health care IT company XIFIN.

A year earlier Avista Capital Partners bought XIFIN from GTCR.  

And, in May 2021, BlackRock’s perpetual capital fund agreed to acquire a majority interest in Transaction Data Systems, a pharmacy management solutions and services company, from GTCR. 

Also relevant is RedSail Technologies, a two-year-old investment of Francisco Partners. 

Yes, and: Omnicell, whose pharmacy-focused hardware and software is dominant in hospitals, could be a logical buyer as it has been trying to get into more independent pharmacies, one source notes.

The bottom line: The flurry of recent and brewing activity comes as there remains a huge opportunity to improve efficiencies and lower costs in the pharmacy industry. Particularly as the end-market experiences heightened headwinds — like a tight labor supply — stemming from the global pandemic.

2. The BFD: Tabula Rasa explores asset sale 

Illustration of a red cross being torn in half.

In case you'd heard any scary stories about AI advancing to the point of taking clinicians' jobs, here's your regular reminder that we're very, very far from such a scenario.

Driving the news: In a recent thread, Twitter user Lucy Hao shared several screenshots from an MIT article detailing problems that befell several AI tools designed to help identify COVID-19. 

Why it matters: In even the most advanced of cases, health care-related algorithms are typically being used in an effort to guide clinical decision making — not replace a doctor's judgment.

Even when it comes to those types of tools, developers must be careful to ensure their algorithms are trained with the appropriate data and account for any confounding variables.

One common issue that's surfaced a lot of late involves AI tools trained on non-diverse populations and then deployed on diverse populations. Can you say error-prone?

(Small) details: When unaccounted for, unexpected variables rendered several COVID algorithms useless.

In one example from the article, developers trained their tool on a dataset containing chest scans of children without COVID. The resulting AI tools "learned to identify kids, not COVID."

In another, patients who were scanned while lying down were more likely to be seriously ill. So "the AI learned wrongly to predict serious COVID risk from a person's position." 

3. Tweet o' the day: Medical AI, meet reality

Screenshot of a tweet revealing issues with AI tools for spotting Covid.

VivoSense, a startup seeking to develop digital endpoints from wearable data, raised $25m in a Series A funding round co-led by Perceptive Xontogeny Venture Fund and Debiopharm Innovation Fund. https://www.vivosense.com

Zephyr AI, a personalized medicine and drug discovery startup, raised $18.5m in a seed(!) round led by Lerner Group Investments and M-Cor Holdings with support from AME Cloud Ventures, BoxGroup, MedStar Health, Verily, and several individual backers including Allen Chao and Steve Oristaglio. https://www.zephyrai.bio

Dynamic Infusion Therapy acquired Austin-based Vascular Access Consultants, a provider of expert services to health care facilities. RiverGlade Capital is an investor in DIT. http://axios.link/aHZa 

4. Deals o' the day

The Alice Clinic named Kirti Patel chief medical officer. Patel is a gynecologist at UMass Memorial Health and was previously an adviser and investor at Nutrimedy.

Amazon named Kevin P. Nichols chief science officer of new initiatives. Nichols was previously senior research manager for Amazon Diagnostics.

Credit Suisse promoted Ryan Bondroff to head of health care investment banking for the Americas from managing director. 

Google Health named Mike Schäkermann research scientist from AWS, where he was an applied scientist.

Illumina promoted Sergio Peisajovich to vice president of scientific research and head of protein engineering from senior director.

Spring Health named Rachel Green senior director of talent acquisition from OppFi, where she held the same title.

SteadyMD named Kristen Gil to its advisory board. Gil is a vice present and business finance officer at Google and was formerly a board member at Proofpoint.

5. It's Personnel

🧑🏽‍🔬 Situational awareness: Y Combinator, the famed Silicon Valley startup incubator, launched its 34th Demo Day this week.

Roughly 11% of the startups in the latest batch fall into YC's biology and health care category, a slight uptick from the 9% represented in its summer 2021 batch — and many of this year's companies are focused on home testing and behavioral health.

🎿 Erin is gearing up for her last day on the slopes before plunging full-tilt into spring activities. With several lifts already closed for the season, she suspects it'll be a short (but sweet!) run.

💚 Thanks for reading Axios Pro Health Tech! Please ask your friends, colleagues and family members to sign up.

March 30, 2022

1 big thing: SVB flexes M&A muscle