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Eric Schadt doesn't regret the decision to take his genomics company, Sema4, public via a SPAC, even though its stock began to plummet less than a month after the deal. 

Why it matters: With few digital health (ahem, any) companies expressing interest in SPACs now, it's worth remembering what all the short-lived rage was about.

Flashback: Connecticut-based Sema4, a venture of Mount Sinai Health System, went public via a SPAC merger last July at a $3 billion valuation.

Since its founding in 2017, Sema4 had collected roughly $371 million from backers including Blackstone, Blackrock Innovation Capital Group and Deerfield Management.

Be smart: Sema4's team debated taking a SPAC or IPO route to the public market and ultimately chose the former because "we saw it as a growth hack," Schadt says. 

Context: As the company's executives considered their go-public options, its priority was filling its precision testing portfolio with offerings including whole exome clinical diagnostics.

What he's saying: While Sema4's stock begun a gradual decline in August, Schadt says the merger gave it access to the appropriate amount of cash — $500 million — when the company needed it.

In January, Sema4 agreed to acquire genomic testing company GeneDx for roughly $623 million, giving it the whole exome sequencing capabilities it wanted and creating one of the largest U.S. genomic screening providers in the process.

"It was tough. I thought there’d be better tolerance and the SPAC would let you grow into," Schadt tells Axios. "But what it did provide is the access to the right scale of capital at the exact right time."

Yes, and: The SPAC route also gave Sema4 access to experienced sponsors who other experts say can help scale and contribute to the company’s future efforts.

"Having a sponsor like an Eli Casdin who understood where we were at felt like a better strategy at the time," than going the traditional IPO route, Schadt says.

Had they tried the traditional path to the public markets, they might be stuck with no clear exit route, he adds. "So it did work out," he says.

What's next: Schadt hopes the company will ultimately function as a kind of platform of algorithms capable of tracking a patient's wellness over time, including their response to treatment.

"In 10 years, I want to have a platform of algorithms, a billion of those queries running, and that’s the business," he says. "And those who provide them will get paid when they’re used."

"Ultimately it’s about setting the standards for data to derive that insight and wire it into clinical workflows to track a patient's progression over time."

1 big thing: A SPACtacle's reflection

Illustration of a personal check in the shape of a checkmark in a box

Teladoc took a public market beating this week, its stock plummeting 48% on Thursday following the news that the telehealth leader had taken a $6.6 billion impairment charge on its acquisition of virtual chronic care company Livongo.

Why it's the BFD: Pandemic-fueled growth in behavioral health and chronic virtual care rivals are challenging Teladoc assets including Livongo and telemental health service BetterHelp, which it bought in 2015, are impairing Teladoc's ability to telescope a way out, analysts tell Erin.

While BetterHelp only offers virtual therapy, several other behavioral health startups offer medications — and they've been raking in venture funding of late.

Teladoc is also facing lower returns on direct-to-consumer advertising dollars, some of which is likely a result of Apple's anti-data tracking updates.

Context: Teladoc has had a no good, very bad year. Its shares had already declined 39%, and over the past 12 months, they plunged 70%.

Flashback: It seemed like Teladoc's executives were peering into a crystal ball two years ago when they inked their $18.5-billion deal for Livongo, a move that gave the combined businesses a market capitalization of nearly $30 billion. 

But the pandemic has fueled unprecedented growth in the digital health sector, pushing Teladoc to compete with venture-backed virtual care darlings such as Lyra, Omada and Ro.

By the numbers: Teladoc lowered its 2022E revenue guidance from $2.55-$2.65 billion to $2.40-$2.50 billion and its 2022E adjusted EBITDA guidance from $330-$355 million to $240-$265 million.

What they're saying: Analysts were alarmed by the scale of Teladoc's losses, but not necessarily surprised the company is facing headwinds as the virtual care stage crowds. 

"The resulting increase in competition ... was expected. What's unexpected is the impact," Cowen health care analyst Charles Rhyee writes in a research note.

"The magnitude of the 2022E EBITDA guidance reduction is somewhat remarkable to us, with a reduced EBITDA guide of ~$90M at the mid-point, which is a 26% decline," BTIG health care analysts David Larsen and Aron Corin write in another note.

Teladoc "is left with a D2C air pocket that B2B sales (and their inherently longer cycles) are too slow to fill," SVB Leerink analysts Stephanie Davis and Joy Zhang write in yet another note.

"We worry that the market is largely saturated with telehealth solutions," Larsen and Corin add.

The other side: Some analysts still see long-term potential in Teladoc despite its current pain, and point out a few upsides from the company's latest earnings call.

Teladoc "has established an industry consolidator advantage in the nascent and fast-growing telehealth market" and "boasts an attractive set of customers that also present further opportunity to drive growth," Rhyee adds.

"Some positives from the call were that [roughly] 78% of new sales were multi-product, [Teladoc] won a very large health system in New York and pricing seems steady," Larsen and Corin add.

What's next: There's concern among analysts that Teladoc's hammering could have reverberating impacts on the wider digital health sector, especially on employer- and payer-facing and telehealth companies.

"We expect the negative report to have a flow-through impact on the entire digital health care sector," add Davis and Zhang.

2. The BFD: ⬇️ Telado(n't)?

Illustration of a telephone with medical red crosses floating outward

Field Trip Health, a company providing psychedelic-assisted psychotherapy, raised $23m in new funding led by Oasis Management Company and announced its reorganization into two companies focused on developing and distributing the compounds, respectively: Reunion Neuroscience Inc. and Field Trip Health and Wellness Ltd. https://www.fieldtriphealth.com

HealthBeats, a Singapore-based remote monitoring startup, raised $3m in seed funding. Heritas Capital led the round, joined by SEEDS Capital, the investment arm of government agency Enterprise Singapore. https://www.healthbeats.co/

L Squared Capital Partners acquired Globe Scientific, a provider of laboratory consumable supplies. The investment was made via GSI Group Holdings.

Somatus, a Virginia-based kidney care company, acquired the assets of Lumiata, a Silicon Valley-based maker of predictive analytics tools for health care. https://somatus.com 

HCA Healthcare agreed to acquire BetterMed, a Richmond, Virginia-based urgent care chain. https://www.bettermedcare.com/

Xpress Wellness, backed by Latticework Capital Management, acquired Integrity Urgent Care, a Texas-based chain of urgent care clinics in rural parts of the state. www.integrityuc.com

Bausch + Lomb, the eye health business that is being spun out of Bausch Health, filed to raise up to $840m in an IPO. http://axios.link/X9OH

3. Deals o' the day

iRhythm named Mintu Turakhia chief medical and scientific officer from Stanford, where he was director and co-founder of the Stanford Center for Digital Health.

Foresite Labs promoted Alex Blocker to CTO from head of data science and Rick Dewey to chief scientific officer from head of genomics discovery.

4. It's Personnel

🎤 Situational awareness: Sarah is heading to Boston for the American Telemed Association's annual conference, where on Monday she'll sit down to chat telehealth and care navigation with Glen Tullman, CEO of Transcarent and founder of Livongo, the company whose acquisition by Teladoc just triggered a $6.6B impairment charge. (More on that below.)

🎶 Sarah plans to enjoy some live music and Brooklyn Museum's Andy Warhol exhibit this weekend before heading to Boston for ATA. Hit her up if you'll be there!

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April 29, 2022

1 big thing: A SPACtacle's reflection