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BFD Expert Voices - Health Tech Deals

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Amazon's $4 billion agreement to purchase care clinic operator One Medical is all about one thing: scale, Erin writes.

Why it matters: Amazon, already a powerful health entity with tentacles in nearly every facet of the care ecosystem (except insurance), now has the in-person muscle to outbid most of its rivals, analysts and industry observers tell Erin.

What they're saying: "Whether it's physical interactions or virtual interactions, no one can compete with Amazon’s scale in either of those," Trilliant Health president and CEO Hal Andrews tells Erin.

Be smart: The shipping giant's One Medical buy gives it the ability to scale on multiple fronts, such as ...

Shoring up its expertise in consumer preferences.

Expanding its existing efforts in primary care.

Gaining a foothold in the Medicare Advantage market.

Of note: ONEM's Medicare Advantage business, Iora Health, likely played a key role in Amazon's decision to purchase it.

"Access to Medicare Plans and employer groups is likely a key consideration that Amazon has with this deal," write BTIG analysts David Larsen and Aron Corin in a research note.

"The sleeping giant in the deal may be One Medical’s Medicare Advantage business (Iora) because they can take on massive risk," says John Driscoll, CareCentrix CEO.

Plus: Thanks to Amazon Prime, the tech behemoth already has detailed insights into consumer behaviors — not only into what people want and need but also into how to influence their purchasing behavior, says Andrews. Leveraging those capabilities, Amazon can grow ONEM's clinic network to its advantage in virtual and in-person care.

From there, "it’s just about creating brick-and-mortar where you need brick-and-mortar," says Andrews. "There are some consumers who love virtual and telehealth and Amazon knows who those people are."

"We see the ONEM acquisition being additive to Amazon's move into telehealth, as ONEM performs 5:1 digital-to-in-person visits, providing Amazon with more scale in telehealth," Cowen analysts including Gary Taylor and Charles Rhyee write in a note.

Threat level: Amazon has access to approximately 44% of U.S. residents through Prime, according to a recent Trilliant report. 

In comparison, the largest health system in the country, HCA, serves just 1% of people in the U.S.

"No health system can match Amazon — or Walmart’s — scale in terms of the next interaction," says Andrews.

The Prime takeaway: The impacts of Amazon's ONEM purchase will only continue to reverberate throughout the health care ecosystem from here.

"Amazon’s really committed to this," says Andrews. "This is a big investment and sends a significant message that they’re serious."

1 big thing: Amazon's Day One (Medical)

Illustration of an empty doctor's outfit with the Amazon smile logo as the face. 

Lee Equity is exploring the sale of Inception Fertility, the largest IVF care provider in the U.S., multiple sources tell Sarah.

Driving the news: A sale process formally kicked off in June, with first-round bids submitted last week, sources say.  

Moelis is providing sell-side advice, they say, with the process expected to garner interest from both standalone sponsors and strategics. 

By the numbers: Inception, based in Bellaire, Texas, is forecasting approximately $90 million of 2022 pro forma adjusted EBITDA, including pending M&A, the sources say. 

It's too early to peg valuation, they say, but high-growth health care services assets have tended to fetch mid- to high-teens multiples, with some fetching 20x-plus. 

In recent relevant activity, KKR in April agreed to buy Spanish fertility giant Ivirma in a deal valued at €3 billion ($3.2 billion) or more, representing a more than 20x multiple. 

💭 Sarah's thought bubble: It's unclear how hard strategics will run at Inception, but freshly capitalized Ivirma, the largest industry player worldwide, could be a logical suitor if it wants to add to its existing North America footprint in a meaningful way.  

There's also Nordic Capital, which invested in the U.K.'s CARE Fertility in January and hinted at plans to support management with its "international growth ambitions."

Catch up quick: Lee Equity invested in what was then known as Prelude Fertility in 2017, merging it in 2019 with Inception Fertility.

Waypoint Capital joined as an investor in 2018. 

State of play: The process comes as broader macro issues and the financing markets deter many scaled assets from going to market, with few billion-dollar-plus health care services processes still alive. 

That said, direct lenders have continued to step up for high-quality assets as the syndicated market sits on the sidelines. 

Yes, and: The Roe v. Wade reversal and potential ramifications continue to dominate headlines in women's health.

On June 24, Inception said, "Today’s ruling does not limit or prohibit Inception’s ability to provide high-quality IVF as we always have, and none of the 'trigger' laws taking effect in the states where we operate will do so either." 

While questions remain unanswered as to the impact of egg storage in certain states, sponsors so far believe the ruling won't impede industry demand.  And, one source adds, "women's health is high on [investors'] lists."

Still,  depending on what regulators in purple states decide, it may require IVF clinics in certain geographies to make operational or logistical changes, sources note.

Between the lines: All of this noise could be offset by fertility care's strong supply-demand dynamics and scarcity value. 

The market is also witnessing growth in employer coverage, while technology advancements that support higher success rates could yield cost savings.

The list of PE-backed fertility platforms is fairly short, but there's a long runway to consolidate solo practitioners.

Other sponsor-backed players include Amulet Capital's US Fertility, Webster Equity Partners' Santa Monica Fertility, Morgan Stanley Capital Partners' Ovation Fertility and InTandem Capital's Ivy Fertility. 

Yes, and: Despite how timely and costly IVF treatment remains, volume for services is often characterized as growing at a more than 10% CAGR — outpacing the growth of other specialties in provider-land, sources note. 

That dynamic could insulate the industry from pressures of labor shortages and wage inflation — perhaps making it more investable.

The bottom line: Inception's outcome and price are still TBD, but a successful trade could represent a bellwether for fertility, particularly against today's political and regulatory backdrop.

Inception and Moelis declined to comment, while Lee did not return requests for comment. 

2. The BFD: Lee's Inception Fertility seeks buyer

Illustration of a pregnancy test with a dollar sign appearing on the screen.

Theator, a Palo Alto, Calif.-based surgery video analysis company, raised $24m in additional Series A funding led by Insight Partners with support from Blumberg Capital, Mayo Clinic, NFX, StageOne Ventures, iAngels, Neil Hunt, iCON and Ariel Cohen. https://theator.io/

The Lowdown, a U.K.-based reproductive health startup, raised $2.5m in seed funding led by Speedinvest with Nina Capital participating. http://axios.link/h6tG

Senzo, a Philadelphia-based diagnostics company, raised $2m in seed funding led by BioAdvance with Wellness Coaches participating. www.senzo.com

ArchiMed completed its $1.2b take-private acquisition of Middleton, Wisconsin-based medical device company Natus Medical. https://www.archimed.group

3. Deals o' the day

Microsoft named former AWS principal of clinical AI and ML Matthew Lungren chief medical information officer for Nuance Communications.

Amazon Care promoted Sarah Himmelrich from principal of value-based care to head of value-based care and product lead.

Oscar Health named former Zuckerberg San Francisco General Hospital director of operations Kim Nguyen head of virtual care strategy and operations.

Calm named former Plenty CFO Mike Gupta its CFO, promoted co-CEO David Ko to CEO and named co-founders Michael Acton Smith and Alex Tew co-executive chairs.

4. It's Personnel

Clarify Health, a San Francisco-based health care analytics company that raised $150m in Series D funds in April, laid off 15 people or about 5% of its workforce, Axios has learned.

5. Layoff tracker

It's Friday, Health Techies, and what a week it's been.

🤝 Situational awareness: Patient Square Capital late yesterday stepped up with its second take-private deal of the year, agreeing to buy medical devices maker Hanger for $1.25 billion. (This follows its February buy of SOC Telemed.) 

Who's on your "most likely" public-to-private list? Write to us. 

🛋️ Sarah for a change has almost nothing planned this weekend and she couldn't be more thrilled! 

😍 Thanks for reading Axios Pro Health Tech! Please ask your friends, cycling crew and family to sign up.

July 22, 2022

1 big thing: Amazon's Day One (Medical)