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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

On the heels of its Q2 earnings beat, value-based care enabler Privia is sitting with "a lot of control of [its] destiny," COO Parth Mehrotra tells Sarah. 

Why it matters: Value-based care is red hot, with major players like Amazon and CVS claiming their share of the market — and profitable public companies like Privia could be in the crosshairs. 

Driving the news: While the performance of most other digital health stocks remains bleak, Privia shares added to momentum Thursday (hitting a 52-week high midday) after raising guidance and topping earnings expectations.

Sitting on a $300 million cash pile and no debt, Privia is hyper-focused on operational execution and entering new markets organically, Mehrotra tells Sarah.

Privia is in its "goldilocks phase," Mehrotra says. "We're in eight states and 42 to go."

What they're saying: Mehrotra is wary of private market valuations (and expectations). However, he hints that Privia is well-positioned but under no pressure to consider various types of M&A — if and when it so wishes. 

“I think you’ll see some transformative public company-to-public company combinations,” Mehrotra says. “We’re not looking at anything now, but over time if we are to be independent and grow into the next $15-20 billion dollar publicly-traded business, it’s tough to do it organically in health care services.”

While it waits for the public-private valuation spread to narrow, Privia expects to seek $5 million to $20 million tuck-ins for service entities of medical groups/ independent physician associations to enter new states.

And, if Privia ultimately decides it wants to run IPAs like Agilon, or go build out clinics like Oak Street, "nothing precludes us," Mehrotra says. 

Context: While many tech-enabled health care players are hyper-focused — for example, solely on primary care Medicare Advantage  — Privia is taking the opposite approach.

Privia partners with and helps physicians of all specialties move toward value-based care, serving all types of patients in all settings, and participating in all types of reimbursement. 

That has translated to about 900 locations, about 4 million patients, 850,000 of which are in value-based arrangements today.

It’s a model that’s replicable and adaptable in any state, Mehrotra says.

Yes, and: "Since PRVA's model actually increases cash collections for practices, it makes sense to us that PRVA continues to grow," BTIG's David Larsen writes in a report.

Between the lines: Privia offers an alternative to doctors that don't want to join a health system, a PE roll-up, or United-Optum. 

Mehrotra "marvels" at what United-Optum has built but believes Privia has something it doesn’t have.

“We can partner with independent providers and health system-related providers who are vehemently opposed to joining United and Optum,” Mehrotra says, explaining that many physicians prefer the financial and clinical autonomy it enables. 

Yes, but: The executive credits former United CEO Stephen Hemsley for recognizing 15 years ago the need to own provider assets and create a care delivery network.

"They called it," he says. “There’s a lot of United-Optum envy I think people are aiming to capture." 

United, of course, has turbocharged this strategy with M&A — LHC Group, Kelsey-Seybold Clinic, Refresh Mental Health, Healthcare Associates of Texas, this year alone. 

State of play: In matters of post-IPO and post-SPAC share performance for those entering the digital health universe over the last couple of years, Privia is a clear outlier. 

Privia shares have climbed more than 40% this year so far, including Thursday's gains. In contrast...

Caremax is down 3%; Agilon is down 7%+; Oak Street is down 16%+;  Oscar Health is down 19%+; P3 Health is down 23%+; Clover is down 23%+; Bright Health is down 52%+; Cano is down 58%+; Babylon is down 87%+... and so on.

Editor's note: This story has been corrected to reference former United CEO Stephen Hemsley, not Steve Nelson. 

1 big thing: Privia emerges as health tech standout

Illustration of a single golden cross tipping a scale with a few red crosses on the other side.

Market correction notwithstanding, the timing is just right for suicide prevention app developer Oui Therapeutics to consider its platform potential, CEO Seth Feuerstein tells Erin.

Why it matters: Long perceived as an untreatable condition, suicide is the 10th leading cause of death in the U.S. (among people 10 to 34, it's the second).  

Oui hopes to change that as it mulls where it might eventually fit within the larger telemental health ecosystem.

Feuerstein thinks a range of players, from traditional health care giants to Big Tech companies, might see Oui as a good telemental health entry point, assuming it ultimately shows lives — and costs — saved.

"When our products are on the market, could I see us being a powerful engine for an Optum or a CVS?" says Feuerstein. "Or if a company like Lyra wanted to get into digital therapeutics? Yeah, I could see that."

State of play: Earlier this month, Oui announced a $26 million fundraise from CVS Health Ventures, Otsuka U.S. and First Round Capital.  

Flare Capital Partners, Polaris Partners and Athyrium Capital Management also joined the round.

Proceeds will be used to develop and launch its app, which it has been testing in clinical trials.

"It was important to me to have the best tech talent and First Round had that network," Feuerstein says. "They’d had a lot of success with companies like Flatiron Health, they were really technology-focused."

Context: Despite an overall slowdown in funding for telemental health companies, startups developing digital therapeutics — prescription treatments for acute mental illnesses — are beginning to see a spike in investor interest. 

Some players have gone public in recent months as commercialization speeds up.

Akili Interactive, developer of video games for ADHD, in January went public via a SPAC with Chamath Palihapitiya's Social Capital Suvretta Holdings Corp. at a $1 billion valuation.

Pear Therapeutics (Nasdaq: PEAR), last December merged with SPAC Thimble Point Acquisition Corp. at a valuation of $1.6 billion.

Oui, and: Venture dollars are also flowing freely to digital health companies focused on low-acuity mental illnesses.

Lyra Health collected $235 million in January.

Brightside Health raised $50 million in March.

How it works: The Oui app gives users a series of virtual tasks — most of them based on cognitive behavioral therapy (CBT) — aimed at helping people curb hopelessness, regulate their emotions, and familiarize them with reaching out for help.

The health care system's method of tackling suicide prevention today is "like if you showed up at a cancer center and they said, 'Sorry, you have a malignant tumor; we only treat benign tumors,'" says Feuerstein. "We hope with a prescription product, clinicians will embrace patients."

One fun thing: It's no accident that the French word for yes phonetically mirrors the English word "we." 

"We need multiple stakeholders working together who don’t normally work together — scientists, payers, etc.," says Feuerstein. "Rather than paying subject matter experts and having non-clinical leaders build the company, we’re doing the opposite."

2. The BFD: Oui Therapeutics eyes suicide prevention app platform

Illustration of a brain which is divided at the center and has a pixelated half

Note: Percentage includes those who say they are somewhat or very willing; Data: Healthcare Information and Management Systems Society; Axios Visuals

Nearly half of U.S. consumers are largely willing to don fitness trackers or punch meals into calorie-counting apps — though they're cooler to using digital tools for mental health or medication monitoring, the Healthcare Information and Management Systems Society reports.

The big picture: That was one of the findings on digital health in the years ahead in HIMSS 2022 Future of Healthcare Report, our Vitals colleagues write. 

The survey of patients, providers, payers and health system leaders found nearly all health care systems are already or intend to be, in some stage of digital transformation by 2027.

"Those that take too long to launch or advance, however, may find younger patients have moved on to rivals and retailers that embraced modern care models more quickly," the report says.

3. Patient appetite high for (some) tracker tech

Maximus, a Los Angeles men's telemedicine startup, raised $15m in a round led by Founders Fund's Keith Rabois and joined by others including 8VC, Abstract Ventures, 10X Capital, Unshackled Ventures, Bulletproof's Dave Asprey, Eight Sleep's Matteo Franceschetti, HVMN's Geoffrey Wu. https://www.maximustribe.com

Craniometrix, a San Francisco startup focused on virtual Alzheimer’s care, raised $6m in seed funding led by Quiet Capital and Y Combinator with support from defy.vc, Olive Tree Capital, Rebel Fund, J Ventures and Cathexis Ventures. https://www.craniometrix.com

Wondermind, Selena Gomez' mental health content startup, raised $5m in Series A funding at a $100m valuation in a round led by Serena Ventures and joined by Sequoia Capital, Lightspeed Venture Partners and former Allergan CEO Brent Saunders. https://axios.link/3AiJpzQ 

Health Care Service Corp., a Chicago health insurer, agreed to acquire Lake Forest, Ill.-based TPA Trustmark Health Benefits. https://www.trustmarkbenefits.com/

Signet Leadership, a Kokomo, Ind.-based DSO backed by Lead Capital Partners, acquired Dill Family Dentistry.

4. Deals o' the day

General Catalyst is hiring former Intermountain Healthcare CEO Marc Harrison to run an undisclosed health care platform business. Read more from our colleagues at Axios Salt Lake City.  

Kristen Helton is taking an extended break from Amazon, where she was most recently general manager of Amazon Care, per Bloomberg.

Redesign Health named former AWS head of health care partner strategy and solutions Neil Patel head of new ventures.

Vistria Group named Shelby Nutter, Harris Ahmed and Shan Rathi associates focused on health care. 

Healthcare Foundry named former Optum VP Jonathan Rhodes VP.

StartUp Health named former Cleveland Clinic CEO Toby Cosgrove to its board of directors.

Kinetik named Twill COO Megan Callahan to its board of directors.

5. It's Personnel

Situational awareness: The "behind the scenes" of One Medical-Amazon is here. In a regulatory filing, ONEM discloses that it was seeking $300m by year-end 2022, but amid financing challenges, pursued conversations with Amazon and "Party A" — CVS.

Turns out, the CVS offer was just as high as Amazon's. Read more.

⚜️ Sarah is organizing a gals trip to New Orleans for her mom's 7th turn around the sun. Any must-dos for her first trip to NOLA? Write to her. 

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August 12, 2022

1 big thing: Privia emerges as health tech standout