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After losing out on One Medical, CVS moved fast to land an $8 billion deal for Signify Health — the first move in what executives indicate is a bigger vision to reinvent how care delivery is orchestrated, Sarah writes.

Why it matters: CVS really wanted Signify — and proved it's a good time to be a well-capitalized strategic buyer that can pay all cash, versus private equity buyers that have to arrange debt financing. 

Behind the scenes: Sources say CVS preempted the sale process for Signify, with final bids due after Labor Day for the Dallas-based provider of in-home health assessments and value-based care enablement.

Sources also suggest that a traditional LBO would have likely supported, at most, a deal valued in the mid-to-high $20 per share range — below CVS' $30.50 all-cash offer.

The $8 billion deal values Signify at some 35x EBITDA, whereas "its hard to see how PE would have gotten much above 20x," one source adds. 

What they're saying: CVS and Signify declined to comment on process dynamics, but Signify CEO Kyle Armbrester confirmed it was "very competitive" with both strategics and private equity around the table. 

"This wasn’t about needing money... This is about unlocking another strategic vector of growth for us that’s going to drive better outcomes for patients at scale."

In a health care market fraught with high costs and mixed quality, "we've got to start thinking radically different from where we've been," Armbrester says. "We wanted to see [Signify] taken to the next level and CVS was the best place to make sure that happened." 

💭 Our thought bubble: CVS didn't just have the most cash or drive — it was probably the most reliable buyer. 

The FTC is already investigating Amazon's $4 billion One Medical purchase, while UnitedHealth Group's fight against the DOJ over its Change acquisition remains unresolved as the FTC requests more information around its pending LHC buy. 

Zoom in: Signify checks two of three boxes on the CVS health care services agenda: home health and physician enablement. 

It doesn't fit the traditional definition of its third box — primary care — but Signify's in-home evaluations are "an extension of the primary care team," CVS CMO Sree Chaguturu tells Sarah. 

Signify is already making hundreds of thousands of referrals out of homes today — one of the major roles of a PCP, Armbrester says, "I already think we do care in the home." 

Signify, by identifying patients' clinical and social needs, gives CVS the opportunity to connect members back to primary care providers, specialists, virtual care, or into the CVS network as appropriate — via its MinuteClinic or pharmacy services, Chaguturu says. 

"That fundamentally helps us deliver on value-based care, but also to improve patient access to care and improve quality," Chaguturu says.

💭 Our (second) thought bubble: The old model of primary care is constantly evolving, and Signify — by entering the home, assessing the member, and then deciding what needs to happen next — could be considered a new version of the so-called health care quarterback. 

Armbrester notes: "Those actions being taken are what helps drive outcomes at the end of the day."

What's next: CVS still wants a direct entry into primary care, reiterates Chaguturu, with additional M&A poised to follow. "The order of M&A is not important," he says. 

Signify eventually wants to start managing chronic conditions in the home, particularly for those that lack transportation or live in a food desert, Armbrester says. 

Medication therapy management could be another logical growth vector in the home, another source suggests. 

1 big thing: Behind the scenes of CVS-Signify

Illustration of the CVS logo with dollar bills forming the heart.

In a people-to-pet pivot, PillPack alum Gavin Cotter raised $20 million in Series A funding for his latest venture, an online pet pharmacy called Koala Health, the CEO tells Erin exclusively.

Why it matters: Veterinary care is expensive and getting pricier, with pet firm MARS Veterinary estimating a 33% spike over the next 10 years. And, like human medical care, the field is reckoning with a sizable labor shortage.  

🐨 Catch up quick: PillPack, a startup that catered to people with chronic conditions by delivering medications in conveniently labeled packets, rose to fame when Amazon acquired it in 2018 for $753 million.

Koala — named after the animals' characteristic front pouches — aims to provide a similar service for pet owners. Its co-founder, Jordan Smith, is a PillPack alum as well. 

Deal details: Menlo Ventures led the round and First Round Capital, Box Group and Operator Partners joined, bringing Koala's total funding to $23 million.

How it works: Koala's pharmacy team works with veterinarians to deliver and refill medications to pet owners, who can price-shop on the company's website.

What's next: Currently available in 36 states, the company plans to expand to all 50 states by year's end.

It also plans to raise a Series B sometime next year, Cotter tells Erin.

"Venture funding is key while there’s still a gap in the marketplace," he adds.

State of play: Vet care clinic roll-ups (and increasingly, virtual pet care startups) have historically dominated investor attention. That's partly because fewer startups have focused on closing the supply chain gap between vets and pet owners. Some exceptions...

Mars Petcare and Bain Capital Ventures-backed Vetsource, which helps vets source medications, OTC healthcare products and pet foods from manufacturers to pet parents’ front doors.  

Covetrus, which CD&R and TPG recently took private in a $4 billion deal, has a supply chain products and distribution business; home pharmacy and compounding medications businesses; and a software and tech arm aimed at boosting vet office efficiency. 

And further down the supply chain, Wedgewood Pharmacy dominates the pet compounding pharmacy arena. (Partners Group bought Wedgewood in 2021 at a roughly $700 million value.)

Meanwhile, virtual pet care remains an up-and-coming corner of the health tech sector, with venture dollars purring into startups selling everything from home care and diagnostics to telehealth and more consumer-friendly versions of classic in-office care. For example:

Petfolk, a vet startup boasting simplified access to health records and care teams, in August clinched $40 million in Series A funding.

The Vets, a home care pet startup, in January raised $40 million in a mammoth seed round.

Hybrid pet care company Modern Animal last summer collected $75.5 million in a combined Series A and B round.

Yes, but: Despite a flash of recent venture deals, the pet care sector continues to be dominated by private equity players that maintain industry control, such as JAB Investors' NVA and TSG Consumer Partners' Pathway Vet Alliance.

💭 Our thought bubble: Like human caregivers, veterinarians are being pummeled with demand, so we foresee the sector continuing to bubble with M&A and investor interest from both private equity and venture players.

2. The BFD: PillPack alums pull in $20M for Koala

Trek Health raised a $2.7 million seed to help mental health providers accept insurance, CEO Dilpreet Sahota tells Erin exclusively.

Why it matters: An estimated 45% of psychiatrists don't accept any form of insurance, and an even greater share accepts only a narrow set of plans.

Deal details: Lionheart Ventures led the round, and Lionheart partner (and Turo founder) Shelby Clark is joining Trek's board of directors.

Other participants in the round include Founder Collective, Altman Capital's Jack and Max Altman, Ford Street Ventures' Matt Brezina, Snapdocs' Aaron King, Okta's Frederic Kerrest, former Salesforce CSO Clarence So, and former One Medical VP of operations Rich Menendez.

Context: As the virtual care sector crowds, businesses that handle the administrative (read: unsexy) parts of the business are beginning to rake in venture funding. For example...

Nitra, a fintech launching a Visa Business card for physicians, in August pulled in $62 million in debt and equity financing.

Plug-and-play virtual care software developer Capable Health in May collected $6 million in seed funding.

Heard, which handles mental health providers' back-of-office tasks, in May raised $10 million in Series A funding.

Be smart: The trend is especially apparent in virtual behavioral health, where an increasingly bright light is being shone on how few providers take insurance. 

Just last month, PsychHub, a startup founded by former U.S. Congressmember Patrick J. Kennedy that directs patients to in-network providers, raised $16 million in Series A funds.

What they're saying: Sahota agrees, saying, "We’re seeing a new wave of infrastructure companies helping providers be the best versions of themselves."

Entrepreneurs including Sahota and Trek's head of partnerships Anthony Nelson also say they want to help therapists maximize their time with patients.

"These providers got into this space to provide care, not to do billing," Nelson says. 

The backstory: Moved by the dual tragedies of losing his mother to leukemia and witnessing a dearth of access to mental health care in the Central Valley of California where he grew up, Sahota hopes Trek's tools will help physicians boost care outcomes and avoid burnout. 

How it works: Trek’s AI-powered tools integrate with electronic health record systems and help providers with claim reimbursement, automated claim generation, and submissions and payer enrollments across more than 900 insurance networks, Sahota says. 

Clients include behavioral health startups, inpatient mental health rehab centers, outpatient psychiatric facilities and outpatient psychotherapy centers.

What's next: Although Trek's foundation is behavioral health, the company plans to expand to other care verticals where providers are "left out" of the insurance coverage realm, such as dietitians and massage therapists.

"We see growth opportunity there, too," Sahota says.

3. Trek Health seeds $2.7M to help therapists take insurance

Illustration of a coffee mug that reads "I love my job" with a brain in place of the heart

Walmart and UnitedHealth Group inked a 10-year partnership to deliver care to Medicare Advantage plan participants, the companies announced this morning.

Why it matters: As two of the biggest players in their respective sectors, their moves could ultimately impact millions of older Americans.

UnitedHealth Group will also offer Walmart Health Virtual Care as an in-network option to about 20 million PPO plan members.

4. Walmart, UHG team up on Medicare Advantage 

Otolith Labs, a Washington, D.C.-based developer of wearable medical devices for vestibular disorders, raised $20m in Series A funding led by Morningside Ventures. www.otolithlabs.com

Upfront Healthcare, a Chicago-based patient engagement platform, raised $10.5m in Series C financing co-led by Baird Capital, Echo Health Ventures and First Trust Capital Partners. https://upfronthealthcare.com 

Healee, a Sofia, Bulgaria-based developer of configurable digital health tech, raised $2m in seed funding led by Nina Capital with support from Calm/Storm Ventures, Kaya VC and insider Eleven Ventures. https://axios.link/3QlSP2v

VetCor, backed by Harvest Partners, acquired People, Pets & Vets, an animal hospital chain. Existing PP&V investor Cressey & Co reinvested a minority stake in the combination. 

Axios wrote in April that Harris Williams was advising on the sale of the PP&V.

Antelope, an Alpine Investors-backed omnichannel pet products and services platform, acquired Ark Naturals Company, a pet health and wellness brand.

5. Deals o' the day

Rock Health named Emory Acute Care Design and Innovation Center founding director Monique Smith director of design and innovation.

DispatchHealth named former Workpath CEO Eddie Peloke head of engineering.

Intelligent Medical Objects named former Olive AI director of partnerships Sean Brindley VP of strategic partnerships.

Citi named former Dascena CEO Andrew Pucher managing director and head of west region health care investment banking.

AssistRx named former PillPack sales principal Kevin Kriel VP of business development.

Cigna named Health Evolution founder and former chair David Brailer its first chief health officer.

JDRF T1D Fund promoted former investment director Yury Kukushkin to managing director.

6. It's Personnel

🐪 Happy hump day, Health Tech readers. We're already halfway through this short week.

Situational awareness: Erin will be in San Diego tomorrow kicking off the Heart Rhythm Society's annual digital health conference with a session on data ownership featuring execs from Medtronic and the Mayo Clinic.

🐉 Erin is putting her post-GoT frustrations on hold to give "House of the Dragon" a chance. So far, so good.

🙏🏻 Thanks for reading Axios Pro Health Tech! Please ask your friends and colleagues to sign up.

September 07, 2022

1 big thing: Behind the scenes of CVS-Signify