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BFD Expert Voices - Health Tech Deals

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Carousel Capital has suspended the sale process for Palmetto Infusion Services, multiple sources tell Sarah. 

Why it matters: While investors are eager to build out ambulatory infusion center networks to disrupt a market historically dominated by hospitals, this Southeast-centric player is punting sale plans to a future date. 

Details: As is often the case, a mismatch in buyer and seller value expectations contributed to the shelved process, sources say. 

Pawleys Island, S.C.-based Palmetto couldn't get full credit for EBITDA adjustments accounting for recent expansion outside of South Carolina, where clinics are not fully ramped up, some of the people say.

South Carolina has an attractive reimbursement environment, but investors had questions around how repeatable Palmetto's model is in other geographies, sources say. 

Choppy debt markets likely didn't help, though we've seen lower- and midmarket deals succeed in arranging financing. 

Catch up quick: Carousel, three years into its investment, engaged Raymond James early this year to explore options for Palmetto.

Around $40 million of adjusted EBITDA was marketed for the company, which provides ambulatory- and home-based infusion services for chronically ill patients. 

Be smart: Investors' increasing enthusiasm around AIC organizations reflects the large innovation opportunity in what is a massive and growing market.

Payors are calling for more affordable and quality infusion care options, outside of the traditional hospital setting, as an aging population demands a better experience and more convenience.

That's led investors to build platforms in more cost-effective settings — ambulatory clinics and the home — with the former arguably more appealing given its labor efficiencies. 

As the FDA approves more specialty therapies, there's a big opportunity for these businesses to become more diversified as drugs come off the pipeline.

What they're saying: Whereas some AICs are prioritizing a high-end patient experience that comes with luxury private rooms or smaller, intimate sites, Palmetto tends to have larger clinics — which might better position it for any potential reimbursement cuts in the future, one investor notes. 

Even if reimbursement pressure is inevitable, "the long-term volume story [of infusible therapies] is overwhelmingly positive," the source says. 

👀 What else we're watching: KabaFusion, an intravenous immunoglobulin (IVIG)-focused in-home infusion platform, whose deal we hear is around the corner. 

Carousel, Palmetto and Raymond James did not immediately return requests for comment. 

Claire Rychlewski contributed reporting. 

1 big thing: Palmetto shelves sale  

Illustration of a book shelf with a health plus made from negative space.

With a flurry of new capital flooding the space, the ambulatory infusion center arena remains a land grab. TBD on who will actually emerge as a leader in the space, but recent investments include:

InTandem Capital Partners in March launched Denver-based Vivo Infusion.

One Equity Partners in January made a strategic investment in InfuCare Rx.

Oak HC/FT in November led a $50 million funding into Infusion for Health.

Great Hill in September 2021 injected a $100 million growth investment into IVX Health, joining Linden Structured Capital, and McKesson Ventures, among others.

River Cities Capital in August 2021 invested in FlexCare Infusion Centers.

Linden Capital in October 2020 invested in Vital Care.

State of play: Ambulatory infusion centers

2. AIC state of play

Value-based drug contracting software startup Lyfegen collected $8 million in Series A funding to expand its U.S. presence with a focus on specialty drugs, CEO Girisha Fernando tells Erin exclusively.

Why it's the BFD: Specialty drugs cost vastly more than traditional medicines, often requiring special handling and administration, and account for more than half of total pharmacy spending, per a recent CVS Health report.

Details: aMoon led the round, joined by Apex Ventures. The round brings Lyfegen's total funding to roughly $10 million.

Lyfegen has contracts with several pharmaceutical companies, including Novartis, Pfizer and Roche.

Fernando says it also has contracts with two integrated U.S. payers, for now.

What's next: The company foresees a Series B in about two years.

"Current market conditions require us to be resourceful and focus on value-maximizing activities," says Fernando, "but in 24 months we see a huge opportunity to raise again and cover more ground."

Context: Myriad high-cost therapies — including treatments for AIDS, arthritis, cancer and multiple sclerosis — are coming to market, sending costs skyrocketing. Value-based contracting (VBC) may help lower those costs.

"It’s like someone put a needle in the system and it’s going haywire. It was never built to accommodate these high-cost drugs," Fernando tells Erin.

Meanwhile, although fee-for-service contracts still dominate in drug pricing, there's been a concerted transition in recent years toward VBC arrangements.

How it works: Based in the U.S. and Switzerland, Lyfegen provides its software — comprised of real-world data on specialty drug patient outcomes — to insurers, payers and pharmaceutical companies, which use it to negotiate VB contracts and pay a fee based on the number of contracts they ink.

State of play: Investors have been pouring money into real-world data (RWD) analytics companies in recent years, fueled in part by regulatory support from the Food and Drug Administration and other government agencies. For example... 

PurpleLab, a RWD startup that provides claims and clinical data to providers, in September collected $40 million in Series B financing.

HealthVerity, another RWD company, focused on providers, last year raised $100 million in Series D funding.

Yes, and: RWD companies Aetion, Flatiron Health, IQVIA, Syapse and Tempus last year came together to form the RWE Alliance, an industry coalition that is pushing the FDA to use such information to support its regulatory decisions.

3. The BFD: Lyfegen Series A exclusive

Illustration of hands in a suit chiseling a dollar sign into a pill

UnitedHealth Group's $13 billion acquisition of Change Healthcare will proceed, after a federal judge on Monday denied the Justice Department's efforts to block the deal on antitrust grounds.

Why it matters: This is a huge win for UnitedHealth and perhaps an even bigger loss for the Biden administration, Sarah writes. 

Details: Judge Carl J. Nichols also ordered UnitedHealth to divest payment integrity group ClaimsXten to TPG Capital for $2.2 billion in cash, as the company previously agreed to do. 

Catch up quick: Regulators in February concluded that UnitedHealth's purchase of Change was anti-competitive, setting the stage for a several-day trial in August. 

The DOJ alleged that the deal would give UHG access to its rival health insurers’ competitively sensitive data, plus unfair access to any future innovation by Change. 

Context: UnitedHealth has long been known as an aggressive buyer, but its M&A spree accelerated in 2022.

Other recent purchases include home care giant LHC Group ($5.4 billion), Refresh Mental Health ($1.2 billion), Kelsey-Seybold Clinic and Healthcare Associates of Texas. 

💭 Our thought bubble: While this is a clear victory for UnitedHealth, it did take nearly two years to get there. If you're another multibillion-dollar health care company looking to get bought (like Cano Health, perhaps), do you really want to wait that long to get your deal done? Depends on the price.  

4. UnitedHealth beats Justice Dept on $13 billion merger

Illustration of train car silhouettes connected by red crosses.

McKesson agreed to acquire Rx Savings Solutions, an Overland Park, Kansas-based prescription price transparency and benefit insight company, in a transaction valued at up to $875m.   https://rxss.com/

Houston's Pulse Healthcare System agreed to acquire a controlling interest in west Houston's Crystal Outpatient Surgery Center. https://www.pulsehealthcaresystem.com/

5. Deals o' the day

Former CVS Health product development director of virtual care Richard Desarmes announced a new job as co-founder and CTO of Marti Health.

Vytalize Health named former Olive AI technical recruiter Thomas Workman lead talent sourcer.

6. It's Personnel

Situational awareness: Walgreens Boots Alliance is paying about $1.37 billion for the remaining 30% stake not owned in Shields Health Solutions, a hospital-facing specialty pharmacy company — providing a full exit for Welsh, Carson, Anderson & Stowe. 

A year ago, Walgreens boosted its Shield stake to 70% at a roughly $2.5 billion valuation, sources told Axios previously.

🧘🏼 Erin is still recovering from her bike ride and would like to stay still for awhile.

✅ Thanks for reading, and extra thanks to newsletter editor Claire Rychlewski and copy editor Mickey Meece. Please ask your friends and colleagues to sign up.

September 20, 2022

1 big thing: Palmetto shelves sale