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BFD Expert Voices - Health Tech Deals

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Editor’s note: This story has been corrected to reflect that the legal recourse for unpaid wages is being pursued by former employees of Ava and not by Ava, the company, as was initially reported. The story has also been corrected to remove a reference to Ava as a vendor of FemTec. (Ava is a subsidiary.)

Women's health startup FemTec Health has cut 10% of its staff, and former leaders of its Zurich-based subsidiary Ava Sciences-FMTC GmbH have filed with Swiss regulators to recoup allegedly unpaid wages, Erin writes.

Why it matters: In October, Axios wrote that the company was struggling to deliver on its expansive mission and vision of "revolutionizing women’s health care" using state-of-the-art digital tools.

Catch up fast: Axios' previous reporting covered allegations that FemTec founder Kimon Angelides misrepresented the company's financial and operational status and failed to pay several vendors.

Details: A group of former leaders at Ava – which develops wearable, FDA-approved fertility-tracking bracelets – late last year filed with Switzerland's debt enforcement office, called Betreibungsamt, to recoup wages that they allege were not paid, per emails and other documents viewed by Axios. Those leaders include CEO Lea von Bidder. In an emailed response seen by Axios to von Bidder, Angelides warned that the claim would have a “far reaching impact on the company.” Angelides wrote:

"While we understand that you and the others felt compelled to file such claims, these claims and the consequence of this have far reaching impact (sic) on the company, and the QvQ shareholders. It is likely should this go through, the value of any shares or interest in the company will go to zero. I believe that this is not the result that you are seeking as former CEO..."

"Following the above, the demise of the company accelerated by personal claims from the former CEO could very likely have personal reputational (sic) consequences and unfortunate perceibed (sic) personal failures, when there need not. Don't get me wrong here, there is nothing we would do, but should the company fail after so short a time, and this being in the public record, things can get twisted, and they just shouldn't be. I would like to avoid this on all (sic) behalf."

"This is not to say we do not find value in the purchase of Ava but certain challenges that we did not expect occurred. We would like to make the best of it, try to recover and build value of the shareholders as we restructure so that the ending is a good one. This Betreibung doesn't help at all and puts everyone on the QvQ [holding company] side in a very difficult position." 

Of note: FemTec in October had 82 employees per PitchBook and LinkedIn data. It now employs 49, according to LinkedIn.

What they're saying: In an emailed response to Axios, a FemTec spokesperson said "Dr. Angelides made an offer in the best interests of the company and the shareholders with regards to the alleged claims for wages."

The spokesperson confirmed the cuts, saying the downsizing was a result of the company having been reorganized and would "support the strategy going forward."

Lea von Bidder did not respond to multiple requests for comment. 

1 big thing: FemTec cuts staff; subsidiary's former leaders seek legal recourse


Illustration of a collage of FemTec Health's logo, money, medical diagrams and anonymous women.

Illustration: Shoshana Gordon/Axios. Logo: FemTec Health

Johnson & Johnson filed IPO registration papers for its consumer health products business, which is being spun out under the name Kenvue. 

Why it's the BFD: This could be the largest U.S. IPO since Rivian went public in late 2021, with Renaissance Capital estimating that Kenvue could raise up to $5 billion, Axios' Dan Primack writes. 

Backstory: J&J announced 14 months ago that it would spin off the consumer health unit, following similar moves by pharma rivals GSK and Pfizer.

The unit encompasses a slew of household brands, including Tylenol, Band-Aid, Johnson’s Baby Powder, Listerine, Neutrogena and Nicorette.

Details: Kenvue plans to list on the NYSE (KVUE) and reports $1.7 billion of net income on $11.2 billion in sales for the nine months ending Oct. 2, 2022. Goldman Sachs and JPMorgan are listed as lead underwriters.

The big question: Does Kenvue stay a stand-alone entity, or will there be carve-out opportunities for private equity investors? 

2. The BFD: J&J files IPO for consumer health business

Image of a bandaid against a bright circular light

Strained debt markets and an ongoing labor crisis could yield a more muted dealmaking environment for health care services in the first half of 2023, industry sources tell Claire.

Why it matters: As valuation expectations normalize from 2021 highs amid the growing overhang of undeployed private equity capital, the market will likely be busy in the second half of this year. 

Driving the news: The annual kickoff event for the sector M&A, also known as the J.P. Morgan Healthcare Conference, starts next week.

Yes, but: Don’t expect a deal deluge in January, says Bain Capital head of health care Devin O’Reilly.

“I think there's a lot of activity and introductions happening with the idea that processes could be kicked off in the first half of next year,” O’Reilly tells Axios.

“Certainly as we look at things from here forward over the next three to six months, we expect that the first half of ‘23 will look a lot like the back half of 2022,” says Rajat Duggal, a partner at private equity firm FFL Partners.

What’s happening: Both the syndicated debt and direct lending financing markets have been stressed, delaying transactions and forcing creative deal structures.

O’Reilly and Duggal, as well as THL’s Josh Nelson, said partnering and co-investing with other sponsors has been one method to circumvent financing difficulties. 

Bain has been forming and tapping a larger consortium of direct lenders that have been more active than those in the syndicated loan market, O’Reilly says.

Zoom in: Value-based care will remain a resonant theme for health care investors, buoyed in part by Amazon’s $4 billion acquisition of One Medical.

Top-tier assets should be able to demonstrate a clear record of clinical benefits — in the form of lower hospitalizations, lower total cost of care, and improved health outcomes, says O’Reilly. 

Be smart: The VBC gold rush is already well underway and buyers are more scrutinous, says Marc Cabrera, co-head of health care investment banking at Oppenheimer. 

“The buy side of the market is not nearly as deep and robust as it has been,” he says. “Sponsors already invested are going to be mindful and thoughtful about what they do with existing portfolio assets. The bar has risen to deploy additional capital.”

What we’re watching: A handful of publicly traded VBC players have seen their stock prices take a beating, including Cano Health, Agilon Health, CareMax and Bright Health.

“I think we could see more take-private opportunities come to fruition next year,” says O’Reilly. Along with health tech and biotech, "value-based care is certainly an area to look at.”

Meanwhile, a physician shortage and wage inflation are rankling health care companies in both the public and private markets. For instance, Duggal says that both in tending FFL’s current portfolio or vetting new investments, the adage “location, location, location” applies.

“How to hire in San Diego versus Pennsylvania are two very different things,” he says. “How to hire a doctor versus a nurse versus an X-ray tech are also very different things.”

The bottom line: “People are looking at deals that are more bespoke, more proprietary,” says Faraaz Kamran, a senior partner at direct lender Twin Brook Capital Partners.

 “More auctions are trickling out but they’re limited. The question is: how much are you going to pay, how much leverage can you put on, and how will it perform in a macro downturn?” 

3. In like a lamb: Health services M&A in 2023 

Illustration of a hand reaching to for a handshake, with a gloved hand pulling back

KeyCare, a virtual-first care platform built with Epic, completed a $27m-plus Series A funding round with new investments from Ziegler and two health systems. axios.link/3Gmw8bp 

AVS, a medical device company, raised $20m in Series B funding led by BioStar Capital. axios.link/3VIa9kV 

LinusBio, a New York-based precision exposome sequencing startup, raised $16m in Series A funding co-led by GreatPoint Ventures and Bow Capital. www.linusbio.com

Herself Health, a health tech company providing primary care to women over 65, raised $7m in seed funding led by founding partner Juxtapose. axios.link/3WS5y0W 

Crescendo Health, an SF-based clinical research data startup, raised $3.4m led by Define Ventures. www.crescendo.health

Cressey & Co. and Health Enterprise Partners acquired InterMed, an Alachua, Fla.-based health care tech management services firm, from Granite Bridge Partners. www.intermed1.com

Danforth Advisors acquired Argot Partners, a life sciences communications consultancy. Danforth backers include Stone-Goff Partners, Avesi Partners and Northwood Ventures. www.danforthadvisors.com 

Aquiline Capital Partners and Level Equity-backed Planet DDS, a cloud-based dental software company, acquired software business, Cloud 9 Software from Accel-KKR. axios.link/3IzywxY 

Codex IT, a health care technology solutions and managed services company, acquired managed services provider Intranet Consulting. axios.link/3WRCOp4 

Life Science Outsourcing, a contract manufacturer, acquired J-Pac Medical, a life sciences manufacturing, packaging and sterilization provider. axios.link/3InOhbt 

Health Network One, a provider of specialty benefit management services for health insurers, acquired the ophthalmology network, Premier Eye Care. axios.link/3CoNOSk

4. Deals o' the day

Eric Jacobs and Vince Lambert each left Nomura to become managing directors and co-heads of U.S. healthcare at Macquarie Capital.

Woebot Health named former Kaiser Permanente Care Management Institute director Trina Histon VP of clinical product strategy.

Amazon named its former chief medical officer for new products Vin Gupta medical director of Amazon Pharmacy.

Curve Health named former Life Image CEO Matthew Michaela its CEO.

5. It's Personnel

Situational awareness: The FDA this week ruled to make it possible for retail pharmacies to offer abortion pills in the U.S.

🧘‍♀️ Claire is on day four of Yoga with Adriene's 30-day challenge, which is her equivalent to an annual marathon. 

✨ Thanks for reading, and extra thanks to newsletter editor George Moriarty and copy editor Mickey Meece. Please ask your friends and colleagues to sign up.

January 05, 2023

1 big thing: FemTec cuts staff; subsidiary's former leaders seek legal recourse