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After a lackluster 2022, the health care deal market will be defined this year by cash-rich strategics making calculated bets, a Bain & Co. report predicts.

Why it matters: Strategics are already primed to lead more venture capital raises, and their balance sheets suggest they'll be active buyers, too, Claire writes.

The report surveyed about 300 M&A executives globally across industries on their 2023 outlook and priorities.

Zoom in: Payers sat on the deal sidelines in 2022, but the top 25 health insurers have a combined $200 billion on their balance sheets, the report says.

Given the mammoth size of the major players, maintaining competitive advantage and moving the needle on revenue will require a large buy.

A merger of equals would likely not pass regulatory muster, but expect payors to make large buys in adjacent markets (UnitedHealthGroup-owned Optum's playbook is a good one to look at).

Meanwhile, med tech M&A last year was primarily "designed to provide innovative technologies for future growth" rather than add products to portfolios, the report says.

The report cites Stryker's $3 billion acquisition of Vocera Communications as one example.

What they're saying: "There is a lot of convergence between digital health and med tech," Andreessen Horowitz general partner Julie Yoo said at an SVB webinar last week. 

Best Buy paid $400 million for remote patient monitoring technology vendor Current Health last year, and Biofourmis raised $320 million in Series D capital from General Atlantic and Intel at a valuation of nearly $1.3 billion. 

"The hybrid business models actually mitigate a lot of the risk of why people traditionally might not have been leaning into med tech, where you have manufacturing risk and supply chain risk," Yoo says. 

Yes, but: Don't count out private equity competition, the report cautions.

"Strategic buyers hoping for a steal should be prepared for increased competition from financial buyers as the year unfolds," it says, citing continued record amounts of dry powder and a willingness to pay for good-quality assets.

1 big thing: Cash-rich health strategics prepare to make bets

Illustration of a handshake with shapes and zoomed in photos of dollar bills. 

Respiratory health management company Aluna has inhaled $15.3 million in Series B capital, CEO Charvi Shetty tells Erin exclusively.

Why it's the BFD: Although dozens of apps and devices exist to help people with lung conditions manage their illness, few offer what Aluna aims to: a fully integrated, combined service that lets people see how they respond to medications in real time.

"What we do is essentially what you'd do in a clinic," Shetty says.

Deal details: Insider Matrix Partners led the round, bringing Aluna's total funding to $27 million. 

Other participants included Rho Capital Partners and individual backer Warner Carr, an Irvine, Calif.-based allergist.

Shetty says the company plans to use the funds for product innovation, including expanding from asthma into COPD and cystic fibrosis. 

Aluna will likely raise a Series C in 2024.

How it works: San Francisco, Calif.-based Aluna partners with providers who offer its FDA-cleared spirometer device and app to their patients. Providers pay a $65 monthly fee to the company, which handles insurance verification so they can be reimbursed through remote patient monitoring.

Roughly 80% of Aluna's customers are adults with mild to moderate persistent asthma. The rest are children and teens.

Customers breathe into the Aluna device and use a corresponding app to see their lung function, visualized as a rocket taking off based on the strength of their breath.

Users then measure their response to medications and input data about potential triggers such as exercise, environment and location — and the data is shared with providers.

The children's version of the app has a game component that lets kids customize their rocket, unlock achievements and encounter various moons and characters. 

The backstory: Shetty learned she herself had asthma while testing an early version of Aluna's technology as a graduate student at UC San Francisco, where she and co-founder Inderjit Jutla began Aluna as a class project.

By the numbers: Aluna has 4,000 active users across the U.S., per Shetty.

Of note: The company's biggest challenge will be continuing to onboard patients and expand into other conditions, says Aluna investor and Matrix general partner Antonio Rodriguez, who previously invested in non-health care companies including Oculus VR and MakerBot.

"It's a lot easier to move fast and break things when you’re not worried about federal audits or doctors encountering difficulties getting patient data," he says.

🌚 One fun thing: The name Aluna was inspired by luna, the Spanish word for "moon."

"Historically the moon is what allowed people to venture out in the darkness," Shetty says. "We wanted to bring clarity to parts of people’s health they hadn’t seen before."

2. The BFD: Aluna inhales $15M Series B 

Illustration of money stuffed into an inhaler.  

Several remote patient monitoring companies focused on respiratory health have attracted investor and acquisition interest in recent years.

Propeller Health, developer of a digital inhaler designed to track medication adherence, in 2019 was acquired by ResMed (NYSE: RMD) for $242.9 million.

NuvoAir, developer of a respiratory care platform, in January 2022 raised $25 million in Series A funding led by AlbionVC and Hikma Ventures.

Respiratory Motion, a respiratory monitoring technology developer, in 2022 was acquired by Senzime for $44 million.

State of play: Remote respiratory monitoring

3. State of play: Remote respiratory monitoring 

Illustration of an overhead projector illuminating a square that says State of Play

Health Payment Systems, a Milwaukee-based in-network charge streamlining company, has raised $25m in debt and equity funding led by SVB Capital with participation from SV Health Investors, Hexagon and Caltius Equity. https://axios.link/3HISPs8

UptimeHealth, a Nashville, Tenn.-based automation and predictive analytics startup for medical devices, has raised $4.5m in Series A funding co-led by Caduceus Capital Partners and Wavemaker Three-Sixty Health. https://axios.link/3kWhDnn

Starling Medical, a Houston-based developer of home urine analysis tech, has raised $3.4m in seed funding led by Rebel Fund with participation from Y Combinator, Innospark Ventures, AI Basis, Capital Factory, Coho Deeptech, Magic Fund, Rogers Family Office, Hendricks Family Office, ReMy Ventures, Centauri Fund, Praxis SCI Institute, Gaingels and undisclosed individual backers. https://axios.link/3Jm8FKy

Free From Market, a Kansas City, Mo.-based personalized nutrition startup for people with chronic illness, has raised $2.1m in seed funding led by Bluestein Ventures with support from Acumen America, Beta Boom, KCRise Fund, 1st Course Capital and AssetBlue Ventures. https://freefrommarket.com/ 

CareAcademy, a Boston-based health care training company, has acquired Seattle-based certified nursing assistant training and job placement company NextStep. https://axios.link/3Y11sDW

4. Deals o' the day

Aluna has named former Octane AI COO Alex Gurevich CFO.

UptimeHealth has named Wavemaker 360 general partner Jay Goss and Caduceus Capital Partners venture partner Eric Thrailkill to its board of directors.

Home Care Pulse has named former Cressey & Company advisor Bud Meadows CEO.

5. It's Personnel

🥳 Aaron says he's excited to be part of this amazing team as he winds down a final week of dog-sitting an 11-month-old German shepherd. 

✅ Thanks for reading, and extra thanks to newsletter editor George Moriarty and copy editor Brad Bonhall. Please ask your friends and colleagues to sign up.

January 31, 2023

1 big thing: Cash-rich health strategics prepare to make bets