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BFD Expert Voices - Health Tech Deals

BFD Expert Voices

After declining for four straight quarters, digital health funding stayed steady at $3.4 billion in Q1, per a CBInsights report.

Why it matters: The sector funding defied the decline seen across the broader venture environment but remains at the lowest level in years, Aaron writes.

Details: Mega-round funding ticked down to just $600 million in Q1, marking an 85% year-over-year decline from the first quarter of 2022.

Mega rounds accounted for just 17% of digital health funding — the lowest since the second quarter of 2019.

"Comparatively, this was 20 percentage points lower than the broader venture environment, which saw 37% of all funding go to mega-rounds in Q1'23," CBInsights says.

The quarter saw three digital health companies raise med rounds: Monogram Health ($375 million), Carbon Health ($100 million) and Kindbody ($100 million).

Kindbody’s deal led to the company becoming the first new digital health unicorn since the second quarter of 2022 (valued at $1.8 billion).

By the numbers: Deals ticked up 1% to 387 in Q1, from 383 in the fourth quarter of 2022.

Care delivery and navigation tech companies saw 44% of all funding and 37% of all deals across digital health categories.

Digital therapeutics and wellness tech saw the lowest average disclosed deal size at $4.3 million.

Three categories saw at least three-quarters of deals go to early-stage companies: drug R&D tech (75% early-stage deal share), digital therapeutics & wellness tech (76%), and health insurance & RCM tech (81%).

What they're saying:  "It's incredibly promising to see the growth in the care delivery and navigation sector, which leads in both number of deals and total funding in Q1," said David Vivero CEO at Amino Health.

"Solutions that close these gaps and deliver positive outcomes at lower costs for consumers are increasingly attractive to investors as they look toward what will drive future success in the industry," he adds.

Vivero says he'll be watching the health and wellness space closely.

"Digital health programs that can prove they are high ROI investments by health plan sponsors, and not mere experiments, will fare well in an environment in which purchasers are having to justify their programs to their partners in the financial side of the organization," he adds.

The bottom line: As employers tire of cobbling together various point solutions and seek a full-suite approach, "any new point solutions selling directly to employers will struggle to gain attention from prospective customers," Vivero says.

1 big thing: Digital health funding steady for first time in a year

A computer keyboard and mouse attached to a medical case.

Hedge fund Arex Capital Management is pushing the home health and hospice business Enhabit to launch a strategic review and explore a sale, as first reported by Reuters. 

Why it's the BFD:  Enhabit is one of the last publicly traded companies focused specifically on home health, Axios' Claire Rychlewski writes.

Details: Enhabit is interviewing two board directors put forward by Arex, which currently owns a 4.5% stake in the company.

Since being spun off from the post-acute health care services provider Encompass Health in July 2022, Enhabit's share price has dropped nearly 50%.

The company is trading at $12.49 per share, for a market capitalization of about $620 million.

Enhabit could fetch a "potential sale price range of $30-$40 per share, more than triple Enhabit's current share price," Arex said in its letter.

Arex wants Enhabit to commit to starting a strategic review before the end of the year, as well as close any potential transaction following the two-year anniversary of the spinoff to avoid tax complications.

Zoom in: UnitedHealth in particular has been an acquisitive strategic in home health, buying LHC Group for $5.4 billion in February.

The payor then set its sights on Amedysis, which had agreed to sell to Option Care Health for $3.6 billion in May — only to receive a surprise $3.26 billion all-cash offer from UnitedHealth a month later.

CVS also made a significant move, closing an $8 billion acquisition of home assessments business Signify Health in March.

What they're saying: "Everyone else who does what this company does, that has been public, has sold to a larger acquirer," says a source familiar with Arex's thinking. 

"And the managed care companies who are large and well-capitalized companies have a strategic interest in owning home health assets," the source continues.

What we're watching: There has not been communication between Enhabit and Arex since the fund issued its letter yesterday, the source says, so the timing of potential new board director appointments is unclear.

The big picture: Dealmaking in home health has been down this year, amid rising interest rates, wage pressures, and the ending of the public health emergency.

Of note: With the implementation of the SEC's universal proxy card, activist investors have seen their success rate improve.

💭 Our thought bubble: As the chessboard of the home health industry shifts, so too does the buyer universe for smaller, private equity-backed home health businesses looking to exit.

Enhabit did not respond to a request for comment.

2. The BFD: Arex Capital pushes Enhabit to consider sale

• Nutromics, an Australian diagnostics startup, raised A$11m ($7m). https://axios.link/3qEYU2T

• Apixio, a San Mateo, Calif.-based provider of health care AI solutions, acquired ClaimLogiq, a Mount Pleasant, S.C.-based company focused on reducing claim errors prior to payment. New Mountain Capital, an investor in both companies, is sponsoring the merger, while ClaimLogic backer Eir Partners will retain a minority stake. www.apixio.com

• Walgreens Boots Alliance (Nasdaq: WBA) sold its remaining stake in Option Care Health, a Bannockburn, Ill.-based post-acute care and infusion services provider, for roughly $330m. https://axios.link/3NumGYl 

3. Deals o' the day

• John Noseworthy, president and CEO emeritus of Mayo Clinic, joined Caire to lead the Caire Collaborative and serve on Caire's board of directors.

• Douglas Moore left a post as head of product for Capable Health to join Neura Health as head of product and Ben Schneider left a post as senior director of business development for Truepill to join Neura Health as head of business operations.

• Adrianna Rota Melosky left a post as senior product manager at Zócalo Health to focus on implementation and product at Fold Health.

4. It's Personnel

🤖 Tech chips away at pain points for health care providers — Axios

🎨 I studied five countries' health care system. We need to get more creative with ours. — NYT (guest essay)

🐘 Illumina acquisition of Grail wins support from GOP lawmakers — CNBC

5. Your daily dose

illustration og a person holding an x-ray that reads "daily dose" up to a light

🇺🇸 Happy midweek and Flag Day, Health Tech readers!

🌩️ Erin is tiring of Tahoe's constant thunderstorms and hoping for more summer weather soon.

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

June 14, 2023

1 big thing: Digital health funding steady for first time in a year