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As sponsors battle high-interest rates and a continually cloudy financing outlook, HarbourVest managing director Ian Lane says his firm is modeling investments for uncertainty.

Why it matters: The M&A spigot in health care is backed up — and it's unclear when the faucet might turn back on.

Aaron spoke with Lane as part of the Axios Expert Voices series. This interview was edited for length and clarity.

How is the firm approaching maintaining discipline in a continually challenging financing environment?

"When we speak to some of the intermediaries, the investment banks, we hear that the pipelines are large and growing. And so there's a lot of activity in the pipeline. The big question out there today is what is the bid-ask spread and is that going to converge?

We should expect or underwrite that there will be multiple contractions in between when we invest in a company today and when we exit a company. It could be modest, it could be one or two turns a multiple it could be significant. Four or five, six turns a multiple depending on the industry.

We're looking for more cushion in the covenants that we're seeing. We're looking for lower leverage overall, we are assuming that there will be a higher cost of capital for a longer period of time. It'll be in the cost of debt.

We are modeling in a typical recession. ... We're not modeling in a GFC. We're not modeling a mild recession."

There's a backlog of processes right now. When do you think we might see auctions start launching?

"I always hear next quarter. So frequently, it feels like everything's around the corner. I think the reason why the backlog was high at the beginning of the year — and it's still high today, presumably higher — is because you haven't had that catalyst.

You haven't had either the confidence that growth is going to be good and a recession is in our rearview mirror and people will feel comfortable underwriting higher growth and higher performance going forward — or because the market is clearly in a difficult position and sellers need to effectively acquiesce and take lower prices for their assets."

Though long-touted as the major health care investment conference, JPM has seen event competition from HLTH and ViVE. Does HarbourVest plan to attend this year?

"So there's two main reasons why we go there. It's effectively kind of a reset. Every year you get to look at the market and what's happening, what the hot topics are, where people are thinking and where the ethos of the industry is, at that point in time.

But more importantly for us is we have about 35 general partners that we keep in regular contact with in regards to health care investing, and they're all there. And so we get to consolidate our meetings and meet up with most of the general partners that we work with in the healthcare sector over the course of a few days."

🏀 1 fun thing: Lane's weekends are primarily spent keeping up athletically with his three teenage sons — a basketball player, a golfer and a ski racer.

1 big thing: HarbourVest’s Ian Lane on market uncertainty

illustration of ian lane from harbourvest Partners surrounded by health pluses

Photo Illustration: Tiffany Herring/Axios, Photo: Courtesy of HarbourVest Partners 

BehaVR and Fern Health are merging to create RealizedCare, a digital care management tool for chronic pain, BehaVR CEO Aaron Gani tells Aaron exclusively.

Why it's the BFD: Chronic pain impacts 20.9% of U.S. adults, many of whom have mental health issues, and it drives nearly $300 billion in annual direct health care costs.

Details: Germany-based pharmaceutical company Grünenthal, which specializes in pain management, will become RealizedCare's largest investor.

While deal terms were not disclosed, Grünenthal will be the new company's largest shareholder with an approximate 20% stake, a source familiar tells Axios.

Grünenthal is also investing "mid-single-digit millions" in equity in RealizedCare, the source says.

How it [will] work: Elizabethtown, Ky.-based BehaVR's virtual reality programs use tenets of exposure therapy to treat various mental health conditions.

Programs are largely self-directed, and clinicians oversee and manage patients' treatment asynchronously.

NYC-based Fern Health's virtual pain platform offers guided exercise therapy, interventions for sleep, nutrition, movement, and emotional health. The company also provides pain-focused one-on-one clinical coaching and education.

The combined entity as RealizedCare will serve health plans, employers, and VBC providers.

The company is generating revenue but is not yet profitable, Gani says.

What they're saying: "We were evolving our strategy to embed our digital therapeutics inside more fulsome solutions," Gani says. "We think they are a perfect complementary piece to what we already have."

Alongside products focused on mental wellness, the company is researching a pain prescription therapeutic candidate in collaboration with Confluent and studying an opioid use disorder candidate with funding from the National Institute on Drug Abuse.

Catch up fast: BehaVR merged with virtual reality behavioral health peer OxfordVR last year with support from a $13 million Series B.

On how VR and the partnership between BehaVR-OxfordVR comes into play, Gani said that this offering delivers care for chronic pain and the emotional distress that typically accompanies it, predominantly via VR programs.

"Pain coaches and a community of other people with chronic pain will support the members through their care journey, but the VR interventions are at the core of each member's care plan."

The company had a post-round valuation of around $140 million and has raised a total of around $30 million, according to Gani.

Its Series B raise has runway "into 2025 or mid 2025," he says.

What's next: Despite an oversaturated market likely to be flooded with potential acquisitions, RealizedCare doesn't plan to scoop up fire sale assets, Gani says.

"Our pipeline of digital therapeutics is robust and we will continue to look for add-ons where and when it makes sense," he adds.

Of note: RealizedCare's product pipeline also includes gameChange for agoraphobic avoidance, along with depression interventions in partnership with Sumitomo Pharma.

💭 Aaron's thought bubble: With myriad startups struggling, market conditions are ripe for M&A — particularly for well-capitalized businesses.

2. The BFD: BehaVR and Fern Health merge to spawn RealizedCare

Illustration of a phone wearing a doctor's coat and a stethoscope. 

Want more health tech deals? Check out the Axios Pro Deals Tracker beta.

• MBI Industrial Medicine, a Phoenix-based portfolio company of Clearview Capital, acquired Reliant, a provider of occupational health care services in Southern California. www.mbiaz.com

• Aranscia, a Houston-based provider of diagnostics software and testing services, acquired the personalized medication management platform YouScript from Invitae, an SF-based genetic data company. https://www.aranscia.com/

• QuidelOrtho (Nasdaq: QDEL) is seeking a buyer for its transfusion medicine business, which could fetch up to $2b, per Bloomberg. https://axios.link/47kNLEH

• Sanofi (Paris: SAN) hired Rothschild & Co. to explore a separate listing of its consumer health unit, which would be valued north of $20b, per Bloomberg. https://axios.link/3SEXVLN

3. Deals o' the day

• Emily Buxton Taylor, previously CFO and COO of Wondr Health, joined Nox Health as CFO and COO. https://www.noxhealth.com/

• Craig Roder, former managing director at Oppenheimer & Co., joined Leerink Partners as managing director on the institutional sales team. https://www.leerink.com/

• Tom Natt, former VP of growth strategy at ConnectRN, joined Elation as chief growth officer. Also at Elation, Seth Cedars joined as general counsel. https://www.elationhealth.com/

• Eli Goldberg, former VP of applied data science at Current Health, joined Belle as VP of innovation. https://bellecares.com/

• Mayo Clinic associate chair Jake Strand joined Tuesday Health's clinical advisory board. https://www.tuesdayhealth.com/ 

4. It's Personnel

💊 Truepill says hackers accessed data of 2.3m patients — TechCrunch

💰 Cigna follows Mark Cuban's lead to simplify drug prices — Bloomberg

🏥 Amazon's One Medical builds out health system — Fierce Healthcare

5. Your daily dose

Illustration of a prescription with a handwritten note saying "daily dose."

🧗🏻 Erin has warmed to belay climbing and this week tackled her most challenging send yet, courtesy of a friend's harness and new climbing shoes.

🧑🏽‍💻 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.

Health Tech: HarbourVest's recession modeling

November 16, 2023

1 big thing: HarbourVest’s Ian Lane on market uncertainty