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BFD Expert Voices - Health Tech Deals

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A potential merger between health insurers Cigna and Humana would create a powerhouse to rival UnitedHealth and CVS — but the deal is far from guaranteed from an antitrust perspective. 

Why it matters: Both parties have pursued selective divestitures in their respective insurance presences, but Cigna's stronghold in pharmacy benefit could raise regulators' hackles, industry watchers tell Erin and Aaron. 

Catch up fast: The insurers are discussing a stock-and-cash deal that could be finalized by the end of the year, presuming talks don't dissolve, WSJ reported yesterday. 

The combination would be huge: Cigna's market value at the time of writing stands at $77 billion, while Humana's is roughly $59 billion.

Cigna reported about $181 billion in revenue last year, while Humana booked about $93 billion in 2022.

Between the lines: Cigna earlier this month was reportedly selling its Medicare Advantage unit, per Reuters — a move one health care banker tells Axios was likely a prelude to jumping on Humana.

Meanwhile, Humana has a strong position in MA and has been exiting commercial markets over the last year.

"It gets trickier on the PBM side of things where we are unsure of how a deal could be structured to satisfy regulators," Julie Utterback, a senior equity analyst for Morningstar, wrote in an email to Axios' Tina Reed.

"It would leave us with three PBMs controlling the market with most of the market share," co-leader of Goodwin's health care practice, John Jones, tells Aaron. 

"A big focus will be what impact it will have on costs," he adds. "These PBMs also administer the Medicare Part D benefit for Medicare so impact to the government and the elderly will also likely be evaluated."

Meanwhile, Humana's growing primary care business in CenterWell would give Cigna meaningful physician ownership, in a health care paradigm that's seen insurers snap up doctors' offices. 

"The ability to house Humana's assets into a structure with Cigna's PBM — to me that's a really smart move and will help drive performance in VBC," says Equality Health CEO Hugh Lytle.

"At the end of the day, they're in a better position to deliver an Optum-like solution," he says. 

Flashback: We've (sort of) seen this movie before. Both insurers attempted mega-mergers nearly a decade ago, with Cigna trying to merge with Elevance in an estimated $54 billion combination, and Humana attempting a $37 billion merger with Aetna, but regulators blocked both.

After both proposed mergers were struck down in 2017, Wall Street analysts speculated a Cigna-Humana tie-up could be the next move.

What they're saying: "It feels like deja vu," BTIG managing director and health care analyst David Larsen wrote in a research note circulated Thursday.

"After the mega health plan deals [of 2015] were blocked by regulators and the judicial system," Larsen adds, "we are somewhat surprised to see these announcements." 

Yes, but: There are some differences between the two scenarios this time around. Compared with 2015, for example...

"The line between payers and providers has become more blurred over the past decade," says Larsen.

Cigna could argue that its high proportion of commercial members differentiates it enough from Humana's mostly Medicare and military customers.

"Those last deals [in 2015-17] were really about competitiveness and avoiding a marketplace that could create price inflation," Lytle says.  

"Those things I think will be the underlying carriage here, too, even if Humana sells off their nascent commercial business and if Cigna sells off their MA business," he adds.

Reality check: "It's not often in a proposed merger that you see both trade down," says one venture health care investor.

Shares of Cigna closed 8% lower Wednesday, while Humana's stock closed more than 5% lower.

"It's investors reacting to what could be a pretty protracted process that's likely to end up in a deal that gets blocked," the investor says. 

What's next: In an industry predictions note for Forbes (before the WSJ story), Scan Health Plan CEO Sachin Jain said he expects to see other big health plans like Elevance and Molina make M&A moves.

"And don't forget about smaller regional plans, who will continue to shore up their competitive positioning in the increasingly consolidated landscape of national giants," he wrote. 

💭 Our thought bubble: Whether or not the merger clears, the move changes the chessboard and demonstrates market appetite for consolidation. 

Humana declined to comment. Cigna did not return Axios' request for comment.

1 big thing: Cigna and Humana merger faces hurdles

The Cigna Group headquarters in Bloomfield, Connecticut, US.  

Cigna headquarters in Bloomfield, Conn. Photo: Joe Buglewicz/Bloomberg via Getty Images

Intermountain Health spinout Culmination Bio secured $10 million from the venture arms of two biotech giants, CEO Lincoln Nadauld tells Erin exclusively.

Why it matters: Biotech companies rely on patient health data to produce new drugs and diagnostics, and Culmination hopes its disease-agnostic approach helps guide them to the right data faster.

Details: Merck Global Health Innovation Fund and Amgen Ventures participated in the unlabeled round, which is Culmination's first raise.

Funds will go towards hiring, commercial development, collecting more data and further honing its datasets.

Nadauld declined to say when he foresees Culmination raising again.

How it works: Based in St. George, Utah, Culmination maintains a physical library and cloud-based data lake comprising 40 years of de-identified patient electronic health records and biospecimen information.

Culmination provides its data, which currently spans 5 million de-identified patient samples, to pharmaceutical and biotech companies.

Since the data is disease-agnostic, Nadauld sees it as less likely to be impaired by biases that might accompany datasets collected only on patients with specific conditions.

What they're saying: In pharmaceutical development, "a major limiting factor is access to the right kind of data," says Nadauld.

That data might be fragmented, unstructured, or biased based on the narrow way in which it was collected.

Nadauld sees Culmination as addressing that problem "by having not only a disease-agnostic data set, but a longitudinal and comprehensive" one.

Flashback: In his quest to personalize treatments for cancer patients at Stanford University School of Medicine, Nadauld poured over individual genomic data, but constantly thought about ways to make a bigger and broader impact.

"Intermountain as a health system had been saving all of its biospecimens and accompanying clinical data for 40 years, and I thought, well, here's a novel way to aggregate a large dataset," says Nadauld, "that could inform the entire industry."

The intrigue: One advantage of Culmination's status as an Intermountain spinout is the company's ability to go back into the hospital's pool of patient data and collect fresh blood and tissue samples, potentially giving the data a more relevant edge for its customers.

State of play: Medical analytics businesses continue to attract M&A and investor interest.

Definitive Healthcare in August acquired health insights startup Populi for $52 million in cash.

Medical data analysis firm Health Catalyst in October raised $100 million in a mix of Series F equity and debt funding.

Arcadia, another health care analytics company, in April collected $125 million.

2. The BFD: Intermountain spinout scores $10M 

Illustration of binary code falling into a prescription pill bottle.

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

• Bright Uro, an Irvine, Calif.-based medical device company focused on lower urinary tract symptoms, raised $23m in Series A funding led by Laborie Medical Technologies. https://brighturo.com/

• Clayful, a Davie, Fl.-based telemental health provider focused on students, raised $7m led by Reach Capital and joined by OVO Fund, Common Sense Growth Fund, Charter School Growth Fund's Innovation Fund and Wisdom Ventures. https://www.clayfulhealth.com/ 

• Pharmavite, a West Hills, Calif.-based nutraceuticals maker, acquired Bonafide Health, a Harrison, N.Y.-based women's health company focused on menopause. www.pharmavite.com

• KKR, a NYC-based investment firm, and Hologic (Nasdaq: HOLX), a women's health and medical technology company, invested to create Maverix Medical, a developer and acquirer of lung cancer technology. https://axios.link/3N3v2W4 

• Onex hired Bank of America to explore a sale of British health care staffing firm Acacium Group, which could fetch around $1.5b, per Bloomberg. https://axios.link/3uvt5v5

3. Deals o' the day

• William Teague, former director of strategic partnerships at UnitedHealthcare, joined Scene Health as VP of population health. https://www.scene.health/

• Udi Milo, former CEO of Fibo, became chief product officer and Don Johnson, former chief architect of Optum Insight, became head of digital innovation at Charlie Health. https://axios.link/4a06yXK 

• Allison Hoffman, former director of communications at Wheel, joined Define Ventures as head of marketing. https://axios.link/3T3U63g 

• Leisa Maddoux was named senior managing director at FTI Consulting, and Laura Marston was named managing director in the firm's health care business transformation practice.

• Krystal Hood was promoted from principal manager to director of sales development at Tebra. https://www.tebra.com/

• Deb Gage, limited partner at HC9 Ventures, joined Laguna Health's advisory board. https://lagunahealth.com/

• Mark Tapping, a strategic adviser at Calibrate, became SVP of payers and strategic partnerships.

4. It's Personnel

🕑 Why it takes forever to get a doctor's appointment — Time

5. Your daily dose

It's Thursday, Health Tech readers, and we've got a newsy edition for you today.

🍽️ Aaron feasted at the SoHo House, where chef Santiago Astudillo of The Wesley prepared a bounty of various menu items.

 ✅ 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.

November 30, 2023

1 big thing: Cigna and Humana merger faces hurdles