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THCB Gang Episode 74, Dec 9

Joining Matthew Holt (@boltyboy) on #THCBGang at 1pm PT 4pm ET Thursday for an hour of topical and sometime combative conversation on what’s happening in health care and beyond were Queen of all employer benefits Jennifer Benz (@Jenbenz); THCB regular writer Kim Bellard (@kimbbellard);  futurist Ian Morrison (@seccurve) and two investor guests — Super smart AI doc from GSR Ventures (@GSRVentures) Sunny Kumar; and the “I make unicorns” King Bill Taranto from Merck GHIF (@BillTaranto).

We got some forecasts and some reviews of the money and the movers in health care this past year, and looked at the world of employment inside and outside of healthcare, RPM and the public vs private financial markets.

The video is archived below. If you’d rather listen to the episode, the audio is preserved as a weekly podcast available on our iTunes & Spotify channels

Health in 2 Point 00, Episode 243|Quartet, Ribbon, Lyn Health, Medallion & Safely You

I cough my way through this episode of Health in 2 Point 00 in his original interview sweater. There’s $60m for Quartet (mental health), Ribbon Health gets $43.5m to fix provider lists, Lyn Health reinvents the medical group with $10m (sort of), Medallion gets $30m to fix cross-state line provider credentialing & Safely You gets $30m to use AI to prevent falls in nursing homes. -Matthew Holt

Matthew’s health care tidbits: Athenahealth & Private Equity

Each week I’ve been adding a brief tidbits section to the THCB Reader, our weekly newsletter that summarizes the best of THCB that week (Sign up here!). Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt

For my health care tidbits this week, it’s time to delve into the private equity firms’ buying and selling of Athenahealth. That’s of course the practice management/EMR firm bought by private equity companies led by Elliot Capital Management–they of the Israeli spy agency dirty tricks division–for roughly $6.5bn in 2018. Many (including me) have wondered how, given it was already doing about $1bn a year in revenue then, Athenahealth could be sold for $17bn three years later. After all it’s hardly likely to have tripled its revenue in a mature market! This comment by “Debtor 23” on @histalk is very instructive:

“Elliott did quite a bit better than 3x on its investment. The original deal was funded with about $4.8B of debt and $1B of equity from the hedge fund sponsors. Add in the acquisition cost of Centricity (call it $500M of equity, $500M of debt) and the equity investors are all-in with $1.5B of equity and $5.3B of debt. They sold off some assets for a total of ~$600M in cash, so net equity in play is $900M. They turned that equity into $11.7B (assuming no interim debt pay down), which is a 13x return. 13x feels ridiculous….but….if you’d invested that same levered-up $6.8B in the Nasdaq (QQQ) on the same timeline (Elliott began buying ATHN in spring 2017)…you could sell today for $18.1B. Absurd as this whole deal sounds, it has actually underperformed the market. This story is more about tech multiple expansion/bubble broadly than it is about improving management or running the business.”

So much like Renaissance and other hedge funds that rely on leverage, essentially Elliott leveraged Athenahealth up with debt to the tune of 80% of its value. So after slashing and burning R&D, selling assets (like the HQ which they apparently got $500m for) they probably got costs down & profits way up. When it was public under CEO Jonathan Bush, Athenahealth never tried to be that profitable. It was always fixated on the next big thing (the last one was building the future state inpatient EMR with Toledo & using the BIDMC tech it bought from John Halamka). That’s one reason its PE ratio was 100+.

So if Elliott can get some sucker to pay up and manages to turn $1bn into $13bn, how do the next greater fools–H&F and Bain Capital–do it? Well they need to layer Athenahealth up with even more debt (as money is currently so cheap) and keep generating enough cash to pay the debt. Of course at that price and with this mature a market it’s going to be super hard to grow the company enough to justify another leap in sales price, but it might be doable to service or even pay down some of the debt and take it for an IPO for a couple of billion more if the market stays nutso. So if H&F and Bain Capital basically shrink their equity portion down to $1-2 billion, and get it to IPO in a year or so for say $20Bn, they will at least double or triple their money. Not quite 13 x but not terrible.

And if it all goes wrong and Athenahealth can’t service the debt? Well the beauty of leverage and debt is that it attaches to the company – not to the PE fund that put it in that position. So all the new owners will have at stake is a reasonably small amount of equity. Of course if the shit hits the fan and Athenahealth goes bankrupt the employees and customers may not be so happy, but who cares about them? (Apart from that hasbeen CEO who got kicked out!)

THCB Gang Episode 73, Dec 2 1pm PT – 4pm ET

#THCBGang is back from its Turkey day snooze! Joining Matthew Holt (@boltyboy) at 1pm PT 4pm ET Thursday for an hour of topical and sometime combative conversation on what’s happening in health care and beyond will be patient activist, author & entrepreneur Robin Farmanfarmaian (@Robinff3);  Queen of all employer benefits related issues Jennifer Benz (@Jenbenz); medical historian Mike Magee (@drmikemagee); and patient safety expert and all around wit Michael Millenson (@MLMillenson)

You can see the video below live at 1pm/4pm or it’s kept here for posterity. If you’d rather listen than watch, the audio is preserved as a weekly podcast available on our iTunes & Spotify channels

Health in 2 Point 00, Episode 242|Owlet, EasyHealth, Luma Health, Calal Health, and more

Today on Health in 2 Point 00, Jess and I talk about the FDA informing Owlet, whose CEO Jess interviewed about their products and business model, that they can no longer sell their socks. EasyHealth, a medicare advantage broker, gets 35 million plus 100 million credit. Luma Health gets 130 million, bringing their total up to 170 million. Calal Health gets 77 million dollars, led by Ascension Ventures. Evercore buys Dr. Chrono. -Matthew Holt

Matthew’s health care tidbits: Drug prices

Each week I’ve been adding a brief tidbits section to the THCB Reader, our weekly newsletter that summarizes the best of THCB that week (Sign up here!). Then I had the brainwave to add them to the blog. They’re short and usually not too sweet! –Matthew Holt

For my health care tidbits this week, I am going to talk drug pricing. Anyone who gets basically any health policy newsletter has seen some of the cash PhRMA has splashed trying to make it seem as though the American public is terrified of drug price controls. But as Michael Millenson on a recent THCB Gang pointed out, when Kaiser Health News asked the question in a rational way, those PhRMA supported numbers don’t hold. 85% of Americans want the government to intervene to reduce drug prices.

Big pharma whines about innovation and how they need high prices to justify R&D spending but health care insiders know two things. First, for ever Big Pharma has spent about twice as much on sales and marketing as it’s spent on R&D. This was true when I first started in health care thirty years ago and it’s still true today. Second, the “R” done by big pharma is resulting in fewer breakthrough drugs per $$ spent now compared to past decades. Which means that they should be increasing that share spent on R&D and need to improve the “R” process. But that’s not happening.

Finally, pharma is very good at increasing prices of branded products and extending their patent protection. Lots of dirty games go on here. Look into it and you can expect a lot of discussion about insulin pricing or discover how Humira is still raking in $16bn a year in the US, despite the fact its original patent expired in 2018. With 85% of the American public in favor, you’d think then that a Democratic Congress would leap at the change to pass a bill that might save the taxpayer $50bn a year in drug costs. But of course that’s not going to happen. There is about $30bn a year in savings in the House version of Build Back Better that passed last week, but there’s little chance of much of that being in the Senate version given Joe Manchin’s daughter’s role running a drug company, and Krysten Sinema being a recent recipient of PhRMA’s largesse. And that’s assuming any version of #BBB gets through the Senate.

Instead hope something small happens to help desperate patients, and wonder how we ended up in a political system that apparently disregards what 85% of the public wants.

Health in 2 Point 00, Episode 241| Papa, Sword, Trevueta, Trusted Health, Ieso, and Talkspace

Today on Health in 2 Point 00, Jess and I talk about fundraising efforts this past week, as well as leadership issues within Talkspace. Papa raises 150 million dollars, bringing their total to 240 million. Sword raises 189 million dollars, with a secondary of 26 million dollars, bringing their total to 320 million dollars. Trevueta raises 105 million, and Trusted Health raises 149 million dollars. Ieso raises 57 million dollars. Talkspace had no growth in their third quarter, and their founding team left the company while their COO resigns after a review of conduct at a company offsite event. -Matthew Holt

Subscribe to WTF Health’s YouTube Channel: https://www.youtube.com/channel/healt… Follow Jess DaMassa on Twitter: https://twitter.com/jessdamassa Follow Matthew Holt on Twitter: https://twitter.com/boltyboy Subscribe to our channel and tweet us your questions using the hashtag #healthin2point00

THCB Spotlights: Lindsay Jurist-Rosner, Wellthy

Today on THCB Spotlight, Matthew sits down with Wellthy’s CEO Lindsay Jurist-Rosner to talk about the healthcare system’s need to support caregivers. Wellthy works in the caregiving space, and Lindsay tells us about the company’s mission to provide a software and platform experience that offers organization and structure to support those who are caring for a loved one. Lindsay also talks to us about her personal inspiration for starting Wellthy and how their business model operates. Wellthy has raised $50 million in total and has closed up $35 million this summer.

THCB Spotlights: Chris Gervais, CTO of Kyruus

Today on THCB Spotlight, Matthew talks with Chris Gervais, the CTO of Kyruus, which began in the world of fixing scheduling for hospital systems. Chris talks more about their recent acquisition of HealthSparq in the last year and what this acquisition means for the future of Kyruus and the audience it serves. Kyruus’ original concept was having good rich accurate and complete provider data. Ultimately, the aim is to build out a rich provider directory spanning a large number of the US provider population, as well as all these other care options for patients to find, that builds transparency and trust.

THCB Gang Episode 72, Nov 18 1pm PT – 4pm ET

Following last week’s sojourn in Europe where I couldn’t quite pull an impromptu European-based THCB Gang together, we are back on home turf. Join me at 1pm PT – 4pm ET Thursday 18th November when I’ll host delivery & tech expert Vince Kuraitis (@VinceKuraitis), the double trouble of vaunted futurists Ian Morrison (@seccurve) & Jeff Goldsmith, and Consumer advocate & CEO of AdaRose, Lygeia Ricciardi (@Lygeia).

The video is below and if you’d rather listen, the “audio only” version it is preserved as a weekly podcast available on our iTunes & Spotify channels a day or so after the episode — Matthew Holt

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