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Healthcare Technology The Business of Healthcare in a World of COVID-19 FIRST ANALYSIS QUARTERLY INSIGHTS Integrative insights on emerging opportunities April 30, 2020 Andrew Walsh Main: 312-258-1400 Direct: 312-258-7110 awalsh@firstanalysis.com www.firstanalysis.com
First Analysis Healthcare Technology Team Matthew Nicklin Managing Director mnicklin@firstanalysis.com 312-258-7181 Andrew Walsh Managing Director awalsh@firstanalysis.com 312-258-7110 Joseph Munda Vice President jmunda@firstanalysis.com 312-258-7125 Tracy Marshbanks Managing Director tmarshbanks@firstanalysis.com 312-258-7111 About First Analysis First Analysis has a nearly four-decade record of serving emerging growth compa- nies, established industry leaders, and institutional investors in emerging high-growth segments in technology and healthcare, both through its venture capital investments and through First Analysis Securities Corp. (FASC), which provides investment banking and related services. FASC is a FINRA-registered broker-dealer and member SIPC. First Analysis’s integrative research process underpins all its efforts, combining 1) dynamic investment research on thousands of companies with 2) thousands of relationships among executives, investors, and other key participants in our focus areas, yielding a deep, comprehensive understanding of each sector’s near-term and long-term potential. Select First Analysis White Papers: Healthcare Tech Going Beyond the Pill: Digital solutions driving pharma commercialization and improving patient outcomes eClinical Solutions: Streamlining the introduction of new drugs and medical technology Medication engagement technology-enabled services: Improving patient outcomes First Analysis and safety and lowering healthcare costs 1 S. Wacker Dr., Suite 3900 Molecular Healthcare: Genetic sequencing, next-generation sequencing, and the chal- Chicago, IL60606 lenges and opportunities at hand 312-258-1400 Healthcare IT: AHIP highlights favorable trends for transparency and precision medicine www.firstanalysis.com Healthcare Analytics: A closer look at the healthcare analytics market
First Analysis Quarterly Insights April 30, 2020 HEALTHCARE TECHNOLOGY The Business of Healthcare in a World of COVID-19 In our lifetime, there has not been a singular healthcare ecosystem, there have been event that has so rapidly impacted life on a highly publicized anecdotes of collaboration global scale as the novel coronavirus, SARS- and innovation. We have seen Bauer, a man- CoV-2, aka COVID-19. History will tally the ufacturer of ice hockey equipment, pivot to final comparison, but it’s not hyperbole to producing face shields for frontline workers. at least contextualize COVID-19 in the same We have seen the maker of Absolut Vodka conversation as the world’s great plagues, and Jameson’s Irish Whiskey converting including the Bubonic Plague (14th century), production facilities to instead produce hand Smallpox (16th century), or the Spanish Flu sanitizer. General Motors has allocated pro- (early 20th century). And this is for a virus duction capacity to sourcing and assembling that was unknown and undocumented – any- critical ventilator systems. where in the world – as recently as 180 days ago. Rapid-Cycle Diagnostic Innovation In addition to the impact that COVID-19 is In more traditional healthcare technology having on personal lives, it is also dramat- sectors, we have seen similar emphasis on ically affecting the business of healthcare. rapid-cycle innovation. The laboratory and COVID-19 is wreaking havoc on the front diagnostic industry has been under tremen- lines of healthcare, turning nurses, doctors dous pressure to make up for critical delays and emergency room staff into modern-day in the adoption of a global standard for superheroes. It has consumed much of the COVID-19 testing. Since COVID-19’s arrival in available capacity of virtually every health- the U.S., we have seen rapid advancements care system and emergency room across in the spectrum of available testing options, the U.S. – if not by filling beds with patients, including improvements in polymerase chain then at least by creating concern about virus reaction (PCR) testing and the introduction transmission and causing patients to other- of serologic testing. wise stay away from the traditional consump- tion of healthcare. PCR testing was the original basis for deter- mining the presence of COVID-19 in patient populations and is still the gold standard for diagnostic evaluation. The limitation of OPPORTUNITY IN A TIME OF CHAOS PCR testing is its reliance on bench evalua- Where COVID-19 is altering, temporarily tion in a traditional CLIA laboratory setting. at least, our understanding of normal, it is In efforts to dramatically shorten response creating opportunity for others. Across the time and expand capacity for testing, the April 30, 2020 3 First Analysis
Variation of the Levels of SARS-CoV-2 RNA and Antigen, IgM and IgG after infection Source: Diazyme Laboratories Inc. FDA has begun to extend Emergency Use successfully navigated the active incuba- Authorizations (EUA) for point-of-care test- tion and contagious periods of the virus, and ing alternatives. It was this EUA that allowed may have developed a degree of immunity to the adaptation of Abbott Lab’s ID NOW, an the COVID-19 virus. It is this immunity along established point-of-care testing platform, to with active virus testing that will, literally and be used for COVID-19 evaluation in a physi- figuratively, re-open the door from today’s cian setting. shelter-in-place orders and return pockets of society back to productive, functioning Much more recently there has been discus- activity. sion about the use of serologic testing for COVID-19, which is a complement to the PCR test in that serologic testing doesn’t indicate Healthcare Technology on the the basic presence (or not) of a virus; rather, Front Lines of COVID-19 it highlights the presence of virus antibodies, In addition to the rapid evolution of diagnos- which are generated within a week or two of tic capabilities, we have also seen the effec- a patient contracting the virus. tive deployment of enabling technologies in support of COVID-19 efforts. Two key exam- As a larger percentage of the population ples of this have been the combined use of becomes exposed to COVID-19, serology be- data and visualization tools, as well as the comes the more relevant test from a popula- rapid deployment of virtual care technologies. tion health management perspective, in that it can confirm the presence of IgM and/or Large-scale data without the proper contex- IgG antibodies. From a practical standpoint, tual lens can be overwhelming at best and a test result that confirms the presence of dangerous at worst due to the potential for IgG antibodies, but no longer the presence misinterpretation. However, when large data- of IgM antibodies, means the patient has sets are combined with the right visualiza- April 30, 2020 4 First Analysis
tion framework, the results can be extremely Virtual Care in the Spotlight powerful. Consider the Johns Hopkins Coro- As the depth and breadth of the impact navirus website (coronavirus.jhu.edu/map. COVID-19 is having on the U.S. healthcare html). With no paid advertising or keyword system has become clear, there has been a efforts, this site went from nonexistent before rapid adoption of various virtual care tech- February of this year to over 75M visits in nology solutions to: (1) serve as a triage-style March alone. It has become the de facto care extender to limit further strain on finite source for macro and micro information about acute care resources and (2) deliver care in a COVID-19 incident rates, testing rates, hospi- manner that minimizes exposure for patients talization rates and fatality rates. and caregivers in a physical setting, con- As the spread of COVID-19 became inevita- sidering the highly contagious nature of the ble, clinical experts have emphasized the im- virus. portance of “flattening the curve” – reducing This collective enhancement to the care the rate of infection to decrease the likelihood delivery system has created growth oppor- of overwhelming the capacity of the health- tunities for companies that have developed care system. This public health strategy led AI powered chatbot point solutions, as they to shelter-in-place orders across cities and offer a means for hospitals, physician practic- states within the U.S. Considering the impor- es, and even insurance companies to engage tance of social distancing as the key miti- patients with technology. These solutions gation strategy, how do we demonstrate the can be standalone in nature or deeply inte- collective adherence to these directives? Un- grated into EMR or care management solu- acast, an innovative data science company, tions, asynchronous or synchronous in their focuses its efforts on quantifying “human mo- engagement style with patients, and can be bility” via the use of anonymized cell phone deployed on the front end of an encounter GPS data. In response to the COVID-19 crisis, (i.e. “symptom checker”) or used for aftercare Unacast has developed a social distancing follow up. While their use is still nascent and scorecard based on comparative movement the ROI picture incomplete, these AI technol- analysis, that grades, county-by-county, the ogy solutions are a valuable relief valve for degree to which we’re staying put. At the the overall system during this crisis of peak time of publication, the entire U.S. has earned demand in acute care settings. itself a C-, with only two states at a B- or better (Michigan = B- ; Nevada = B+). Aca- demic overachievers of the country, unite! TapCloud, an AI-powered remote patient en- The infectious nature of a disease like gagement platform, has answered the call to COVID-19 highlights the importance of support providers and patients alike by creat- immediately deployable data solutions. In ing workflow solutions specifically designed considering the capacity challenges present- for the challenges of COVID-19. In addition to ed by the pandemic, Enli Health Intelligence, patient triage, its solution enables asynchro- a KLAS-leading population health software nous post-diagnosis aftercare through daily vendor, developed a COVID-specific care care plans, nuanced symptom monitoring coordination solution (eC3) geared at keep- and intervention efficacy tracking. The com- ing lower-risk patients out of the hospital pany is also looking beyond current shelter- and under surveillance between encounters. in-place mandates and is offering employers More importantly, as it developed eC3, it workforce screening and triage solutions to knew time was of the essence. Total cycle minimize workforce risk and maintain compli- time from ideation to taking its first site live ance with evolving OSHA reporting require- was 72 hours. The next implementation took ments. The capacity demands of COVID-19 just two hours. Ten days later, the application have highlighted the value of TapCloud to its was running at provider and health system existing client base, as it has seen a 10x in- locations across 14 states! crease in daily screenings across its platform. April 30, 2020 5 First Analysis
While COVID-19 has presented an opportuni- has issued blanket waivers around the use ty for emerging use case validation on virtual of telehealth, meaning providers and health care technology solutions, it has brought systems don’t need to apply for an individual telehealth fully into the mainstream. The tech- 1135 waiver – by definition, any authorized nology underlying telehealth solutions has provider is automatically authorized to act in been available in some form or fashion for accordance with the waiver. the better part of the past 10-15 years, but it has remained a solution only available on the Specifically, the following changes have been margins of the overall delivery system. The made via these 1135 waivers: best indicator of this is reimbursement policy y Effective March 6, 2020, Medicare can – while Medicare only makes up a portion of now pay for an office, hospital or other the overall U.S. healthcare funding pool, its visit furnished via telehealth across the willingness (or not) to incorporate a solution country, including a patient’s place of into CMS payment policy has always served residence. This waiver applies to doctors, as a strong proxy for broader market adop- nurse practitioners, clinical psychologists tion. Until very recently, Medicare saw tele- and licensed clinical social workers. health largely as a means to improve access to specialty care in rural communities, where y Healthcare providers can practice, up to the pool of available providers is far more their defined scope of practice, across limited. In these rural communities, payment state lines. While this ruling doesn’t elim- policy required patients to travel to a clinic, inate interstate licensing entirely, it does hospital or other medical facility to “receive” give providers the ability to treat patients telecare in order to qualify an encounter as in states other than their state of practice. eligible for reimbursement. Such a narrowly defined use case severely limited the utility of y Separate from, but as a result of, these telehealth for the broader market. Additional- 1135 waivers, CMS announced on April 10, ly, state-level medical board licensing re- 2020, that Medicare Advantage organiza- quirements presented a significant challenge tions and other organizations that submit to broader adoption, as the ability to deliver diagnoses for risk adjusted payment (i.e. “virtual” care across state lines was very lim- Medi-Medi plans) are able to submit di- ited, and in many cases nonexistent. Based agnoses for risk adjustment that are from on these systemic restrictions, telehealth has telehealth visits. largely been limited to remote patient moni- toring under payer-sponsored care manage- ment programs, where its use is not depen- dent on qualifying as a billable encounter or clinical place of service. Again, it has had its It is difficult to overstate the impact of these place in the overall delivery system, but that policy changes. The telehealth industry has “place” has been artificially constrained in been working for years to gain clinical rel- comparison to what the underlying technolo- evance and scale as an additional “place of gy could offer. care” in the healthcare delivery continuum. Overnight, these constraints on telehealth Based on these 1135 waivers, that relevance have been lifted. In response to the consump- is now real. For example, Zipnosis, a white tion demands that COVID-19 has placed on label telehealth company that powers virtual the delivery system and contagion threats visits and triage services for 51 large health associated with face-to-face interaction, systems across the country, has seen a 36x CMS has made sweeping changes to all increase in utilization on its platform just aspects of previously restrictive policies since the onset of COVID-19. Monthly visit regarding the use of telehealth. Under Sec- volume jumped from approximately 37,000 tion 1135 of the Social Security Act, when visits in February to over 412,000 visits in the President declares a disaster or emer- March! In addition to changing the place of gency under the National Emergencies Act, care – and therefore reducing the potential the HHS Secretary has the authorization to for unnecessary exposure – Zipnosis has issue Medicare, Medicaid, CHIP and HIPAA also used the flexibility of its telehealth plat- waivers (“1135 waivers”) to help beneficiaries form to prioritize COVID-19 related testing. access care in times of declared emergency. ZipTicket allows a provider to order COVID-19 In the case of the COVID-19 pandemic, HHS testing for a patient in the context of a virtu- April 30, 2020 6 First Analysis
al visit. ZipTicket serves as a “fast pass” for In a world where medical visits are virtually higher risk patients, integrating lab tests and eliminated other than for COVID-19 related clinical decision support to offer a faster test- care, these MA plans would have no mecha- ing solution for both providers and potential nism to quantify, document and substantiate COVID-19 patients. HCC or Star Ratings-related revenue, which can account for as much as 70% of total MA In addition to the positive impact of these plan revenue. waivers on the relevance of telehealth ven- dors, they are also a critical buoy for Medi- care Advantage plans during the uncertainty Looking Beyond COVID-19 of COVID-19. As a result of shelter-in-place The global crisis that has been created by the restrictions during the pandemic, non-emer- COVID-19 pandemic has a reach that extends gent healthcare utilization is down signifi- far beyond the healthcare sector, and its cantly. It is estimated that encounter volume impact will likely continue long after the bio- has fallen anywhere from 50-90% since the logic threat is contained. The lasting result of arrival of COVID-19, so absent an accelerated the pandemic will cut deep and will be painful rush during a presumed return to normal in for many – both on personal and professional the second half of 2020, health plans would levels. have limited encounters across their collec- tive membership for the calendar year. On a For innovative companies in the healthcare sustained basis, this could be catastrophic community, the crisis presents a window of for Medicare Advantage plans, all of whom opportunity to help save lives and significant- are dependent on medical encounters as the ly reduce operating strain on the U.S. health- basis for documenting the health acuity of care system, and as such should create a their membership as well as demonstrating sustained opportunity for growth and long- adherence to key HEDIS quality measures term market adoption that will extend well under the Medicare Star Ratings program. beyond these days of acute crisis. April 30, 2020 7 First Analysis
Payer, Provider Technology Exhibits Resilience in the Face of COVID-19 First Analysis’ Provider and Payer Technol- Relatedly, Payer Technology valuations have ogy indices are quickly regaining ground shown tremendous momentum as measured lost due to COVID-19. Provider Technology’s by enterprise value / LTM revenue, reaching stock performance has reached, albeit briefly, 4.09x from their COVID-19 low of 2.80x. its pre-COVID-19 appreciation high of 20%. HCIT Quarterly Report Public Comparables ($ in millions) Revenue Growth Enterprise Value / LTM Revenue EBITDA LTM 2018A- 2019A LTM Gross EBITDA Company Revenue 2019A -2020E Margin Margin LTM 2020E LTM 2020E Payer Technology Benefitfocus (BNFT) $295.7 14.3% (11.5%) 51.3% (5.2%) 1.62x 1.83x NMF 18.1x Castlight Health (CSLT) $143.3 (8.4%) (7.5%) 58.8% (24.7%) 0.49x 0.53x NMF NMF eHealth (EHTH) $543.8 101.4% 24.4% 99.3% 19.8% 4.81x 4.16x 24.3x 19.6x EverQuote (EVER) $248.8 52.4% 28.0% 93.6% (2.4%) 4.03x 3.14x NMF NMF HealthEquity (HQY) $532.0 85.2% 46.8% 61.3% 30.9% 9.48x 6.46x 30.7x 19.9x HMS Holdings (HMSY) $626.4 4.7% 12.4% 37.5% 22.5% 4.16x 3.70x 18.5x 14.0x Inovalon Holdings (INOV) $642.4 21.7% 9.2% 73.9% 27.7% 5.82x 5.34x 21.0x 16.0x MAXIMUS (MMS) $3,040.4 24.9% (0.2%) 22.6% 13.4% 1.44x 1.44x 10.7x 10.6x Mean $759.1 37.0% 12.7% 62.3% 10.3% 3.98x 3.32x 21.0x 16.4x Median $537.9 23.3% 10.8% 60.1% 16.6% 4.09x 3.42x 21.0x 17.1x Provider Technology Allscripts Healthcare (MDRX) $1,771.7 1.2% (0.8%) 46.8% 5.5% 1.13x 1.13x 20.6x 6.5x Cerner Corp. (CERN) $5,714.5 6.1% (1.4%) 81.2% 19.8% 3.93x 4.00x 19.8x 13.1x Change Healthcare (CHNG) $3,280.7 (0.6%) 2.7% 58.5% 30.4% 1.03x 1.00x 3.4x 3.2x Computer Programs & Sys. (CPSI) $274.6 (2.1%) 0.7% 52.5% 12.5% 1.61x 1.60x 12.9x 9.3x Evolent Health (EVH) $846.4 35.0% 13.6% 23.3% (7.2%) 1.03x 0.91x NMF 30.9x Health Catalyst (HCAT) $154.9 37.6% 13.9% 51.4% (29.5%) 4.98x 4.37x NMF NMF HealthStream (HSTM) $250.5 9.7% (9.3%) 61.1% 13.7% 2.61x 2.84x 19.0x 18.0x NextGen Healthcare (NXGN) $538.6 1.6% 3.0% 57.9% 7.1% 1.47x 1.42x 20.7x 8.6x Nuance Comm. (NUAN) $1,821.7 0.4% (19.1%) 59.2% 20.3% 3.69x 4.57x 18.2x 18.2x Omnicell (OMCL) $897.0 13.9% 9.4% 48.7% 12.8% 3.34x 3.05x 26.2x 16.1x Premier (PINC) $1,239.5 26.1% 3.1% 69.7% 43.9% 1.90x 1.84x 4.3x 4.0x R1 RCM (RCM) $1,186.1 36.6% 11.2% 16.7% 11.8% 1.48x 1.33x 12.6x 6.7x Tabula Rasa HealthCare (TRHC) $284.7 39.4% 19.6% 36.3% 1.6% 5.35x 4.48x NMF 31.2x Teladoc Health (TDOC) $605.5 32.4% 49.8% 65.0% (4.1%) 21.37x 15.61x NMF NMF Mean $1,347.6 16.9% 6.9% 52.0% 9.9% 3.92x 3.44x 15.8x 13.8x Median $871.7 11.8% 3.1% 55.2% 12.2% 2.25x 2.34x 18.6x 11.2x Source: Capital IQ. April 30, 2020 8 First Analysis
HCIT Quarterly Report Indexed Performance: 1-Year Provider Technology Payer Technology S&P 500 NASDAQ Stock Price Overall performance, % 30% 20% 18.0% 10% 5.5% 0% (2.2%) (10)% (3.6) (20)% (30)% Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Enterprise Value / LTM Revenue 1 5.50x 5.00x 4.50x 4.00x 4.09x 3.50x 3.37x 3.00x 2.50x 2.36x 2.25x 2.00x 1.50x Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Jan-20 Feb-20 Mar-20 Source: Capital IQ, First Analysis. Notes: (1) Displays the median revenue multiple of the constiuent companies for payer and provider indices While Provider companies appear to have due to Teladoc’s recent performance fueled outperformed Payers in the short-term, by increased demand for remote care. Pro- Payer businesses exhibit higher revenue vider organizations, while larger and more growth rates and gross margins, which are established, exhibit lower gross margins and reflected in higher valuation multiples. Al- growth rates relative to their Payer counter- though provider organizations have higher parts. average revenue multiples, this is primarily April 30, 2020 9 First Analysis
M&A Remains Steady Through 2019, Makes a Strong Showing in 1Q20 M&A activity exhibited strong momentum in in an industry characterized by favorable the first quarter of 2020 with over 65 HCIT reimbursement tailwinds increasingly em- transactions, as 2019 finished in line with the powering hospitals and health systems to past four years. While a number of factors fully realize the value of virtual care. Prior contribute to this momentum, the primary to the onset of COVID-19, 40% of hospitals factors include an increase in the need for surveyed reported planning to increase their chronic care, the rise in consumer-friend- budgets for telemedicine solutions, with 61% ly healthcare models, a willingness of large of hospital revenue forecasted to come from strategic players (Amazon, Apple etc.) to managed and value-based care models by explore healthcare technology lines of busi- 2021. In an industry now characterized by ness, and the rise of virtual care models. hyper-growth due to COVID-19, virtual care will be a crucial strategy to improve consum- Regarding 1Q20 M&A, of note was Teladoc’s er engagement, ensure consistent quality and announced acquisition of InTouch Tech- manage healthcare’s rising costs as provider nologies, which specializes in the delivery resources are stretched thin and patients’ of virtual care. The announcement comes ability to access healthcare providers face- during a period when the demand for virtual to-face is limited. care services is poised for significant growth HCIT M&A 2Q18 - 1Q20 1 ($ in millions) 70 69 # of Transactions Avg. Deal Size 61 61 58 58 54 55 $836 $700 $489 $390 $295 $78 $112 $35 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 Total Deal Size $17,553 $5,317 $9,299 $859 $9,094 $894 $779 $8,183 Source: Capital IQ, Pitchbook, First Analysis. Notes: (1) Average deal size only considers those deals with reported enterprise values. April 30, 2020 10 First Analysis
Select Industry M&A Transactions, 1Q20 (Sorted by date of announcement) ($ in millions) Enterprise Enterprise Value/ Date Target Target Business Description Buyer Value Revenue 3/26/2020 Insig Corp. Owns and operates an online telehealth plat- WELL Health form which connects patients with healthcare Technologies $1.4 - providers (WELL) 3/25/2020 Keona Health A healthcare software company, develops The Riverside automated patient communication software that Company - - helps healthcare professionals communicate with their patients 3/17/2020 NarrativeDx Develops a data analytics solution for hospitals Press Ganey $13 3.24x Associates 3/12/2020 The StayWell A health empowerment company, provides em- WebMD Health Company ployee health and wellbeing programs for em- Corp. - - ployers to engage and motivate their workforce 3/10/2020 U.S. State and Develops technology-enabled solutions for ad- Veritas Capital Fund Local Health and ministration and operations of health programs Management $5,000 3.57x Human Srvcs Bus. throughout the U.S. of DXC Technology 3/10/2020 YouScript YouScript Incorporated develops precision Invitae Corporation prescribing software solutions for healthcare (NYSE:NVTA) $63 - providers. 3/9/2020 HealthEdge Develops integrated financial, administrative, The Blackstone Software and clinical software platform for healthcare Group $730 5.12x payors 3/9/2020 HcT2 Co. Offers a communication and scheduling solution HealthStream $25 7.81x for nurses (HSTM) 3/4/2020 TeraRecon Develops and delivers enterprise medical image SymphonyAI Group management and visualization solutions for - - healthcare enterprises worldwide 2/27/2020 AlertMD Designs and develops mobile platform and solu- PaySimple tions for charge capture, patient care alerts, and - - secure messaging for hospital and healthcare providers 2/24/2020 Connexient Develops MediNav, a turn-by-turn mobile indoor Everbridge (EVBG) $26 4.40x navigation software for the healthcare market 2/18/2020 Able Health Provides cloud-based pay-for-performance and Health Catalyst risk adjustment solutions for care managers and (HCAT) $22 5.52x physicians 2/13/2020 B4Health Develops vendor management system (VMS) AMN Healthcare $32 1.90x software for healthcare facilities Services (AMN) 2/11/2020 Forerunner Doing business as RXTransparent, develops a Inmar Holdings cloud based software for the healthcare supply chain to provide regulatory compliance, drug - - supply chain analytics, and inventory transpar- ency 1/29/2020 Stratus Video A language services company, provides video AMN Healthcare remote interpretation, over the phone interpre- tation, onsite interpretation, telehealth interop- $475 3.99x erability, and translation solutions and services to hospitals and clinics in the U.S. and interna- tionally 1/28/2020 Wheel A digital health company, operates a tech-en- Charles River abled marketplace for healthcare companies Ventures; Silverton; $13.9 - and clinicians Tusk Venture, Asset Mgmt Arm 1/27/2020 Revenue Well Develops and distributes a marketing and Marlin Equity Systems patient communication software for dental Partners - - practices 1/23/2020 Intelerad Medical Develops and provides medical imaging busi- HgCapital; Novacap $849 - Systems ness solutions and services Investments April 30, 2020 11 First Analysis
Select Industry M&A Transactions, 1Q20 (Sorted by date of announcement) ($ in millions) Enterprise Enterprise Value/ Date Target Target Business Description Buyer Value Revenue 1/22/2020 VisionTree Provides cloud-based patient-centered health Brainlab AG Software record management, communication, and health - - data management software solutions to aca- demic and community healthcare orgs. 1/21/2020 Excel Medical Develops remote monitoring platform and other Hill-Rom (HRC) $30 3.23x Electronics systems for healthcare industry 1/16/2020 WiserTogether Provides shared decision-making tools to Evive Health consumers, employers, health plans, payers, and providers. Its decision-making tools enable - - consumers to achieve better health outcomes; and employers, health plans, and payers to save money 1/14/2020 Connected Care Comprises DCX device connectivity software, Masimo Corp. Business of VCX patient vitals software, HBox connectivity (MASI) $47 - NantHealth hub, and shuttle interface cable solutions 1/13/2020 Lumere Provides a cloud-based workflow and reporting Global Healthcare platform for hospitals and doctors which helps Exchange - - health systems to eliminate clinical variation and unnecessary costs 1/13/2020 Intelligent InSites Develops automation software solutions for the Infor - - healthcare industry 1/13/2020 TRIGGR Designs and develops a predictive system of SonarMD care for addiction recovery that supports users - - on their personal path to long-term remission 1/12/2020 InTouch Doing business as InTouch Health, provides Teladoc Health Technologies technology-enabled solutions to healthcare (TDOC) $600 7.06x organizations for the delivery of clinical care virtually 1/10/2020 Tonic Solutions Develops and operates an online medical data SCI Solutions - - collection platform 1/10/2020 SCI Solutions Develops SaaS-based solutions for healthcare R1 RCM (RCM) $200 - providers 1/9/2020 Blue Mesa Health Digital therapeutics company, develops and Virgin Pulse operates a platform to deliver diabetes preven- - - tion program 1/9/2020 Amplity Insights Designs and develops de-identification soft- Publicis Healthcare ware that provides real time data from medical Solutions - - reports to patients and healthcare providers 1/9/2020 Centauri Health A healthcare technology and services company, ABRY Partners Solutions designs and develops cloud-based software and comprehensive data management solutions - - for risk adjustment and quality-based revenue programs 1/8/2020 Yaro Operates as a mobile-first digital navigation Virgin Pulse and health literacy platform to help consumers better understand, find, and pay for healthcare - - services according to their specific needs and preferences 1/8/2020 CareCloud Corp. Owns and operates cloud based practice man- MTBC (MTBC) agement, electronic health record, and medical $40 1.12x billing software solutions 1/7/2020 Evariant Provides a healthcare platform for healthcare Healthgrades organizations to identify opportunities, measure Operating Company marketing campaigns against reportable return - - on investment (ROI), and improve patient and physician engagement Mean 4.27x Median 3.99x Source: Capital IQ, Pitchbook, First Analysis. April 30, 2020 12 First Analysis
Private Investment Remains Active Through Q1 2020 Private funding sources continue to drive line with funding amounts from a year prior. the majority of investment in HCIT relative Furthermore, while the number of transac- to public investment, accounting for ~60% tions reached a two-year low of 138 in the of total dollars raised between private and first quarter, average deal size remained high public sources. Prior to the impact of COVID- at an average of $15.6M. 19, private investments in 1Q20 remained in HCIT Private Placements 2Q18 - 1Q20 1 ($ in millions) 220 # of Transactions 203 189 183 183 Avg. Deal Size 181 169 138 $17.3 $15.6 $11.8 $11.9 $12.6 $8.8 $9.6 $9.5 2Q18 3Q18 4Q18 1Q19 2Q19 3Q19 4Q19 1Q20 Total Deal Size $1,343 $2,914 $1,729 $1,428 $1,720 $1,011 $1,475 $1,434 Source: Capital IQ, Pitchbook, First Analysis. Notes. (1) Average deal size only considers those deals with reported enterprise values. Select Private Placements: 1Q20 (Sorted by date of announcement) ($ in millions) Total Raise Amount Amount Date Target Target Business Description Investors Type Raised Raised 3/31/2020 PatientPay Develops and delivers billing, electronic Mosaik Partners Growth $6.2 $15.2 payment, and reconciliation solutions Round 4 that allow patients, medical groups, and hospitals to manage expenses in the healthcare environment 3/30/2020 Olive Provides artificial intelligence and RPA General Catalyst Partners; Growth Undisclosed N/A solutions for healthcare organizations Ascension Ventures; Drive Round 6 Capital; Oak HC/FT 3/20/2020 AristaMD A digital health company, focuses on Cigna Ventures; Series B $18.0 $44.7 improving the specialty referral process MemorialCare Innovation through its platform Fund; Avalon Ventures; Stanford Health Care; Cigna Ventures; Univ. of Colorado School of Medicine, Endowment Arm April 30, 2020 13 First Analysis
Select Private Placements: 1Q20 (Sorted by date of announcement) ($ in millions) Total Raise Amount Amount Date Target Target Business Description Investors Type Raised Raised 3/20/2020 98point6 Provides primary care services to pa- West Street Capital Series D $43.0 $124.5 tients through its application in the U.S. Partners 3/17/2020 Pristine Develops and markets a single use Undisclosed Growth $18.0 $18.0 Surgical digital imaging platform Round 1 3/10/2020 Fruit Street Operates a digital wellness and tele- Undisclosed Growth $17.0 $20.0 Health health platform for patients to pursue a Round 1 healthier lifestyle 3/10/2020 Bright.md Powers leading healthcare systems' Seven Peaks Ventures; B Series C $8.1 $21.7 virtual convenience care, allowing them Capital Group Management to deliver high-quality care 3/6/2020 Urgent Provides a cloud-based referral auto- Connecticut Innovations; Series A $2.7 $6.3 Consult mation platform that streamlines the Meyer Ventures; Health referral process Catalyst Capital Mgmt 3/5/2020 VIDA Provides clinical imaging software and First Analysis Corp.; The Series C $13.1 $21.9 Diagnostics analysis services Angels' Forum; Iowa Farm Bureau Federation, Endowment Arm; 3/4/2020 Suki AI Develops artificial intelligence enabled Flare Capital Partners; Series B $20.0 $35.0 voice assistant for doctors VR Adviser; First Round Capital; Breyer Capital; Epsilon Health Investors 3/4/2020 HealthiPASS Provides patient centric payment sys- Fifth Third Capital Holdings Growth Undisclosed N/A tems 3/3/2020 Alignment Along with its subsidiaries, operates Fidelity Mgmt & Research Series C $135.0 $375.0 Healthcare as a healthcare services company Co.; T. Rowe Price; Durable focusing on providing population health Capital Partners management services to health sys- tems and provider groups in the U.S. 3/3/2020 Health Data Develops an analytics and predictive Undisclosed Venture $16.0 $16.0 Analytics platform for clinical risks measurement Institute 3/2/2020 PharmaCCX Operates a platform that catalyzes the Undisclosed Series A $7.0 $10.3 pricing and procurement of medicine by healthcare payers and accelerates patient access to the medicines avail- able for their diseases 2/28/2020 Pager, Inc. Pager, Inc. develops and operates an Health Catalyst Capital Series B $22.0 $51.6 on-demand service platform that con- Management LLC; New nects patients with healthcare in their Enterprise Associates, Inc.; home, office, and hotel. Lux Capital Management; Three Fields Capital; Horizon Blue Cross Blue Shield of NJ Management Employees Retirement Plan; Goodwater Capital, LLC 2/27/2020 Axial Connects patients, providers, and .406 Ventures; Sandbox Series C $15.0 $41.9 Healthcare health plans with a platform that covers Industries; BCBS Venture the substance use spectrum Partners; Oak HC/FT 2/27/2020 Rivet Health Operates a SaaS based healthcare Menlo Ventures; Pelion Series A $8.3 $8.3 revenue cycle management software Venture Partners; Lux for providers and patients Capital Mgmt 2/23/2020 HealthJoy Owns and operates an online health- Health Velocity Capital; Series C $30.0 $48.5 care decision platform that helps con- U.S. Venture Partners; EPIC sumers protect out-of-pocket expenses Ventures; Chicago Ventures through better decisions April 30, 2020 14 First Analysis
Select Private Placements: 1Q20 (Sorted by date of announcement) ($ in millions) Total Raise Amount Amount Date Target Target Business Description Investors Type Raised Raised 2/21/2020 Lyra Health Operates a platform that connects Institutional Venture Series C $75.0 $175.5 employers with mental healthcare Partners; Glynn Capital; providers MeriTech Capital; VR Adviser; CVF; Tenaya Capital; Casdin Capital; Greylock Partners; Providence Ventures 2/19/2020 PocketPills Develops a mobile application for medi- WaterBridge Capital Series A $5.6 $7.6 Pharmacy cation management Advisors 2/18/2020 Epharmix Develops clinically validated and con- Nueterra Capital Mgmt; Growth Undisclosed N/A dition-specific communication tools for OSF Ventures; 1984 Round 6 healthcare industry Ventures; UnityPoint Health Ventures 2/14/2020 Intelycare Provides on-demand staffing services Endeavour Vision; Kaiser Series B $45.0 $59.6 for healthcare organizations Permanente Ventures; Generator Ventures 2/13/2020 Seqster Develops a patient-centric software- Takeda Pharmaceutical Co. Venture Undisclosed N/A as-a-service (SaaS) platform that provides interoperability and allows the members, payer, provider, clinical research enterprise employees, or pa- tients to import medical data from elec- tronic health records (EHR), genetic, and fitness data from distinct sources 2/7/2020 MedPilot Offers an AI-driven patient relationship JumpStart, Investment Arm; Growth $1.5 $4.0 management platform Plymouth Growth; Hudson Round 5 River Capital; Valley Growth Ventures 2/7/2020 RubiconMD Provides an online platform that en- Deerfield Management; Series C $18.0 $39.0 ables primary care clinicians to discuss Waterline Ventures; their eConsults with top specialists to Heritage Medical Systems; provide care Optum Ventures 2/5/2020 Verana A software company, focuses on GV; Bain Capital Venture; Series D $100.0 $137.8 Health bridging the information gap between Casdin Capital; Define healthcare providers and mobile diag- Ventures nostics 2/5/2020 Nursing Doing business as GENTO Platform, Palisades Growth Capital Series A $5.0 $7.8 Without develops a mobile staffing app built Walls for nurses who focus on Home Health nursing 2/4/2020 Hinge Health Designs and develops digital health- Bessemer Venture; Series C $90.0 $140.8 care solutions for employees to recover Insight Venture; Atomico from musculoskeletal disorders Investment; Lead Edge Capital Mgmt; Quadrille Capital; Eleven Two Capital; Heuristic Capital Partners 2/4/2020 Vineti Builds technologies that support thera- Cardinal Health (CAH); Series C $35.0 $96.4 peutic development and delivery Canaan Partners; Threshold Ventures; Novartis Pharma; Kite Pharma, Inc.; Casdin Capital, LLC; Section 32; Hive Ventures; LifeForce Capital 2/3/2020 Inbox Health Develops a patient communication Connecticut Innovations; Seed $3.5 $9.4 Corp. platform for medical billers in the U.S. I2BF Global Ventures; Collaborative Fund; StartUp Health; Commerce Ventures; Healthy Ventures April 30, 2020 15 First Analysis
Select Private Placements: 1Q20 (Sorted by date of announcement) ($ in millions) Total Raise Amount Amount Date Target Target Business Description Investors Type Raised Raised 1/30/2020 Carevive A technology & services co, develops HLM Venture; LRVHealth; Series C $7.5 $14.8 Systems workflow and patient engagement solu- Debiopharm Innovation tions for customers in the U.S. Fund; Cerner Capital Mgmt; Philips Health Technology Ventures 1/29/2020 CareWorx Provides technology solutions to senior BDC Capital; Comerica Growth $18.9 $35.9 care organizations in North America Bank, Banking Investments Round 2 and internationally 1/29/2020 4G Clinical Provides randomization and trial supply First Analysis Corp., Venture Undisclosed N/A management services for pharmaceu- Schooner Capital tical companies and clinical research organizations worldwide 1/27/2020 uLab Develops a software technology for Park West Asset Series D $18.0 $24.4 Systems digital dental treatment planning for Management orthodontists 1/21/2020 mPharma Develops an app that enables physi- Undisclosed Growth Undisclosed N/A Data cians and pharmacies to prescribe and Round 4 locate medicines for patients 1/17/2020 eClinical Provides clinical data management Summit Partners Growth $19.3 $19.3 Solutions solutions in the U.S. 1/15/2020 Modern Develops a mental health platform for John Doerr; Kleiner Perkins Series B $31.0 $56.4 Health companies that value the emotional Caufield & Byers; Founders well-being of their workforce Fund; Afore Capital 1/14/2020 Medsphere Provides healthcare information tech- TPG Sixth Street Partners Growth $40.0 $136.6 Systems nology solutions Round 5 1/14/2020 Glass Health Doing business as Anagram, provides a CareCredit; KEC Ventures; Growth $9.1 $15.1 software platform that assists health- Rogue Venture; Launchpad Round 3 care professionals with the intricacies Digital Health; Waterline of health insurance networks Ventures; Healthy Ventures 1/14/2020 Avail Develops software that remotely con- Undisclosed Series A $15.0 $28.0 Medsystems nects healthcare experts to practi- tioners 1/14/2020 Limelight Develops and delivers a quoting, un- Launchpad Digital Health Growth Undisclosed N/A Health derwriting, and proposal platform for the employee benefits industry 1/13/2020 Concerto Develops the healthcare software eu- Declaration Partners; AB Series B $150.0 $150.0 HealthAI rekaHealth Private Credit Investors; Solutions SymphonyAI Group; Maverick Ventures 1/13/2020 Vesta Develops a healthcare technology Oak HC/FT; Deerfield Series A $30.0 $30.0 Healthcare platform to connect caregivers to the Mgmt; Kaiser Permanente; care team Lux Capital Mgmt; CareCentrix; Generator Ventures; Nationwide Ventures; The Epstein Partners 1/13/2020 drchrono Provides an electronic health record SQN Venture Partners Debt $20.0 $52.9 platform for physicians and patients Round 3 worldwide 1/9/2020 Aver A health information technology com- Cox Enterprises; Hearst Series C $27.0 $50.6 pany, provides software for creating Ventures; NCT Ventures; and managing bundles Heritage Group; GE Ventures; Drive Capital 1/8/2020 nference Offers an AI based software platform Mayo Clinic Ventures; Series B $60.0 $71.4 that synthesizes siloed biomedical Matrix Partners; Matrix knowledge for triangulating unstruc- Capital Management; NTT tured and structured information from Venture Capital biomedical literature, and molecular and real world datasets April 30, 2020 16 First Analysis
Select Private Placements: 1Q20 (Sorted by date of announcement) ($ in millions) Total Raise Amount Amount Date Target Target Business Description Investors Type Raised Raised 1/8/2020 Komodo Develops and provides a platform Andreessen Horowitz; Series C $50.0 $50.0 Health that offers healthcare data to deliver Felicis Ventures; IA real-time healthcare intelligence and Ventures; Oak HC/FT transparency 1/7/2020 Ride Health Develops a SaaS product platform Activate Venture Partners; Seed $6.2 $6.3 which enables healthcare providers to BioAdvance; StartUp schedule, request, and pay for rides on Health; Leading Edge behalf of patients to and from medical Ventures; Newark Venture appointments Partners; Anthro Ventures 1/7/2020 Fibroblast Operates a referral management plat- Undisclosed Debt Undisclosed N/A form 1/6/2020 LynkCare Develops a Software as a Service BIP Capital Pre-Series $2.5 $7.1 (SAAS) solution for multi-disciplinary A care planning 1/1/2020 Zelis Develops healthcare cost management Bain Capital Private Equity Growth $20.5 $20.5 Healthcare and payment solutions Round 3 Source: Capital IQ, Pitchbook, First Analysis. April 30, 2020 17 First Analysis
HCIT Quarterly Report Public Comparables Appendix ($ in millions) Revenue Growth Enterprise Value / LTM LTM Revenue EBITDA Market Enterprise LTM 2018A- 2019A Gross EBITDA Company Cap Value Revenue 2019A -2020E Margin Margin LTM 2020E LTM 2020E April 30, 2020 Payer Technology Benefitfocus (BNFT) $325.2 $477.7 $295.7 14.3% (11.5%) 51.3% (5.2%) 1.62x 1.83x NMF 18.1x Castlight Health (CSLT) $108.8 $70.3 $143.3 (8.4%) (7.5%) 58.8% (24.7%) 0.49x 0.53x NMF NMF eHealth (EHTH) $2,789.0 $2,617.3 $543.8 101.4% 24.4% 99.3% 19.8% 4.81x 4.16x 24.3x 19.6x EverQuote (EVER) $1,047.7 $1,001.6 $248.8 52.4% 28.0% 93.6% (2.4%) 4.03x 3.14x NMF NMF HealthEquity (HQY) $3,935.8 $5,045.2 $532.0 85.2% 46.8% 61.3% 30.9% 9.48x 6.46x 30.7x 19.9x HMS Holdings Corp. (HMSY) $2,483.5 $2,606.4 $626.4 4.7% 12.4% 37.5% 22.5% 4.16x 3.70x 18.5x 14.0x Inovalon Holdings (INOV) $2,828.9 $3,741.4 $642.4 21.7% 9.2% 73.9% 27.7% 5.82x 5.34x 21.0x 16.0x MAXIMUS (MMS) $4,302.1 $4,366.9 $3,040.4 24.9% (0.2%) 22.6% 13.4% 1.44x 1.44x 10.7x 10.6x Mean $2,227.6 $2,490.9 $759.1 37.0% 12.7% 62.3% 10.3% 3.98x 3.32x 21.0x 16.4x Median $2,636.3 $2,611.9 $537.9 23.3% 10.8% 60.1% 16.6% 4.09x 3.42x 21.0x 17.1x Provider Technology Allscripts Healthcare Solutions (MDRX) $1,089.6 $1,993.8 $1,771.7 1.2% (0.8%) 46.8% 5.5% 1.13x 1.13x 20.6x 6.5x Cerner Corporation (CERN) $21,832.7 $22,480.4 $5,714.5 6.1% (1.4%) 81.2% 19.8% 3.93x 4.00x 19.8x 13.1x Change Healthcare (CHNG) $3,342.7 $3,363.0 $3,280.7 (0.6%) 2.7% 58.5% 30.4% 1.03x 1.00x 3.4x 3.2x 18 Computer Programs & Systems (CPSI) $334.1 $442.4 $274.6 (2.1%) 0.7% 52.5% 12.5% 1.61x 1.60x 12.9x 9.3x Evolent Health (EVH) $600.7 $873.4 $846.4 35.0% 13.6% 23.3% (7.2%) 1.03x 0.91x NMF 30.9x Health Catalyst (HCAT) $946.3 $770.7 $154.9 37.6% 13.9% 51.4% (29.5%) 4.98x 4.37x NMF NMF HealthStream (HSTM) $765.8 $653.9 $250.5 9.7% (9.3%) 61.1% 13.7% 2.61x 2.84x 19.0x 18.0x NextGen Healthcare (NXGN) $730.6 $790.4 $538.6 1.6% 3.0% 57.9% 7.1% 1.47x 1.42x 20.7x 8.6x Nuance Communications (NUAN) $5,444.2 $6,728.1 $1,821.7 0.4% (19.1%) 59.2% 20.3% 3.69x 4.57x 18.2x 18.2x Omnicell (OMCL) $3,011.5 $2,995.0 $897.0 13.9% 9.4% 48.7% 12.8% 3.34x 3.05x 26.2x 16.1x Premier (PINC) $2,340.2 $2,349.7 $1,239.5 26.1% 3.1% 69.7% 43.9% 1.90x 1.84x 4.3x 4.0x R1 RCM (RCM) $1,160.3 $1,756.3 $1,186.1 36.6% 11.2% 16.7% 11.8% 1.48x 1.33x 12.6x 6.7x Tabula Rasa HealthCare (TRHC) $1,314.3 $1,523.6 $284.7 39.4% 19.6% 36.3% 1.6% 5.35x 4.48x NMF 31.2x Teladoc Health (TDOC) $12,971.0 $12,936.9 $605.5 32.4% 49.8% 65.0% (4.1%) 21.37x 15.61x NMF NMF Mean $3,991.7 $4,261.3 $1,347.6 16.9% 6.9% 52.0% 9.9% 3.92x 3.44x 15.8x 13.8x Median $1,237.3 $1,875.1 $871.7 11.8% 3.1% 55.2% 12.2% 2.25x 2.34x 18.6x 11.2x Source: Capital IQ. First Analysis
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