2019 IPO Landscape

Photo credit: jxfzsy, Getty Images Table of Contents

Alector, developing immunity-based neurological disease drugs, goes public...... 3 Gossamer Bio becomes 2019’s second biotech ‘unicorn’ to go public...... 4 BridgeBio files for $225M initial public offering ...... 5 Change Healthcare files for $100M IPO...... 6 Shares surge in the public market debuts of Livongo and Health Catalyst ...... 7 Five tidbits and takeaways from Livongo’s IPO filing...... 9 Dental company SmileDirectClub files to go public...... 10 2019 is the year of the digital health IPO, but will it last?...... 11 The topsy turvy world of medtech startup exits these days ...... 14

2019 proved to be a particularly robust year for digital health companies going public. Long-anticipated, the IPOs for Health Catalyst, Livongo, Change Healthcare, and Phreesia reflected a maturing digital health sector, which has attracted investment through a combination of strong product offerings, increasing revenues, solid management teams, and promising growth potential.

Digital health has seen quite a lot of investment and acquisitions in recent years but until this year, there was little interest in going public. In contrast, biotech companies accounted for the majority of IPOs in 2018. There are a few reasons for that. Biotech stocks have attracted a broader audience, pharma companies are becoming more sophisticated partners for biotech businesses and big pharma companies have to be more capital-efficient.

In the biopharma sector, the government shutdown, which started December 22 and lasted through January 25, delayed the IPOs of at least a few companies, such as Gossamer Bio. Gossamer and Alector stand out for their unicorn status. Gossamer, which was only founded in two years ago, also reflects the wider trend of young biotech startups increasingly going public earlier than they used to.

Perhaps the contrast between the digital health and biotech sectors is striking because of how we tend to think of IPOs. Although they are not the exit they used to be, for biotech companies they are simply one step in the journey to commercialization. Most of the biotech companies that have gone public in recent years aren’t even generating revenue.

In this eBook, we highlight some of the more interesting companies to go public this year and identify some of the trends fueling these deals across health tech and medtech.

2 Alector, developing immunity-based neurological disease drugs, goes public Feb 7, 2019 | Alaric DeArment

A company developing drugs for neurological diseases Drug Administration in August 2018 and initiated the expects to raise $176 million in its initial public offering . Phase I study of it in September, followed by the Phase I AL002 study in November . South San Francisco, California-based Alector said that it would offer 9 .25 million shares to the public at $19 per Alector’s approach is based on immuno-neurology . share . The offering is expected to close Monday, and Under the current therapeutic approach, particularly the company started trading on the Nasdaq February 7 for Alzheimer’s disease, therapies only target either under the ticker symbol “ALEC ”. Tau tangles or amyloid beta aggregates . By contrast, Alector’s programs are designed to leverage the body’s The company filed to go public last month, with a own innate immune cells, the microglia, to counteract proposed maximum aggregate offering price of $150 multiple pathologies simultaneously . million, according to its form S-1 filing with the Securities and Exchange Commission . Morgan Stanley, BofA The IPO follows the more than month-long government Merrill Lynch, Cowen and Barclays are acting as joint shutdown that many had feared would put a damper book-running managers for the offering . on the ability of companies, particularly biopharma companies, to go public . One, San Diego-based The company has four product candidates in preclinical Gossamer Bio, initially said it would allow its IPO to and clinical development . AL001 and AL002 are take effect automatically during the shutdown, without in Phase I studies for frontotemporal dementia SEC signing off, using a workaround that the agency and Alzheimer’s disease, respectively, while AL101 had said would be allowed . However, the workaround and AL003 are respectively in development for an was viewed as being fraught with legal risks . When unspecified area of neurology and Alzheimer’s . AL002 the shutdown ended, the company changed course, and AL003 are partnered with AbbVie . The company saying it would seek an acceleration of the registration received orphan drug designation from the Food and statement’s effective date from the SEC .

3 Gossamer Bio becomes 2019’s second biotech ‘unicorn’ to go public Feb 8, 2019 | Alaric DeArment

A company that initially sought to go public during Securities and Exchange Commission from signing off the government shutdown without the Securities and on IPOs . Consequently, the company sought to use the Exchange Commission signing off has announced the so-called 20-day rule, a legal workaround permitted pricing of its initial public offering . by the SEC whereby that filed to go public could alter the language in their filings to make the IPOs automatic San Diego-based Gossamer Bio said that it would after 20 days . While permitted by SEC regulations, offer $17 .25 million shares at $16 per share, with the the workaround carried potential legal risks as well . expectation that it would raise $276 million . The offering However, with the shutdown ended, Gossamer went is expected to close Tuesday . BofA Merrill Lynch, SVB back on that plan and chose to issue its offering through Leerink, Barclays and Evercore ISI are acting as book- the ordinary route . running managers . The company will trade on the Nasdaq under the ticker symbol “GOSS ”. Gossamer currently has three drug candidates in clinical development . GB001 is a DP2 antagonist in a Phase IIb Gossamer is the second “unicorn” – a company with a study for moderate to severe eosinophilic asthma, and value of at least $1 billion – to go public this year . The with Phase II studies planned in chronic rhinosinusitis first was Alector, which also announced Thursday that with nasal polyps and chronic spontaneous urticaria . it would go public . According to Renaissance Capital, GB002 is a PDGF receptor kinase inhibitor in Phase I Gossamer’s value would be $1 billion, while Alector’s development for pulmonary arterial hypertension, while would be $1 4. billion . GB004 is a HIF-1a stabilizer in Phase I development for inflammatory bowel disease . GB1275 is a CD11b Gossamer initially filed to go public in December, agonist in an unspecified preclinical program, while the but the government shutdown – which lasted for 35 company also has preclinical and research programs in days, from Dec . 22, 2018 to Jan . 25 – prevented the autoimmune disease and oncology .

4 BridgeBio files for $225M initial public offering May 28, 2019 | Alaric DeArment

A company that turns research in genetically driven Other programs the company has in its pipeline diseases into subsidiary companies has filed to go public . include Adrenas’ BBP-631 and Aspa’s BBP-812, both gene therapies currently in preclinical development, Palo Alto, California-based BridgeBio Pharma said respectively for congenital adrenal hyperplasia and Friday that it had filed a Form S-1 with the Securities and Canavan disease . Another company in BridgeBio’s Exchange Commission for the proposed $225 million portfolio is TheRas, which is developing the preclinical initial public offering . The company would trade on the BBP-454, for KRAS-mutant cancers . Despite being widely Nasdaq under the ticker symbol BBIO . The company expressed by solid tumors, KRAS mutations have long closed a $299 .2 million financing round in January . been considered undruggable due to the protein’s lack of suitable pockets for drugs to target . But this weekend, The company was formed in 2015 and adopted a model biotech company Amgen will present early data on AMG developed at the Massachusetts Institute of Technology’s 510, a small-molecule inhibitor of a particular type of KRAS Sloan School of Management, whereby it identifies drugs mutation that has shown signs of efficacy in some patients . to treat genetic diseases and also cancers that have clear genetic drivers and then turns them into subsidiaries A company with a similar business model is Cambridge, to develop them further . The pipeline includes more Massachusetts-based ElevateBio, which launched earlier than a dozen development programs, spread across a this month with a $150 million Series A funding round roughly equal number of subsidiaries, ranging from small- and is focused on cell and gene therapies . ElevateBio molecule drugs in areas like KRAS-mutated cancers to recently named AlloVir as its first portfolio company . gene therapies for inherited diseases . AlloVir is developing cell therapies to treat viral infections in patients with compromised immune systems . One of BridgeBio’s portfolio companies, Eidos Therapeutics, went public last year and trades on the Nasdaq . The company, which is developing the drug BBP-265 for transthyretin amyloid cardiomyopathy, or ATTR-CM, currently has a market cap of more than $1 1. billion . Earlier this month, the FDA approved a Pfizer drug in two formulations for ATTR-CM, Vyndaqel (tafamidis meglumine) and Vyndamax (tafamidis) .

5 Nashville-based Change Healthcare files for $100 million IPO Mar 22, 2019 | Kevin Truong

The company is currently owned by a joint At last year’s J .P . Morgan Investor Conference, McKesson venture consisting of McKesson—which owns CEO John Hammergren indicated that the company would be going public sooner rather than later . around 70 percent of the company—and private equity firms Blackstone and Hellman According to the company’s S-1 filing, Change’s customer & Friedman . base includes 900,000 physicians, 118,000 dentists, 600 laboratories, 33,000 pharmacies and 5,500 hospitals . As part of an effort to pay down its more than $5 In the fiscal year ending in March 2018, the company billion debt load, Nashville, Tennessee-based health IT reported it earned nearly $3 .3 billion in revenue, company Change Healthcare filed prospectus papers to facilitated nearly $14 billion in healthcare transactions raise $100 million through an IPO and list shares on the and approximately $1 trillion in adjudicated claims . Nasdaq exchange . More recently, the company acquired the assets The company was initially founded in 1986 as Emdeon, of blockchain startup Pokitdoc and integrated the a revenue cycle management and healthcare analytics technology into its Intelligent Healthcare Network company . Emdeon acquired patient engagement company platform . According to their regulatory filings, the Change Healthcare in 2015 for $135 million and was later company now has launched a blockchain solution that re-branded under that name . can process up to 20 million healthcare transactions daily .

The current iteration of Change was formed in 2017 when The company is currently owned by a joint venture McKesson Corporation merged its Health IT business consisting of McKesson – which owns around 70 unit with the existing Change Healthcare assets . percent of the company – and private equity firms Blackstone and Hellman & Friedman . Change Healthcare’s main products are data analytics tools for healthcare providers that are meant to increase The listed underwriters on the IPO are Goldman Sachs, patient engagement, assist with quality reporting and J .P . Morgan and Barclays . risk adjustment, improve reimbursement and handle billing and post-clinical communication .

6 Shares surge in the public market debuts of Livongo and Health Catalyst July 25, 2019 | Kevin Truong

Livongo Health and Health Catalyst became the two “We also wanted to make sure we had a currency newest digital health companies to go hold their IPOs in to use for acquisitions as we grow our whole what’s turning out to be a banner health for the industry person platform to serve more and more people and the public markets . with chronic conditions.” Shares for Mountain View, California-based chronic Health Catalyst, which develops data analytics tools and disease management company Livongo popped in early services for healthcare organizations, joined Livongo on trading, trending as high as 62 percent over its $28 the public markets with its own IPO on the Nasdaq under offering price . At the close of the first day of trading, the the ticker HCAT . The company priced its offering of 7 company’s shares are up around 36 percent at $38 10. . million shares at $26, raising $182 million . Livongo raised more than $350 million from its sale of Share prices for the Salt Lake City-based company 12 7. million shares with a valuation in excess of $2 .5 jumped up more than 50 percent in early trading and at billion . The company’s shares are listed on the Nasdaq the close of the first day of trading was at $39 17. . exchange under the listing LVGO . Besides the choice of IPO date another thing both Livongo Livongo was launched in 2014 and emerged from a and Health Catalyst have in common is their current lack of previous company called EosHealth that was invested profitability . The companies saw net losses of $33 4. million in by Livongo Founder Glen Tullman’s VC firm 7wire and $62 million in 2018, respectively . Ventures . The company raised nearly $240 million from investors prior to its IPO from investors including Merck, Health Catalyst earned $112 6. million in revenue last year Microsoft and Kleiner Perkins . and has signed up more than 126 health system customers like UPMC, UnityPoint Health and Allina Health, according Tullman, who also serves as the company’s executive to its S-1 . Prior to its public listing, the company raised chairman, has a long history with the public markets, $235 million from private funders like UPMC, Kaiser successfully shepherding EHR company Allscripts and Permanente and Sequoia Capital . health IT company Enterprise Systems to successful IPOs . The nearly three-year drought of digital health IPOs Somewhat ironically, Livongo, which earned $68 4. since 2016, alongside the continued growing investment million in revenue last year, has a current market figures, led some observers to fret about a potential capitalization higher than that of Allscripts, which made bubble in the industry . $1 75. billion in revenue in 2018 . But that drought was ended earlier this year with the public According to its S-1, Livongo has 164,000 members listings of Change Healthcare and Phreesia, which continue across 679 clients, which include 20 percent of to trade higher than their offering prices . the Fortune 500 . The company has more than 470 employees and earns most of its revenue through The success of these efforts could be a signal to the larger PMPM contracts with self-insured employers like industry about the potential viability of a public offering CitiGroup, PepsiCo, Target and Delta Airlines . as an exit option . Some companies rumored to be going public later this year include Ancestry and SmileDirectClub . “Today going public is really a branding event and we deal with 20 percent of the Fortune 500 . Those organizations like to see that we’re stable and they like “We believe the digitization of healthcare is a wave the transparency of public companies,” Tullman said in that is happening over the coming decades and we’re an interview on CNBC . excited to see the number of companies pushing that

7 forward,” said Health Catalyst CFO Patrick Nelli. “We’re still in the early innings.”

Still, even with these series of successes, the longer term historical record of digital health businesses going public has been more of a mixed bag .

On the one hand are examples like medication management software company Tabula Rasa, which has seen its stock price more than quadruple since its $12 initial offering back in 2016 .

On the other are cases like healthcare price transparency company Castlight Health, whose shareprice, at $2 and under, is a small fraction of its $16 listing price .

8 5 tidbits and takeaways from Livongo’s IPO filing Jun 30, 2019 | Kevin Truong

Silicon Valley startup Livongo Health is the latest in the strips, personalized health suggestions, digital tools line of digital health companies filing to go public, with a and coaching and has been able to drive average planned listing on the Nasdaq later this year . The chronic client savings of $129 per member per month . disease management company joins Change Healthcare, Phreesia and Health Catalyst as part of the raft of 4. Half of the company’s sales comes from healthcare technology companies planning to go public distribution channel partners and resellers . The after a nearly three year IPO drought in digital health . company’s top five channel partners are Express Scripts, CVS, Health Care Service Corporation, A few choice details from the company’s S-1 form SEC Anthem, and Highmark, which represented 59 filing illustrate Livongo’s potential advantages and pitfalls percent of the company’s revenues in the first as it moves to become a public company . Here are a three months of 2019, according to the S-1 . selection of five insights to glean from the document . These relationships are non-exclusive and are paid through administrative or marketing fees . 1. The company is continuing to lose money, but Livongo’s partnerships with PBMs and resellers revenue is growing at a rapid clip as well . Losses are an important aspect of the company’s from the company jumped up to $33 million last approach to eventually broaching the extremely year from $16 .9 million in 2017 and Livongo lost lucrative Medicare population by opening up $15 million in the first three months of 2019 alone . new ways to connect with patient populations The good news? Revenue more than doubled in Medicare Advantage, Managed Medicare and between 2017 and 2018 to $68 4. million . The traditional Medicare . company’s $32 1. million in revenue for the first three months of 2019 is also a good indication that 5. The company’s future plans rely heavily on the trendline will continue . leveraging its existing customer base . Livongo Health has signed up 679 customers, mainly large 2. Who stands to gain most from a successful IPO? self-funded employers looking to better manage Livongo founder and executive chairman Glen their chronic disease costs . In 2018, the company Tullman remains its single largest individual was able to enroll an average of 34 percent shareholder owning 3 6. percent of the company of recruitable individuals in those companies personally and 7 1. percent through his VC firm onto Livongo for Diabetes over the course of 7wire Ventures . Venture investment firms General 12 months . However, when it comes to “fully- Catalyst, Kinnevik AB and Kleiner Perkins are the optimized” clients that proportion goes up to 47 company’s largest overall shareholders owning percent . The company’s growth plan includes the 25 4. percent, 12 percent and 8 .9 percent of the use of its channel partners and new engagement company’s shares respectively . Other major methods to open up new distribution and shareholders include CEO Zane Burke - formerly marketing avenues for Livongo products, as well of Cerner - who owns 1 .2 percent of the company, as upselling existing customers into new verticals . and the Merck Global Health Innovation Fund Another growth avenue is international expansion, which has 7 6. percent of outstanding stock . especially among the large multinational companies Livongo serves . 3. The company’s diabetes product remains their bread-and-butter and biggest cash cow . While Nashville-based teledentistry company SmileDirectClub the company has branched out from its initial has filed paperwork to go public in what turned out to disease indication of diabetes into conditions like be a banner year for IPOs in digital health . hypertension and programs targeting diabetes prevention and behavioral health, Livongo for In its S-1, the company said it plans to go public on the Diabetes remains the largest revenue driver with Nasdaq under the ticker symbol “SDC ”. The offering its 164,00 members . The management solutions price and number of shares to be offered in their initial includes a connected glucose monitor, unlimited test public sale have not yet been determined .

9 Dental company SmileDirectClub files to go public August 18, 2019 | Kevin Truong

The company offers personalized 3-D printed clear Still, like many of the healthcare technology companies aligners - essentially a form of transparent plastic who have gone public this year, SmileDirectClub has seen braces - in a direct to consumer model that it touts as increasing losses since its founding . From 2017 to 2018 cheaper and more convenient than traditional options . net losses grew from $32 .8 million to $74,8 million . For Average treatment times for SmileDirectClub customers the first half of 2019 alone, the company saw $52 .9 is six months . million in net losses .

SmileDirectClub, which was started in 2014, has raised According to its S-1, the company sees continuing nearly $450 million from investors including a $380 opportunities for growth in continuing to expand its million round last year led by private equity firm Clayton, services in its existing markets and internationally, as well Dubilier & Rice that valued the company at $3 .2 billion . as broadening its offering of products past clear aligners to develop recurring revenue lines . According to its S-1, the company has had over 700,000 individual customers and more than 300 physical retail One of the company’s potential business risks, as outlined locations offering services in the U .S ., Canada, Australia in its SEC filing is the growing backlash to its service from and the U .K . a number of dental and orthodontics groups .

Among the company’s stated business advantages are The American Association of Orthodontists has filed a standard $1,895 pricing for its clear aligners, its mix complaints with 36 state dental boards, alleging that of teledentistry and retail locations, its ability to sell to SmileDirectClub violates regulatory standards by consumers who don’t have access to an orthodontist and bypassing standard visits and diagnostics to determine SmilePay financing option . whether clear aligners are appropriate to use with patients .

SmileDirectClub employers more than 5,000 workers According to the S-1, CEO and Chairman David and has a provider network of licensed orthodontists and Katzman, also the founder of investment firm Camelot general dentists in all 50 U .S . states, Puerto Rico, Canada, Venture Group, will hold controlling voting power over Australia, and the U .K . the company .

Financially the company grew revenues from $146 million Other large shareholders in the company include to $423 .2 million between 2017 and 2018, an increase of co-founders Jordan Katzman and Alex Fenkell, COO 190 percent . Steven Katzman and the private equity firm Clayton, Dubilier & Rice .

10 2019 is the year of the digital health IPO, but will it last? Aug 25, 2019 | Pete Barlas

The digital health market has seemingly caught fire in Another venture capitalist echoed his thoughts noting 2019, but it remains to be seen whether this blaze will that the IPO flurry is in direct response to the individual continue or be snuffed out unceremoniously like a lit companies’ track records . matchstick in the wind . “What we are actually seeing is what the market’s In less than two months since late June, four digital appetite is for things combined, healthcare technology health companies — Health Catalyst, Livongo Health, and services that have significant revenue, which takes Phreesia and Change Healthcare — have gone public . a very long time to achieve in healthcare,” said Lisa Peloton went public in October, though it’s more a Suennen, managing director of Manatt, a legal strategy personal wellness company . and consulting firm, where she runs the company’s venture fund and emerging companies practice . The four, with products and services ranging from patient monitoring systems to billing and data analytics software, Health Catalyst, based in Salt Lake City, provides data have collectively raised nearly $1 6. billion from their IPOs . and analytics technology and services to healthcare Peloton, which sells stationary exercise bikes, treadmills organizations to help them run more efficiently . The and a companion monthly subscription-based live and on company raised $182 million from its IPO, which demand service, raised more than $900 million before debuted at $26 a share . Shares jumped by more than filing its intent to go public on June 6 . 50 percent on its first day of trading and were trading above $44 a share before the tariff-related back and Health Catalyst, Livongo Health, Phreesia and Change forth between China and President Trump that caused a Healthcare are all benefiting from being in the right place market meltdown on Friday . at the right time, said Jeff Zell, senior research analyst for IPO Boutique, a syndicate information rating service . According to its S-1 filing, the company believes its total addressable market is $8 billion, including $2 billion from its cloud-based data operating system, $3 billion “They are basically capitalizing on the current from analytics applications, and professional services of sentiment being so strong in healthcare IT,“ around $3 billion . he said. The company ended the March quarter with revenue of $35 .2 million, up from $20 6. million in the year-ago Experts say the digital health sector is attracting public period . It ended 2018 with revenue of $112 6. million and private investments because of a combination compared with $73 1. million in 2017 . of strong product offerings, increasing revenues, solid management teams, and big markets that have New York-based Phreesia is also focused on boosting promising growth potential . healthcare operation efficiencies . The company’s primary product is used to check in patients . It has also expanded Health Catalyst, Livongo Health, Phreesia and Change into other areas including payments, appointments, Healthcare appear to have all of those factors in patient surveys and clinical support . place, said Michael Greeley, general partner of Flare Capital Partners, a venture fund focused on healthcare The company raised $167 million from its IPO . The shares technology and the digital health market . were priced at $18 . Shares were trading above $27 a share prior to the Trump-China inspired selloff on Friday . “In the last four to five years you have had these Phreesia already appears to be making a dent in the companies mature into real businesses, and that healthcare market . In its S-1 filing, the company said is what we are so excited about,” Greeley said. that during its fiscal 2019 ending in January it facilitated

11 more than 54 million patient visits for approximately According to the company’s S-1 filing, in 2014, 147 million 50,000 individual providers including physicians, Americans had one chronic condition and 40 percent physician assistants, nurse practitioners in nearly had two or more chronic conditions . The company 1,600 healthcare provider organizations in 50 states . believes the market for addressing diabetes from Phreesia also processed more than $1 4. billion in patient patients in self-insured and fully-insured health plans payments in the same period . through employers is $12 .3 billion . Adults with diabetes receiving coverage under Medicare and Medicaid could Revenue in the company’s fiscal 2019 year ending Jan expand the market opportunity by another $15 .9 billion . 31 reached $99 .9 million, up 25 percent from the year- ago period . In the three-month period ended April 30, Livongo ended the March quarter with revenue of $32 1. Phreesia posted revenue of $28 .3 million versus $23 .9 million, up 157% percent from the year-ago period . million in the same period last year . Revenue of $68 4. million in 2018, jumped 122 percent from the prior year . Nashville, Tenn -based. Change Healthcare is making its own push to increase efficiencies in the healthcare The combination of an increasing need for technology market with software and analytics products that solutions in healthcare and a strong performance by target several areas including a company’s overall these companies opened the door to the IPO market, financial performance, payment accuracy and financial, Zell said . administrative and clinical transactions . “There is a need in a certain area of healthcare, The company is owned by a joint venture, which includes McKesson and private equity firms Blackstone whether its analyzing statistics or using and Hellman & Friedman . McKesson owns about 70 technology to help doctors make better percent of the company . decisions,” he said. “It takes a while for these Change Healthcare raised $888 million from its IPO companies to mature... and most of the time offering, priced at $13 a share . Shares are now around $15 a share . investors want three years of revenue on the books so they can properly forecast out.” Change Healthcare reported revenue of $855 6. million for its first quarter of 2020 ending on June 30 of this Change Healthcare posted a profit in its first-quarter year, up slightly from $823 .2 million in the year-ago since launching its IPO . Even so, the company is still period . It also reported net income of $71 .9 million or 28 carrying a debt load of $5 billion . cents a share in the quarter . On Aug . 22, Health Catalyst reported revenue of $36 4. During a conference call on Aug . 14 to discuss its million for the second quarter ending June 30 in its first earnings report since launching its IPO, Change first earnings report since launching its IPO . A year ago Healthcare’s chief executive Neil de Crescenzo said the company posted revenue of $22 .9 million . Health the company is well-positioned to take advantage of its Catalyst also reported a net loss of $10 7. million vs . a market opportunity . net loss of $19 .3 million in the year-ago period . “With more than 30,000 customers and 700 channel Phreesia, and Livongo have yet to post a profit . partners, we play a central role in innovating the way healthcare is managed and delivered,” he said . “We But profits aren’t really much of a concern to digital continue to hear from our payer and provider customers health investors, at least not yet, said Suennen . that our breadth of capabilities, data-driven insights, and scale are essential to meet their increasingly complex and “Companies have to eventually figure out how to be ever-changing financial, administrative and clinical needs ”. profitable; you can’t raise money forever, but right now it seems that is not what is bothering people -- they are Livongo Health, based in Mountain View, California, going to give them time to get there,” she said . provides a healthcare platform for managing diabetes, Peloton bike prices start at $1,995 . There is also a $250 hypertension, prediabetes, weight management, and delivery and installation fee, and a monthly $39 fee for behavioral health issues . Livongo raised $355 million the service . from its IPO, priced at $28 a share . Shares ended the first day of trading up 36 percent . It was trading above Greeley believes Peloton is a “hardware subscription $36 a share before the selloff on Friday caused by the story that is super compelling” to investors . Chinese trade war escalation .

12 “The home is as good a setting for a workout, getting Greeley believes the digital health IPO movement is people active in the places they are most comfortable,” likely only just getting started . he said but pointed out that it is an expensive product . “There are two dozen companies that have well While these companies are basking in the glow of a successful IPO - though Peloton faltered in its debut over 100 million in (annual) revenues and they — digital health’s success in the public market is not are private and venture-backed, and a bunch of without some cautionary tales . people think they could be public companies,” Three companies — Castlight Health, Fitbit, and he said. “All the investment banks are running NantHealth — have all stumbled since launching their IPOs in 2014, 2015 and 2016, respectively . around meeting with those companies, pitching them on the IPO process -- that’s happening now.” Castlight, which makes cloud-based software to help companies better manage their healthcare costs, In other words, the IPO blitz may continue (provided of launched its IPO with a $16 share price . The stock is course the macroeconomy holds up) . now trading at around $1 40. a share .

Fitbit, a maker of wearable fitness monitoring systems, priced its IPO at $20 a share . Shares are now hovering at around $3 00. .

NantHealth, best known for its cancer test software, starting trading at $14 a share . The stock is now at around 60 cents a share .

Analysts say reasons for these IPO stumbles are more related to internal missteps and unforeseen competitive disadvantages than a reflection of the digital health market .

Rock Health says prime digital health candidates for IPOs include telehealth platform company American Well; 23andMe, a consumer genetics and research company; HeartFlow, which makes medical technology that uses AI for creating a personalized 3D model of the heart; Proteus Digital Health, a maker of digital medicines to improve measurement of treatment effectiveness; and Welltok, which provides a SaaS platform for connecting consumers with personalized health improvement resources .

13 The topsy turvy world of medtech startup exits these days September 24, 2019 | Arundhati Parmar

It used to be that large, strategic buyers like Johnson “They are higher by definition because the strategic & Johnson, Medtronic and Boston Scientific could have has synergies and therefore a strategic buyer pays a their cake and eat it too when it came time to buy a premium over a public company value,” he said . “Today young startup . . when. you look at the multiple of M&A deals, they are lower multiples of revenue than the multiples at which Those days are gone, at least according to Charlie a public company trades on the public markets . So that Attlan, senior vice president, corporate strategy and creates a real difficulty ”. business development at Boston Scientific . At a panel on startup medtech valuations on the second day of That’s because the large corporations are not going the MedTech conference hosted by AdvaMed, the to pay 15 times the revenue when the public market industry’s largest lobby, Attlan explained that what has multiple is 12 times revenue already, he noted . changed is the potential for startups to go public . “ I am making up these numbers,” Attlan later “Five years ago or certainly 10 years ago when I started [at Boston Scientific] we were oftentimes in a lot of clarified. Christopher Cleary, vice president of our deals, we were the only exit and we negotiated as corporate development at Medtronic, summed a buyer from a position of real strength,” Attlan said . “Oftentimes we were alone in the process or defacto it up colorfully: “You create a movie and the ball alone - there’s always a threat of competition that field is turned upside down, dogs and cats are the seller tries to project, but you have a good sense of when you are effectively alone . So that helps on living together, total chaos,” he declared as the valuation . In the last year and a half, all bets are off ”. audience broke into laughter. John Babitt, partner Attlan went on to say that Boston Scientific has passed at E&Y and the moderator of the panel, produced on a “number of deals” because those startups had an the real numbers behind the discussion. alternative to M&A . “The public high-growth company multiples are at 8 .8 “They have credibly pulled out the IPO threat and that’s . . and the takeout multiples are now approaching four,” new and I don’t know how long that lasts,” he said . Babitt said, noting they are slightly better data than “That’s great for sellers because they have an additional dogs and cats . exit . For the first time that I remember and this doesn’t make much sense to me but IPO values are higher than Broadly, Cleary, Attlan and Susan Morano, VP of M&A values . So you have this weird dynamic where business development of the medical devices group, at equity comps are higher than M&A comps which, for Johnson & Johnson, were discussing valuations and the all of you who are in banking and valuations, that’s the importance of M&A to each of the company’s growth opposite of what you are used to ”. strategies . Attlan went on to explain that the multiple of revenue So who is the most prolific acquirer in 2018? Here is a that a strategic company pays a startup is usually higher chart courtesy of Piper Jaffray that was shared on the than what is available through the public markets . panel and the answer might be surprising .

14