10 healthcare startups that could be M&A targets after Teladoc's record-breaking $18.5 billion deal for Livongo

  • On August 5, telehealth giant Teladoc struck an $18.5 billion deal to buy Livongo, a chronic-care company.
  • The record deal is sending shockwaves through an industry that analysts say is ripe for more mergers and acquisitions.
  • Business Insider asked 10 venture capitalists and analysts about the impending consolidation in digital health.
  • They listed 10 startups in mental health, drug research, telehealth, and more that are likely to be acquired or make deals of their own soon.
  • For more stories like this, sign up here for our healthcare newsletter, Dispensed.

On August 5, telehealth giant Teladoc struck an $18.5 billion deal to buy Livongo, a chronic-care company.

It's the biggest deal in digital health history, and it's sending shockwaves through an industry that's ripe for more mergers and acquisitions, according to Rock Health, a digital health venture fund and advisory firm.

"This announcement is merely the starter's pistol for an inevitable virtual care platforms race," wrote Sari Kaganoff, a general manager at Rock Health, in a report on August 6.

Through the deal, Teladoc wants to become the go-to service for a variety of health needs, not just acute problems like back pain and colds. It's raising the question of who could be the next giant to offer a similar "one platform, multiple conditions" approach, Kaganoff said.

Read more: How the merger of 2 companies in the hottest part of healthcare could leapfrog Amazon to transform how you get care — and why Wall Street isn't getting it.

Business Insider asked 10 venture capitalists and analysts about what the impending race means for digital health startups, particularly which ones are acquisition targets for bigger firms. 

One investor, Ursheet Parikh of Mayfield, said the sheer size of the "Telavongo" deal likely won't be replicated in 2020, especially since health plans and providers are already so consolidated.

It should spur large deals, however, in retail pharmacy and medical devices, he said.

Several people told us that mental health is due for some action, too, as people's pandemic-related anxiety and depression are sending startups like Mindstrong and Lyra Health to new heights.

Read more: Startups taking new approaches to mental health just raised $588 million, and they're signing on huge customers like Boeing and Starbucks.

Companies involved in online clinical trials, men's health, chronic care, data collection, and telehealth also made investors' short lists.

"If you would have asked anyone about this last year, they would have predicted very few meaningful exits and a handful of venture-backed unicorns in health tech," Ambar Bhattacharyya, managing director at Maverick Ventures, said.

"The events of this year have catalyzed a new shift in this space and now we're moving full steam ahead," he said.

Some investors also predicted that Teladoc will try to roll up more upstarts in the near future as it looks to expand its portfolio even further.

Read more: The 21 billion-dollar startups to watch that are revolutionizing healthcare in 2020.

There's plenty of potential buyers, several investors said, from more traditional healthcare giants like Walgreens, CVS Health, and Anthem, to tech and retail giants like Amazon, Apple, Google, and Walmart. 

Here are the 10 startups that investors say are the most likely to see deals in the near future, ranked by funding raised to date:

Avail Medsystems – $26.7 million

Total funding: $26.7 million, according to PitchBook data

What it does: Avail lets doctors collaborate on procedures remotely. While advising a surgery, for example, they can adjust camera angles and annotate notes. 

Prominent backers: Baidu, Coatue Management, Sonder Capital, Lux Capital, Playground Globlal, and Refactor Capital.

Why industry experts like the company:

Investors are increasingly looking for ways care can be delivered more remotely, sparing both the patient and doctors from exposure to coronavirus. 

Remote collaboration for surgeries is one way to do that, hence the interest in Avail, a person familiar with the company told Business Insider. 

Johnson & Johnson, Medtronic, and Philips Healthcare would all be good potential buyers, said the person, who was not authorized to speak openly about theoretical mergers. 

Read more: VCs just poured $5.4 billion into startups forging the future of healthcare. Here are the 11 top digital health startups that took home the most cash.

Lark Health – $45.2 million

Total funding: $45.2 million, according to the company

What it does: Lark provides digital care for chronic conditions, similar to Livongo and Omada Health, through coaching, reminders, and connected devices.

Prominent backers: Lightspeed Venture Partners, Pegasus Tech Ventures, Tuesday Capital, Otter Rock Capital, and New Capital Fund.

Why industry experts like the company:

Lark could pair nicely with a big virtual care vendor, like one of Teladoc's telehealth competitors, according to Arielle Trzcinski, an analyst at Forrester. 

It could help a telehealth company expand into chronic care management and mental health, she said.

"Expanding these services would enable a virtual care vendor to increase their value to existing clients, extend their reach to patients that need or want something other than therapy, and make them competitive with standalone mental health vendors in the market," Trzcinski said. 

Read more: See the pitch deck that a hot digital health startup used to stand apart from telehealth rivals and raise millions from VCs.

Kaia Health – $50 million

Total funding: $50 million, according to the company

What it does: Kaia's digital programs help more than 400,000 users manage back pain and chronic obstructive pulmonary disease (COPD). It works with employers, health plans, and providers. 

Prominent backers: Heartcore Capital, Balderton Capital, Optum Ventures, Idinvest Partners, Capital300, and 42CAP. 

Why industry experts like the company:

Kaia's smartphone technology uses digital biomarkers, or indications of health, to monitor patients, Trzcinski said. That reduces friction in the data collection process, eliminating the need for additional devices that can be difficult for patients to use, she said. 

Musculoskeletal ailments are a big expense for health plans and employers, often leading to unnecessary surgery or use of pain medication, Trzcinski said.

That makes Kaia another good complement to a Teladoc competitor, she continued.

Meanwhile, the coronavirus pandemic has only made dealing with chronic conditions more difficult, spurring further interest platforms like Kaia's, the company has said. 

Read more: A tiny startup just won a crucial deal with $175 billion drug giant Pfizer, and it shows how apps are becoming the next frontier as Big Pharma pushes beyond pills.

Everlywell – $66.1 million

Total funding: $66.1 million, according to PitchBook data

What it does: Everlywell provides at-home lab testing kits for conditions like food sensitivity, vitamin deficiencies, and allergies. Recently, the Austin-based startup launched an approved at-home test for the coronavirus.

Prominent backers: Sequoia Capital, SoGal Ventures, Full Tilt Capital, Highland Capital Partners, Next Coast Ventures, and Lori Greiner.

Why industry experts like the company:

One of the biggest elements of the next phase of virtual care will be testing, according to CRV's Kristin Baker Spohn. Getting patients out of the lab will help cut the cost of testing and diagnostics while meeting patients where they are.

"We are seeing that we're entering into Act Two, where you have virtual care instead of telehealth. What is virtual care? That's when you test, treat and track patients in addition to the virtual visits. That ecosystem is exploding in each area," Baker Spohn said.

Everlywell is among the largest startups in the at-home testing space, and Baker Spohn predicts that Everlywell and others in this category could be the targets of an acquisition where a larger testing and diagnostics company hopes to add to a suite of services by buying a young upstart. 

"Obviously COVID testing is top of mind right now but there are interesting innovations in Color Genomics and other companies that enable at-home testing, especially for chronic conditions," Baker Spohn said.

Read more: There are 10 coronavirus tests you can use from home. Here's how they work and where to order one.

Hinge Health – $127.1 million

Total funding: $127.1 million, according to PitchBook data

What it does: Hinge Health operates "digital clinics" to treat back and joint pain with virtual physical therapy. It primarily works with employers to offer its services as a benefit to employees.

Prominent backers: Bessemer Venture Partners, Lead Edge Capital, Insight Partners, The Vertical Group, and Atomico.

Why industry experts like the company:

Treating chronic conditions is another area of healthcare that many investors and analysts felt was ripe for consolidation. Many treatments, like physical therapy, require close, hands-on work between a care provider and a patient, and now are moving online. 

"If I am a health system today, I am rethinking my operations for digital experiences versus in-person experiences," Mayfield's Parikh told Business Insider.

Hinge Health could be an appealing target for a roll-up strategy, investors said, because its providers works within a set specialty of care. Insurance companies that already work with employers to offer health benefits might be a particularly good fit for Hinge Health.

"Those traditional players will get involved because they see these startups as the digital front door," Bessemer Venture Partners' Steve Kraus told Business Insider.

Read more: Telemedicine startups have raised hundreds of millions as the coronavirus puts them to the test. Meet the 12 startups forging a new path for healthcare.

Hims – $197 million

Total funding: $197 million, according to Pitchbook data

What it does: The startup sells generic treatments for hair loss, erectile dysfunction, skincare, and nutrition to consumers through its website. It was started exclusively for men but has since expanded to include products for women.

Prominent backers: Founders Fund, Forerunner Ventures, Maverick Ventures, IVP, and 8VC, among others.

Why industry experts like the company:

Bloomberg in August reported that Hims was considering a public offering through a reverse merger with so-called "blank-check" company Oaktree Acquisition, otherwise known as a SPAC. 

"The consumer is getting more involved in their healthcare where before, they were more of a passive participant," Bessemer's Kraus told Business Insider.

Investors said companies that offer generic treatments could be a promising acquisition target for companies that aren't yet in the business of providing healthcare, namely tech giants like Google or Apple.

Parikh at Mayfield said that he likens Hims' potential to that of online pharmacy PillPack, which was acquired by Amazon for about $750 million in 2018. PillPack mails prescriptions to people who take multiple medications, packaging them together based on dose.

Read more: How pharmacy startup Medly raised $100 million to take on Amazon and drug-delivering giants.

Doctor on Demand – $235.9 million

Total funding: $235.9 million, according to the company

What it does: Doctor on Demand provides telemedicine services in urgent care, behavioral health, preventive health, and chronic care through its medical group.

Prominent backers: Venrock, Andreessen Horowitz, GV, Richard Branson, Rock Health, General Atlantic, and Shervin Pishevar.

Why industry experts like the company:

With about $240 million raised to date, Doctor on Demand is one of the largest telemedicine companies in the US, and a natural competitor to Teladoc. 

It's on Bhattacharyya's short list, and Lux Capital partner Adam Goulburn said it could merge with Amwell, another telehealth giant said to be nearing an IPO.

Charles Jones, the chairman and CEO of telehealth competitor MDLIVE also pointed to Doctor on Demand and Amwell's private equity backers as a key element to its acquisition prospects.

"I think you are going to see a lot of PE-backed acquirers and targets in the space, but I don't know whether the transactions will complete before the end of the year," Jones said.

He was also confident in CEO Hill Ferguson's ability to make an acquisition come to fruition, an often-overlooked element in such deals.

"He's a very competent guy," Jones said. "That is a very important component of acquisitions."

Read more: 6 reasons why the telehealth boom is here to stay, according to the CEO of $16 billion Teladoc

Omada Health – $257.5 million

Total funding: $257.5 million, according to Pitchbook data

What it does: Omada helps people manage diabetes, injuries, and mental health through its app, as well as devices and coaching. It works with employers, health plans, and individuals.

Prominent backers: Rock Health, NEA, Kapor Capital, Andreessen Horowitz, and Kaiser Permanente Ventures.

Why industry experts like the company

Omada is often compared to Livongo because of their similar approaches to treating chronic conditions like diabetes. Omada's program has about 380,000 total participants, CEO Sean Duffy told Business Insider. 

In May, Omada acquired Physera for $30 million, expanding into physical therapy, while raised an additional $57 million, CNBC reported.

Now that Livongo has been acquired, it sets up competitors like Omada to be potential acquisition targets. 

"With Livongo's success, Omada is next up," Goulburn said.

Forrester's Trzcinski said Omada is a likely acquisition target for virtual care vendors that're competitors to Teladoc. 

Maverick's Bhattacharyya also has his eye on the upstart, he said. 

Natural buyers include Walgreens, Walmart, and Amazon, or it could merge with Doctor on Demand, Goulburn said. 

Omada has no reported plans to get scooped up, but it'll be asking current customers if they'd like to see more telemedicine services in light of the Teladoc-Livongo deal, Duffy said. 

Read more: Teladoc is acquiring Livongo in the biggest deal that digital health has ever seen. Here are the 3 key takeaways from Wall Street's top analysts, from shock at the price tag to optimism for healthcare's digital future.

Ro – $376.1 million

Total funding: $376 million, according to the company

What it does: Ro is a startup that got its start treating conditions like erectile dysfunction. In the years since, Ro has gone on to expand the model to treating more conditions, and in June set up a pharmacy service in which all generic medications dispensed are $5. The company facilitates online visits with medical professionals who can prescribe medications. Those medications are then shipped through Ro's pharmacy. 

Prominent backers: General Catalyst, Slow Ventures, FirstMark Capital, Torch Capital, Initialized Capital, and Canaan Partners.

Why industry experts like the company:

Amid the coronavirus pandemic, investors accurately predicted that fewer patients would go to a physical doctor's office for non-emergency issues. Telehealth startups that offer virtual visits have seen demand increase, some investors said, but it's not yet clear which preferences will stick around once the pandemic subsides.

"I think we will see providers adopt a new world order," CRV's Baker Spohn told Business Insider. "I don't see virtual care going away. The analogy I like to use is, if you look at 'mobile banking' a few years ago and now we just call it 'banking'. In the same way, it won't be 'virtual care' it will just be 'care'. The access part is what will fundamentally change."

The current landscape has made telehealth startups like Ro particularly appealing acquisition targets for large companies that aren't already operating in healthcare.

Baker Spohn and others pointed to Apple, Google, and Amazon as likely buyers of the generics-based telehealth startup. The company recently raised $200 million at a $1.5 billion valuation, so the deal might be farther out than others, some investors said.

Read more: How the coronavirus will permanently reshape the healthcare industry, according to 26 top industry leaders

Amwell – $679.9 million

Total funding: $679.9 million, according to Pitchbook data

What it does: Amwell works with its medical group as well as other providers and health systems to provide a wide range of healthcare services online. 

Prominent backers: Anthem, McKesson Ventures, SV Health Investors, Martin Ventures, and Westway Capital.

Why industry experts like the company:

Amwell is one of Teladoc's biggest competitor with 80 million covered lives and more than 2,000 health systems and hospitals using its services. 

It has a lot of cash in hand for a potential move — recently raising $194 million from investors — and confidentially filed to go public in June, CNBC reported.

"A company that is [a good candidate] is the guys over at Amwell," MDLIVE's Jones told Business Insider. "They have an appetite for those sorts of things and they've shown they can raise a lot of money."

Omada's Duffy and Lux's Goulburn could see Amwell merging with another digital health company. Goulburn thinks Omada and Hinge Health could each make good fits, he said.

“Digital

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