Issue 192
Welcome back to E&O Fridays, a paying subscribers-only weekly newsletter focused on the world of digital pharma products and FDA-regulated digital health.
E&O Fridays.
Since the deep dive into Pack Health went a bit longer than expected, here’s one quick happening from the world of pharma digital products and FDA-regulated digital health:
- h2o Therapeutics announced the commercial launch of its prescription digital therapeutic for Parkinson’s, the Apple Watch-powered app Parky. AmerisourceBergen will help kick off the commercialization phase for the company by piloting the digital therapeutic via its DTx Connect platform. The FDA cleared the app via a 510(k) back in November. “The Parky app, which is compatible with the Movement Disorder API developed by Apple Inc., monitors symptoms such as tremors and dyskinesia in real-time via the use of Apple Inc.’s Apple Watch. It is a direct-to-patient tool for sharing meaningful and reliable data between patients and medical professionals regarding the course of the disease. As part of a pilot arrangement, AmerisourceBergen will facilitate patient engagement and health system integration services as part of its DTx Connect solution.” More.
Pack Health’s origins, Novo deal for GLP-1 coaching, and acquisition by Quest Diagnostics
Up until about a year ago, Pack Health was an under-the-radar digital health company based in Birmingham, Alabama.
To its competitors (and probably some investors) it appeared to lack focus — since it built health coaching programs for dozens of medical conditions. And it sold its offerings to a variety of customers, including self-insured employers, payers, and pharmaceutical companies.
For all those reasons (including its Alabama HQ), Pack was an appealing acquisition target for multi-billion dollar labs juggernaut Quest Diagnostics.
At the time of the deal, which closed in February 2022, digital health investment dollars were at an all-time high. Valuation negotiations still regularly cited the eye-popping Teladoc-Livongo deal from late 2020. But within months of the Quest-Pack transaction, digital health’s decade-long run as a venture capital darling sputtered for the first time.
Arguably, Pack’s acquisition occurred at the peak of the market.
Considering the timing of this deal, the pedigree of the acquirer, and the fact that Pack only raised a total of $11.5 million from investors — I figured it was worth taking a closer look.
Read on for some notes on the series of events that led up to the Quest-Pack deal. The following is based on a recent interview with Pack Health founder Mazi Rasulnia, information found in Quest’s SEC filings, and other sources.
Pack Health’s origin story. Prior to founding Pack Health in 2013, Rasulnia was a partner at a company called CE Outcomes, which worked with various healthcare companies to provide continuing education (CE) programs to care providers. As healthcare switched from a physician-centric mindset to a patient-centric one, many of his clients started to ask for help figuring out patient engagement — a prolific buzzword in healthcare at the time that appeared at first to be a similar problem to providing educational materials to care providers.
So, Rasulnia set up a new company called P.A.C.K. Health. P.A.C.K. stood for: “Plan. Act. Connect. Know.” Originally, Rasulnia’s team figured they could just send patients a kit with educational materials. Quickly the offering iterated to include phone call-based education, text message-based options and, eventually, omnichannel. The Pack team added care coordination services next and moved beyond an early focus on diabetes into a wide range of chronic conditions since their customers were often polychronic. (Pack’s programs include ones focused on weight management, hypertension, type 2 diabetes, congestive heart failure, multiple sclerosis, depression, and cancer pain and fatigue — just to name a few.)
At the same time, Pack was iterating its go-to-market strategy. Originally, the team figured a direct-to-consumer approach made the most sense, but it quickly shed that to sell to physicians and hospital groups instead. When that didn’t pan out, Pack turned to pharmaceutical companies and got some traction selling to medical affairs teams at pharma.
Pack’s real-world evidence business: The revenue from these early projects with pharma companies funded the company and enabled it to operate without outside funding. Pack also retained the IP from these projects, so the pharma companies subsidized Pack’s early R&D efforts.
These deals involved Pack building medical condition-customized digital tools and services to support real-world evidence trials. Masulnia said these early projects were not only lucrative, but they also helped the company learn how to operate in pharma’s regulated environment.
Masulnia said that Pack’s goal was to create a new workforce to manage chronic conditions that complemented the existing medical model. Since 80 percent or more of managing a chronic disease is related to lifestyle choices, Pack trains people with backgrounds in social work, nutrition, and similar fields to serve as health advisors and power its coaching programs. Masulnia said Pack’s goal was always to get the cost of the offering down to $1 per patient per day, and it has gotten pretty close to that number.
Landing deals with Novo Nordisk’s diabetes and obesity commercial teams: The biggest breakthrough for Pack Health was its pivot from working mostly with pharma’s medical teams to the commercial side of the business.
Because Pack had worked with so many pharma companies’ medical teams in its early days, when Novo Nordisk started its RFP process for a health coaching program to support the launch of its future diabetes blockbuster drug, injectable GLP-1 Ozempic, the pharma company’s commercial team visited Pack in Alabama to invite them to try to win the deal.
Masulnia said that Pack beat out well-funded digital health companies like Livongo, Onduo, and Cecilia Health in the RFP process. Soon after, it won a similar RFP with Novo Nordisk’s obesity commercial team — beating out Noom, a portfolio company of Novo’s venture fund.
Masulnia said Pack won these deals for a number of reasons, including:
- Novo Nordisk had a multi-year relationship with Pack at that point.
- Pack had a track record of working in pharma’s regulated environment. The other vendors, who mostly focused on employers or DTC, struggled with that.
- Some of the other companies were not comfortable having their program tied to a specific drug.
- Some were not willing to let Novo white-label their program. They argued their brand value was worth too much to be covered up — even though this coaching program was supporting the launch of multi-billion dollar brands.
Pack Health’s coaching programs are white-labeled, so Novo doesn’t mention Pack by name on its patient-facing marketing materials. And Rasulnia didn’t provide me with the specifics of Pack’s deal with Novo, but it seems to me that Pack Health powers the health coaching offering that Novo Nordisk provides as a complimentary add-on to patients taking these drugs:
- Diabetes drug: (injectable GLP-1) Ozempic,
- Diabetes drug: (insulin) Tresiba,
- Diabetes drug: (oral GLP-1) Rybelsus
- Obesity drug: (injectable GLP-1) Wegovy.
Longtime readers of E&O might remember from The Noom Report that Noom powered a similar health coaching service for Novo Nordisk’s weight loss drug Saxenda, which the companies called SaxendaCare. However, the SaxendaCare website notes that the Noom-powered coaching program “is being retired and is no longer accepting new registrations.”
The Novo deal brought Pack to self-insured employers: Since Medicare doesn’t cover Novo Nordisk’s GLP-1s yet, self-insured employers and other commercial payers are the primary customers for these drugs. Given the rising demand for GLP-1s, one question I’ve seen debated recently in digital health circles is whether we will start to see more self-insured employers cut back on digital health programs focused on diabetes and weight loss in favor of these drugs.
Up until I spoke with Masulnia for this report, however, I didn’t realize that Novo already offers a complimentary health coaching program along with these drugs.
COVID-era led Pack to think bigger and seek new investment: Soon after the Novo deals went live, the COVID pandemic hit. Masulnia and his team saw a bigger opportunity ahead of Pack and its increasing number of conversations with payers led it to begin the process of raising a proper Series A round. Masulnia said they were aiming to raise $25 million.
After putting together the first $20 million, Masulnia reached out to a contact he had made at Quest Diagnostics to see if the company might be willing to invest in the round. During the third pitch call with Quest, the lab company’s head of M&A told Masulnia they would not be investing. They wanted to buy the company instead.
So, Masulnia said his team put the fundraising efforts on hold. After four months of due diligence, Quest announced the transaction in February 2022.
Instead of investing, Quest bought Pack: As E&O reported last week, Quest acquired Pack for $123 million in cash. About $18 million of that figure was the earn-out, which was paid out earlier this year following the one-year anniversary of the deal. At the time of the acquisition, Pack had only raised $11.5 million, which came from Blue Cross Blue Shield of Alabama (about $1 million), Coverys (about $4 million) along with funds from a convertible note.
Masulnia and his management team owned just about half of the company at the time of the acquisition.
Why Quest acquired Pack Health: Read on below for some chunky quotes from Quest’s SEC filings over the past year, which shed light on where Pack Health fits into Quest’s business. What’s interesting here is that Quest highlights Pack as an asset to at least three of its business lines: health plans, pharmaceutical companies, and providers. It is remarkable that a company as small as Pack gets this many mentions in Quest’s annual reports (emphasis below is mine):
Health plans:
“We are focused on opportunities to partner with health plans. We strengthen our relationships with health plans and increase the volume of our services for their members by focusing on driving value and providing strong value propositions for members and clinicians. This includes working with payers to reduce the cost of care, improve the customer experience and drive better outcomes for populations. For example, we strive to build information platforms to help health plans manage utilization and population health, keep laboratory testing in network and provide an alternative to high-cost labs. We also offer extended care services to help close gaps in care designed to be attractive to payers. In 2022, we augmented our extended care offering by acquiring Pack Health, a patient engagement company that helps individuals adopt healthier behaviors to improve outcomes.”
Pharmaceutical companies:
“We offer services to pharmaceutical companies. We offer clinical trials testing and have expertise in developing laboratory tests for FDA submission as companion diagnostics and laboratory developed tests for complementary diagnostics, and offer an array of assets and services to support the development of companion diagnostics, including our robust data set and patient services network. We also offer Quest Clinical Trials Connect to help accelerate clinical trials (and thus the speed of drugs to market) through better patient recruitment, involvement and management, and improved physician outreach. In 2022, we also began to offer Pack Health’s patient engagement services to our pharma clients.”
Provider groups:
“We offer population health solutions to clinicians, health plans, and IDNs. Our services build on the power of our information assets and data capabilities and help our customers deliver better care to their patient populations by identifying gaps in care in a population, providing clinical solutions to close the gaps and fostering consumer engagement with a solution. For example, Quest Lab Stewardship employs machine learning to help clinicians optimize medically-appropriate laboratory test utilization. Our extended care services (e.g., bone density examinations; home collection kits for lab testing) help deliver better care to patient populations by identifying and filling gaps in care for patient populations and by enabling delivery of the most effective healthcare to the right populations and individuals…. Once gaps are identified, we engage patients in our retail sites, in home or by telephone, including through our call centers and our mobile capabilities, including highly trained healthcare professionals. In 2022, we enhanced our extended care offering by acquiring Pack Health, which offers patient engagement services that help individuals adopt healthier behaviors to improve outcomes.”
Conclusion: Masulnia couldn’t share any specific details about the transaction, but he did mention a few surprising qualitative things that Quest’s team appreciated about his company:
- Quest’s M&A team noted that during the pitch meetings, Pack Health’s management team did about 90 percent of the talking. Typically, founders dominate these sessions. Quest took this to be a sign that Pack Health’s management team was actually leading the company. (Founders checking out or departing soon after an acquisition can be a major risk for acquirers.)
- Pack’s location in Birmingham, Alabama was seen as a positive to Quest. The company has continued to invest in the areas and added significantly to Pack’s headcount in the past year.
- Finally, Pack’s variety of customers mirrored Quest’s book of business — albeit at a much smaller scale. So, while that may have looked like a lack of focus to Pack’s competitors (or potential investors) over the years, Quest saw it as a strength. The quotes above back that sentiment up too.
Thoughts on this deal? What other questions do you have?
Trial updates: Akili, AliveCor, Click Therapeutics
This is a recurring feature of E&O Fridays that digs into new digital health-related clinical trials as well as updates to others mentioned in previous issues.
Completed: Click Therapeutics “basket study” of its DiNaMo component training in adults with chronic pain-related disorders
While it was most recently expected to finish up at the end of last year, this Click Therapeutic study finished in early February. More:
“The Study App (CT-100-002) contains a class of Digital Neuro-activation and Modulation (DiNaMo) mechanisms of action that are part of the Click Neurobehavioral Intervention (CNI) Platform. DiNaMo provide interactive, software-based therapeutic components that may be included in a multimodal treatment for developing future digital therapeutics. Chronic pain is a transdiagnostic condition which manifests in patients with diverse underlying pathologies such as rheumatoid arthritis, diabetic neuropathy, fibromyalgia, and irritable bowel syndrome. This basket study aims to evaluate the efficacy, safety, and tolerability of CT-100-002 on measures of pain, pain-related functioning, and mood across multiple indications. The study results will further future clinical development of digital therapeutics comprising DiNaMo mechanisms of action.”
Tweaked: Akili’s COVID-19 survivor cognition study changed its study model
Akili changed the study model from a crossover assignment to a parallel assignment for its COVID-19 survivor cognition trial. More:
“This study is a randomized clinical trial designed to compare efficacy of the AKL-T01 intervention relative to a waitlist control in patients who were infected with COVID-19. Participants will be randomized to the AKL-T01 or a waitlist control. We will use a waitlist design; at the end of the intervention period, participants in the control group will have the option to receive the 6-week AKL-T01 intervention.”
Done recruiting: AliveCor’s Kardia 12L clinical validation and safety study
AliveCor continues to push on with a 12-lead version of its ECG device line, Kardia. This study is done recruiting now but it also pushed back its expected completion date to the end of 2023 — it was previously set to finish in March of this year. More:
“Recently, AliveCor developed a new device: Kardia 12L to record 12-lead ECGs. However, the data generated from the new device has not yet been validated for accuracy. The specific aim of this study is to evaluate the accuracy and safety of the AC 12L ECG System. The ECGs collected by the AC 12L ECG System will be compared to simultaneous standard-of-care 12-lead ECG, recorded using the GE CardioSoft 12-lead ECG System. The ECGs will be analyzed for accuracy based on statistical difference using root-mean-square error, and cross correlation between the simultaneous 10-second recordings as well as the median beats of all 12 leads.”
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