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Why Omada Health should buy Physera and other MSK M&A digital health predictions

As I wrote in Issue 052, Hinge CEO and co-founder Daniel Perez predicted that during the coronavirus pandemic:

“Health plans and employers want a trusted solution in times of uncertainty. My prediction (from the eye of the storm) is that over the next six months we’re going to see the most trusted solutions (Livongo, Hinge Health, Teladoc) continue to outperform their peers, and gain even more market share.”

I was impressed by his sleight-of-hand — sandwiching his startup in between two of the only publicly traded digital health companies! — but it did get me thinking a bit more about Hinge’s competition.

There’s a strong likelihood that by the end of 2020, Hinge’s main competitors will be Livongo and Omada Health.

Here’s how I think consolidation in the MSK digital health space could play out.

Digital health MSK M&A will ramp up in 2020

No doubt, Hinge Health is the current market leader in digital health-enabled MSK programs. As one investor put it in E&O’s Hinge Health Report, the company has “sucked up all the air” in the space following its $90 million round. Around the same time, it also crossed more than 100 employer customers.

While Express Scripts did not include any MSK offerings in its high-profile Digital Health Formulary launch, another PBM, CVS, included Hinge Health in its somewhat similar endeavor, which it now calls CVS Caremark’s “Point Solutions Management”. (Brutal branding.) The proliferation of MSK startups, Hinge’s growth, and the PBM’s recognition of the category all point to this being MSK’s digital health moment. It’s the “next box to tick” for many self-insured employers who already have prediabetes, diabetes, and behavioral health programs in place.

So, it’s a safe bet that Livongo and Omada are going to make a move in MSK soon.

Why Omada Health will acquire Physera

Omada Health will make the first move by acquiring Physera, an MSK-focused startup with a long list of important similarities to Omada. Update May 19, 2020: Omada acquired Physera.

For a few years, Physera was typically mentioned in the same breath as Hinge as the two market leaders, but the companies have taken markedly different approaches to growth. While Physera has focused on clinical depth by, for example, connecting patients remotely with real live medical professionals before starting the program, Hinge has focused more on scalability (health coaches instead of medical professionals) and it has a broader approach than remote physical therapy.

The contrast reminds me of Omada vs. Livongo.

Here’s how Physera’s Director of Clinical Services Todd Norwood described the first step in the company’s program in a recent blog post:

“When a patient meets with a physical therapist (PT), the first step is a diagnosis, which is about 80 percent subjective (based on conversations). Video allows PTs to maintain eye contact while using tech tools to ensure the right questions are asked during the consultation. The remaining 20 percent is objective, which requires hands-on tests; however, the majority of hands-on testing can be done remotely. In the instance (~5 percent) a patient can’t be diagnosed virtually, Physera PTs are trained to refer to the proper next step.”

Like Omada, Physera has set up a separate healthcare provider entity called Physera Physical Therapy Group, PC. Physera contracts with this nationwide network of licensed PTs and doctors of PT who are able to diagnose, triage, and make adjustments to a patient’s individual care over time. Physera stresses “patient safety” in its marketing materials, and it believes people with MSK pain should at least have a remote meeting with a medical professional before starting a program — in case the pain is actually a symptom of something much more serious.

Image: Physera’s iOS App

Physera’s CEO and Co-founder Dan Rubinstein told me in a recent interview:

“Our approach is a clinical program that supercharges clinicians. We take the parts of physical therapy that work well and fix the parts that are broken… we take a high integrity approach to how we set this up. We look at broad populations. We make our program available to anyone who is experiencing pain, whether it is early, acute, or chronic pain. If it is pre-surgical pain, we can help you be preventive or help you recover if you have already had surgery.”

Again, this holistic, provider-like approach is very similar to Omada’s. Rubinstein shared a little about how he thought about enabling technology when he first started Physera:

“I got interested in healthcare because I wanted to bring the predictive modeling and closed-loop modeling — that companies like Google and Facebook use to deliver personalized user experiences — to healthcare. How do we use data and technology to inform diagnostics, care pathways, and treatment? You can either start from: ‘I am going to build the smartest robot and try to make it as smart as a human,’ or ‘I’m going to take the humans and get them technology to make them more efficient and more effective.’ I think it does cause you to go down different paths, and I don’t know that you necessarily converge in the same place. I think for something as important as healthcare… you do need a human being, because they can do things that a machine can’t do — particularly in life and death situations.”

In addition to aligned business models and approaches to technology, Omada and Physera have leadership teams with similar backgrounds. Both Omada and Physera are helmed by ex-Googlers. Both companies have been able to recruit former Obama Administration HHS officials to their C-suites or advisory boards. That’s just what’s visible from the outside, but it seems likely there is a lot of cultural alignment to drive a successful merger post-acquisition.

Livongo will probably acquire a small MSK digital health startup

The very first longform research report that I wrote for E&O was an approximation of Livongo’s S-1 filing, which it ended up filing a few weeks after my report. In my writeup, I predicted that Livongo would go on an acquisition spree after its IPO to bolt on additional verticals. To my surprise, Livongo has not acquired a single company in its first year of being public. A year ago I wrote that:

  • Asthma/COPD was Livongo’s most likely first target. Cohero Health seemed to fit the bill.
  • MSK was the area I predicted Livongo would move into second. I figured Hinge Health was the best option, but that was long before Hinge raised its $90 million round.

Livongo’s modus operandi is to acquire smaller companies (See: Diabeto, Retrofit, myStrength). Given the number of digital health startups working in MSK right now, that’s a lot of options.

I have no idea how well SimpleTherapy is doing, but it shares a marqee customer with Livongo: Costco. If a small acquisition like this is less about adding new customers and more about selling into existing ones, I could see how Livongo would be interested in an MSK company that has proved itself to one of Livongo’s own big customers.

Once Livongo and Omada enter MSK, what does Hinge do?

One big question for me is how this all shakes out for Hinge Health. Once it is competing with more entrenched companies like Omada and Livongo, Hinge will likely need to diversify the same way they have. Can Hinge really compete with either of those companies in prediabetes, diabetes, or behavioral health? Would it be smarter to add programs for conditions that are still underserved but likely next on payers’ checklists?

Hinge’s $90 million raise will keep just about any potential acquirer away for now. As Livongo and Omada add MSK, I wonder if Hinge can get to an IPO in two years without at least posturing about its plans to diversify first.

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