Mar 22, 2023

Plus: Schrödinger announces nearly $8M office expansion in Midtown Only 24% of Northeast employees use mental health benefits, study finds More The digital health industry in the U.S. had a 55% decline in venture capital activity in 2022, data shows, representing a downturn in the industry that experts say will only be exacerbated by the collapse of Silicon Valley Bank. Venture capital funding in the digital health space totaled $7 billion in 2022, down from deals totaling $15.6 billion in 2021, according to a digital health report released by PitchBook last week. Among digital health companies based in New York, venture capital activity totaled approximately $1 billion, additional data from PitchBook showed. Analysts say the steep decline in funding last year was expected—investment levels were flat compared to 2020’s figures, the report said. “Funding has reached a more normalized level,” said Aaron DeGagne, emerging technology analyst at PitchBook and author of the report. “I think 2021 was just a heyday, and we’re not going to repeat that anytime soon.” While venture capital funding for digital health companies slowed, exit activity was almost nonexistent, the report found. In 2022 there was $200 million in exit value, compared with more than $11 billion the year before—a more than 90% decline, DeGagne said. The analyst said he expects companies to start announcing initial public offerings again at the end of this year or in early 2024. Rising interest rates and increased costs to fund companies have contributed to the slowdown in activity, DeGagne explained. But something that is unique about the digital health space is that there aren’t a lot of incumbents to acquire new startups, he said. “In a scenario where valuations might be lower, you might typically see more companies coming in and bidding on those companies,” DeGagne said. “But it’s not possible in a lot of cases.” DeGagne noted that in the first three months of this year, there has been only one potential unicorn in the digital health space— Headway, which has yet to be confirmed . At this point last year, he said, there were already 20 unicorns. Momentum around industries such as telehealth has slowed in the wake of the pandemic, DeGagne said. Venture capital activity peaked in early 2021 as telehealth activity grew at unprecedented rates during the pandemic. But as the telehealth sector becomes increasingly saturated, there has been a decline in deals, DeGagne said. While the slowdown in venture capital activity in the digital health sector was expected last year, experts say that the collapse of Silicon Valley Bank put even more pressure on a strained industry. “The collapse of SVB comes at a time when the health tech and life sciences industry was already under considerable stress,” Rebecca Springer, senior lead health care analyst at PitchBook, said in a statement released by the company. Springer said that venture investment into health care information technology and digital health startups fell 62% and 40%, respectively, from the third quarter to the fourth quarter last year. Slowing growth in virtual care models post-pandemic, as well as acute stress on end markets for health care providers have contributed to that decline, she added. The SVB failure will make general partners at venture capital firms even more risk averse, Springer said, leading to limited funding options for startups that do not have a clear pathway to profitability. “We expect deal figures to remain low and to see further valuation declines and consolidation in many corners of the healthtech ecosystem,” Springer said. Maria Gotsch, president of the Partnership Fund for New York City, said she anticipates the SVB collapse to affect more companies that are in stages of growth instead of early-stage firms. SVB was vital for growth-stage firms that had customers and revenue but needed capital financing to bridge the revenues from multiyear contracts with hospitals, she said by way of example. “What that means for the companies is they’re going to have to look to their venture capitalists to put additional money in to fund that gap,” Gotsch said. She said she expects growth-stage firms to continue getting funding—but it will be more expensive and potentially cut into their longer-term returns. Furthermore, she said, the city’s digital health ecosystem is less than two weeks into the SVB fallout. There might be other financial institutions that step in and offer similar support, but SVB dominated the landscape and had a well-oiled process that will take other banks time to scale up, she added. There have been whispers of a potential recession for months, said Bunny Ellerin, founder of Digital Health New York. That threat hasn’t diminished, and the banks’ collapse has fueled nervousness and caution. Before the collapse in the first quarter of this year, some firms in the city were able to raise large amounts of funding. Ellerin pointed to clinical trial company Paradigm, which raised a $203 million Series A in January, and Cure.Bio, a new investment fund and drug discovery support system for firms, which launched with more than $500 million to invest. That’s proof that there’s dry powder to go around, Ellerin said, and to get money out of cautious investors, founders will need to rely on their experience and expertise within their specific industries as the consequences of the bank collapse unfurl. In the coming year, DeGagne said, increased venture capital activity in the digital health sector will likely follow activity in the broader markets. Companies focused on care navigation, behavioral health and nutrition and wellness are poised for growth when the economy picks up, he added.—Amanda D’Ambrosio and Jacqueline Neber Brightwood Capital Advisors leads $300 million in funding to home health care company Brightwood Capital Advisors, a middle-market private credit firm based in Midtown, led $300 million in financing to Giving Home Health Care, a home health company that provides services in the southwestern U.S., the firm announced Tuesday. The funds, which were provided via senior secure credit facility financing, will help Giving Home Health Care coordinate at-home medical care for individuals in the southwest, as well as expand its patient base both in the states where it operates and other areas, said Kunal Shah, managing director of Brightwood Capital Advisors. Brightwood provided the financing in partnership with FS Investments, an asset management company based in Philadelphia. Giving Home Health Care, founded in 2012, coordinates skilled and unskilled home health services to chronically ill patients in Arizona, Colorado, Nevada, New Mexico, Texas and Utah, Brightwood said in a news release. The company serves individuals with injuries related to workplace accidents or toxic exposures, such as exposures to nuclear power plants, that have left them in need of a high level of care. “A lot of the industry is shifting to this home health model,” Shah told Crain’s. “It's a lower cost of care, and we feel it’s higher quality care because it lets the individual stay in their house as opposed to constantly going into facilities.” Shah added that Giving Home Health Care addresses a wide range of conditions and illnesses among individuals with workplace injuries. He said he expects the company to achieve significant growth within the next three to five years. Brightwood Capital Advisors, founded in 2010, is a direct lending platform that provides funding primarily to companies with between $5 million to $75 million in earnings before interest, taxes, depreciation and amortization in five areas: health care, technology and telecommunications, transportation and logistics, business services and franchising.—A.D. Schrödinger announces nearly $8M office expansion in Midtown Pharmaceutical company Schrödinger said Tuesday that it would expand its 1540 Broadway offices with a $7.6 million investment. The firm will lease about 27,000 square feet of additional space at the Midtown location and grow its workforce, which will support the development of new products for drug discovery and material science applications, including aerospace, energy, semiconductors and electronic displays. Schrödinger has committed to adding 80 jobs and retaining 310 existing jobs, an effort that will be supported by $1.4 million in performance-based Excelsior Jobs Program tax credits from Empire State Development, according to a news release on Tuesday from Gov. Kathy Hochul’s office. This funding will supplement $2.1 million the organization gave the firm in the same type of tax credits when Schrödinger was making initial hires at 1540 Broadway. “Schrödinger’s physics-based computational platform has played an important role in shaping the future of therapeutics. With this expansion, the company will help to shape New York City’s future as a hub for scientific discovery, creating jobs and attracting the best and brightest minds in the industry,” Hope Knight, Empire State Development’s CEO and commissioner, said in a news release. According to Mark Gerrard, the company’s executive director of facilities and operations, the expansion will allow the company to add a media studio and a darkroom for coders, which will open soon. Schrödinger’s physics-based computational platform works to identify novel medicines faster than the typical drug discovery timeline. The company recently got about $111 million  through Nimbus Therapeutics, a therapeutics firm Schrödinger co-founded in 2009, when Nimbus sold its autoimmune disease drug tyrosine kinase 2 to Japan-based pharma firm Takeda for about $4 billion. Schrödinger kept a small residual equity holding in Nimbus and expects to see $36 million more in the second quarter of this year. This investment in Schrödinger is the state’s latest investment in making New York a life science hub. Hochul recently announced Harlem Biospace’s $9 million expansion, and her proposed budget includes $1.7 billion  for the Wadsworth Center Laboratories in Albany. Schrödinger moved into 1540 Broadway in 2021 and took more than 108,000 square feet of space, Commercial Observer reported. —J.N. Only 24% of Northeast employees use mental health benefits, study finds While 60% of employees surveyed in the Northeast reported struggling with mental or behavioral health issues, only 24% used their mental health benefits in 2022, according to a study from primary care company One Medical. According to the study, released Tuesday, just 50% of employees in this region are aware of all or most of the mental health benefits available to them through their employers, and 59% of respondents feel overwhelmed when trying to navigate their health care options. One Medical surveyed about 1,600 human resources leaders and employees across the country. Employees in the Northeast fared slightly better than those around the country. Overall, One Medical found that 64% of people reported experiencing mental or behavioral health challenges, but only 19% have used their benefits. Similarly, 50% said they are aware of all or most of their benefits, and 55% reported feeling overwhelmed. In response, One Medical found, employers in the Northeast are considering how to make benefits more easily navigable and adding benefits to address certain health issues. About 62% of human resources respondents said they are adding solutions for chronic disease management to their benefits offerings; 60% and 51% said the same for telemedicine and mental health care, respectively. Meanwhile, 50% of employers said they’re adding solutions to help more employees understand their benefits. The primary barriers most employees experience in accessing their benefits are education—using some benefits can be complicated—and appointment availability, said Andrew Diamond, One Medical’s chief medical officer. The percentage of employees experiencing mental health concerns has grown since the start of the pandemic, Diamond added. “It’s gotten so much worse and so much more visible but also so much more acceptable to talk about and to put front and center,” Diamond said. “So to me, it just highlights how crucial it is that employers are giving their employees an approach to help solve that.” One Medical’s findings about employers bringing benefits into their packages reflect a growing trend of employees demanding more than the bare minimum —and employers, despite rising costs, retooling their packages to stay competitive. One Medical is based in San Francisco. It has raised about $532 million, including $245 million in its 2020 initial public offering. —J.N. Loading… AT A GLANCE RECOMMENDED READING: Henry Muñoz, a former chief fundraiser for the Democratic National Committee, has collected more than $14 million directly through being a consultant to SOMOS Community Care, a nonprofit network of physicians offices which serves marginalized New Yorkers, the Daily Beast reports . Muñoz was also able to get more than $15 million from SOMOS through a limited liability company he owns–and since the filings are only available through 2020 he could have received even more. Muñoz has no medical degree or health care administration experience when he joined SOMOS, and the money funneled to him is entirely underwritten by taxpayers. BUDGET PROTEST: About 15,000 health care workers protested in Albany on Tuesday, including members of the 1199SEIU union who work in hospitals, nursing homes, pharmacies and research institutions and elected leaders. The workers called on Gov. Kathy Hochul and legislative leaders to invest $2.5 billion in health care in the fiscal 2023-24 budget, which would include a 10% and 20% Medicaid reimbursement rate increase for hospitals and nursing homes, respectively; restoring $700 million in safety-net funding and adding an additional $600 million; and addressing the Medicaid rate disparities between upstate and downstate New York. PSYCHEDELIC LEGALIZATION: New Yorkers for Mental Health Alternatives launched a campaign Tuesday which aims to reform the state’s drug laws and increase access to legal psychedelic medicine for New Yorkers who experience pain, depression, anxiety, post-traumatic stress disorder and substance use disorders. The organization is encouraging legislative leaders to support two pending bills which would legalize the medical use of psilocybin and adult possession of certain hallucinogens. MPOX OUTREACH: The city Department of Health and Mental Hygiene has awarded the Staten Island Not for Profit Association $200,000 to provide outreach and engagement in communities most at-risk of contracting the mpox virus. The association is based in the Travis-Chelsea neighborhood of the borough and provides resources, support and advocacy to nonprofit leaders. WHO'S NEWS: The "Who's News" portion of "At a Glance" is available online at  this link  and in the Health Pulse newsletter. "Who's News" is a daily update of career transitions in the local health care industry. For more information on submitting a listing, reach out to Debora Stein:  [email protected] . WHO'S NEWS