[Updated 12/3/18, 3:30 pm, with CEO comments.] ResMed has inked a $225 million deal to acquire Propeller Health, in the latest endorsement of Internet-connected devices for healthcare.
The acquisition, which is expected to close by the end of March 2019, continues San Diego-based ResMed’s (NYSE: RMD) “connected healthcare” push that began about five years ago, as Xconomy chronicled last year. The medical device company, with a $16 billion market capitalization, is best known for making continuous positive airway pressure (CPAP) machines that help people manage sleep apnea, chronic obstructive pulmonary disease (COPD), and other respiratory conditions. In recent years it has been investing in software capabilities, including outfitting its sleep apnea devices with wireless connections that send patient data to cloud-based databases, enabling healthcare providers and insurers to track patient compliance, and users to track their sleep patterns.
Madison, WI-based Propeller makes sensors that attach to asthma and COPD patients’ medication inhalers and wirelessly track their usage. Propeller also developed software for analyzing the information and providing personalized feedback; patients can use an accompanying mobile app to monitor their inhaler usage patterns, try to identify triggers of their symptoms, and manage their conditions. Propeller also produces reports that patients can share with doctors.
Propeller’s main business model is to partner with health systems, insurers, employers, municipal governments, and other groups, that pay for the use of the devices and related services by their patients, members, employees, and citizens. The company says its products can help increase the rate at which patients follow their treatment plans, decrease the occurrence of symptoms, and reduce the number of emergency room visits.
In a press release announcing the deal, ResMed touted how it envisions Propeller’s offerings for COPD patients complementing the acquirer’s connected ventilators for COPD patients with more severe conditions, and complementing its new portable oxygen concentrator, called Mobi.
It wasn’t immediately clear what the acquisition means for Propeller’s plans to expand its products beyond helping asthma and COPD patients. When the startup announced an expanded partnership with Aptar Pharma in May, Propeller co-founder and CEO David Van Sickle said the companies might develop digital health products for therapeutic areas such as immunology, diabetes, and migraine treatment. ResMed said Propeller will maintain its existing partnerships with pharmaceutical companies and healthcare organizations after the acquisition closes, but it’ll be worth watching how things play out. The startup’s other partners have included European pharmaceutical giants GlaxoSmithKline (NYSE: GSK) and Boehringer Ingelheim.
Reached by phone Monday afternoon, Van Sickle deferred to ResMed on the question about whether Propeller will develop products for patients with conditions other than asthma and COPD.
“I can say that we’ll continue to work with Aptar to evaluate and figure out ways to commercialize lower-cost” inhaler devices, Van Sickle said. “We’ll also look at ways in which we’ll expand to serve folks with severe asthma who use injectable treatments. Beyond that, Propeller and ResMed will evaluate other device and software opportunities in the out-of-hospital care market that fit within our strategy.” Asthma and COPD patients often have other medical conditions, he added, and many of those areas might “warrant a good, close look.”
Regardless, joining ResMed should help Propeller accelerate the adoption of its products around the world, Van Sickle said. More than 40,000 people use Propeller’s products, according to a spokesperson. She declined to share the startup’s annual revenues. Meanwhile, ResMed sells products in more than 100 countries, and patients are currently using more than 6 million of ResMed’s cloud-connected devices, Van Sickle said.
“Next year, for us, promises to be an entry into a new level of scale and distribution,” Van Sickle said.
The deal is a notable exit for Wisconsin’s startup community, where nine-figure acquisitions aren’t as common as coastal innovation hubs such as San Francisco or Boston. Eight-year-old Propeller was recently listed as the state’s most valuable venture capital-backed company, according to an analysis by Seattle-based PitchBook, which tracks venture funding and startup exits nationwide. PitchBook pegged Propeller’s most recent private valuation at $140 million; the Propeller spokesperson declined to comment on the company’s pre-acquisition valuation.
Other significant Wisconsin startup acquisitions in the past couple of years include the $76 million sale of Madison-based synthetic skin tissue developer Stratatech to Mallinckrodt Pharmaceuticals, a deal that could grow to $197 million; and the $75 million sale of Milwaukee-area firm Agro Biosciences to Church & Dwight (NYSE: CHD), which could reach $100 million.
Originally known as Asthmapolis, Propeller had raised $69.5 million from investors, including Aptar Pharma, Safeguard Scientifics (NYSE: SFE), Social Capital, 3M Ventures, Walgreens, and SR One, a corporate venture arm of GlaxoSmithKline.
Safeguard, which invested $14.3 million in Propeller and owns a 20 percent stake, said in a press release that it expects to receive $41.4 million through the acquisition, excluding an unspecified additional amount to be held in escrow. That means Safeguard will roughly triple its investment on a cash-on-cash basis. Safeguard also said the purchase price represents a 34 percent internal rate of return for the firm, a metric used to measure venture fund performance.
Propeller, which has a second office in San Francisco and around 90 full-time employees companywide, will operate as a standalone business within ResMed’s respiratory care division after the deal closes. ResMed said “there will be no immediate changes” to Propeller’s management team, office locations, or business processes. Van Sickle will continue to lead Propeller and will report to ResMed respiratory care president Richie McHale.
ResMed has been an active dealmaker over the past few years. Last month, it announced the $750 million acquisition of Minnesota-based MatrixCare, which makes software for long-term care providers. In May, ResMed said it would buy Missouri-based HEALTHCAREfirst, a seller of software and services for home health and hospice agencies, for an undisclosed price. And in 2016, ResMed purchased Atlanta-based Brightree for $800 million.
Van Sickle said ResMed invested in Propeller’s most recent venture funding round, a $20 million deal announced in May, although ResMed’s participation wasn’t publicly disclosed.
“Since then, we’ve been working more and more closely together, getting a better sense of the team and the combined opportunity,” Van Sickle said. “That’s really how we got to this point.”
In addition to the financial resources and industry expertise Propeller will gain from ResMed, Van Sickle cited the “cultural fit” between the two organizations as another reason for pulling the trigger on the deal. And the sunny, warm weather in the parent company’s hometown didn’t hurt, Van Sickle added. (The Arizona native has lived in Wisconsin for 12 years, but one never truly gets used to the Midwest cold.)
“Obviously, I’m very excited about the prospect of going to San Diego more often, with winter at our doorstep,” Van Sickle said.