The Promise of HAAC

Do you see the color of fire feasting on dead wood?

There is a lot of waste in our Healthcare System. This is the dead wood in the Healthcare forest.

There is a digital transformation happening in healthcare that is accelerated by health system data interoperability with increasing adoption of technology standards like FHIR ( pronounced Fire). This is the fire.

A digital healthcare company like Color is building the digital population health infrastructure that is providing last mile health care access for health services including infectious diseases and genomics testing. This is the color.

The fire is spreading by burning the dead wood creating space for new trees to grow in the forest. Color is becoming more vivid. Healthcare is at an inflection point. Massive growth opportunities lies ahead. As an investor, the color of this fire transforming the forest is Green. Let’s deep dive to see why.

Introduction

“Show me the incentive and I will show you the outcome.” - Charlie Munger

The current US Healthcare system is filled with misaligned incentives between different stakeholders. Who buys, who benefits, who decides and who pays are all different parties. This results in tremendous waste, convoluted middle layers adding little value, ever increasing cost that gets passed to consumers as higher premiums while basic health care needs stays inaccessible to many. Healthcare system is focused more around caring for a person after being found sick. But times are changing fast. Health Assurance space is emerging that focuses on whole person health before a person falls sick. Companies in this space are growing rapidly. HAAC is created to acquire companies that are emerging as leaders in this space.

US Healthcare - History and Challenges

“At one point, Dr. René Lerer, the president of the large insurance company GuideWell Florida Blue, silenced the room with his honesty: “Insurers fight for a bigger discount every time they renew a contract with a hospital. Then hospitals go around and inflate their prices. It’s a game.” - From the book “The Price we Pay”

The roots of the current US Healthcare system can be found in early 1900s when medical treatments were basic. The earliest health insurance policies were designed to mainly compensate for lost income when workers were ill and could not work in factories. As treatments improved, the concept of insurance also improved. The original concept of today’s insurance plans were developed at Baylor University Medical Center in Dallas which was founded in 1903. The focus that time was to cover first 3 weeks of hospitalization stay which was usually enough during those times to either cure a disease or the person dies because treatments were not advanced. Within a decade, this model spread across the country and the concept was given a name: Blue Cross Plans. That time the goal was to protect patient savings and keep hospitals solvent. Blue Cross Plans were operating as nonprofit.

During World War 2, manufacturing companies faced severe labor shortages and realized that they could attract workers by offering health insurance instead. Federal government encourage the trend by offering tax exemptions. Blue Cross and Blue Shield were the only major insurers at that time. The former covered hospital care and the latter covered doctor visits. During 1940 to 1955, the number of Americans with health insurance jumped from 10 percent to 60 percent. Blue Cross and Blue Shield were nonprofit and accepted everyone who wanted to sign up and were charged the same rates. But the surge in demand presented a business opportunity to private companies. So for profit insurance companies moved in fast to make the most of the emerging opportunity. But they accepted younger and healthier patients who were more profitable. They also created different levels of policy coverages, deductibles based on premiums paid. Aetna and Cigna were both covering major medical coverage by early 1950s. Then for-profit companies gained more and more market share over time ( 1970s and 80s) as they had more money to spend on aggressive marketing making it difficult for the Blues to compete. By 1990s , Blues were losing money, as they were left to cover for the sickest. Finally Blues Board decided to allow member plans to become for-profit. The various Blue plans seized opportunity and consolidated among themselves to create larger for-profit entities like WellPoint which then later changed its name to Anthem Blue Cross. As in any for-profit enterprise, executives were incentivized on how well they perform the financial functions. Before the Blues went for-profit, insurers spent 95 cents for every dollar of premiums on medical care which is called medical loss ratio. For profit Insurers were spending on activities like marketing, lobbying, administration and paying out Dividends and medical loss ratio were closer to 80 percent. The ultimate bearers of the extra cost end up as as consumers paying higher premiums.

History shows that once a procedure is covered by insurance, its sticker price usually goes up because patients are kept insulated from the direct payment of this cost. Insurers pays such high costs that no consumer would agree to pay directly which ultimately comes back to consumers in terms of higher health premiums. For Insurers it becomes an indirect way to increase the total amount of investment they can make in marketing, administration and other expenses ( which drives growth) because of the need to keep medical loss ratio around a certain range in 80s. Once this kind of health insurance system adoption became widespread, domino effect ensued. Hospitals adapted to such incentive structure and increased sticker price for the care services while providing more discounts demanded by Insurance during their in-network negotiations. This also changed how doctors practiced medicine prescribing a lot of unnecessary medical treatments and medicines that further increased the total cost of healthcare. Ultimately who pays, who decides and who benefits ended up being a complex web of misaligned incentives among insurance companies, hospitals, doctors and patients.

As Charlie Munger guided us before, we can very well predict the outcome of this misalignment in our current healthcare system, which is ever rising premiums, less accessible healthcare treatments, medical bankruptcies and ultimately a broken healthcare system that needs a fix. Enters a new set of transformative Digital Consumer centric Health Assurance companies to the rescue. We cover them below.

Understanding the Health Assurance Space

“Healthcare must be as easy to access as Google Maps.” - From the book “UnHealthcare”

As we saw earlier, US Healthcare system evolved out of a need to care for patients once they are sick and who need to be hospitalized for acute care. If our bodies and minds stay healthy then we all can be glad to stay out of this system as much as possible, avoiding doctors, hospitals, pills and insurance companies. But so far we did not have a system that focused primarily on keeping us healthy. Such a system would make our basic health needs easily accessible to all of us, at a much less cost than current healthcare system while relieving the burden of hospitals and letting them focus on taking care of the really sick patients. This system would be different from what we have experienced before. This system has been named as “Health Assurance” as outlined by Hemant Taneja and Stephen Klasko in “UnHealthcare”.

Health Assurance is a new category that puts consumer at the center and it is a cloud based, data driven health system that is designed to help everyone in the population stay healthy minimizing sickness. It focuses on user access and adoption driven by empathetic user interface design, privacy aware AI policies and data insights. Its focus is to make healthcare less irrational and shifting more to system of care with well-aligned stakeholder incentives. Health Assurance focuses on better outcomes of our overall healthcare system which is better health, more focus on consumer, affordability and access, fewer costly mistakes and less frustration.

Health Assurance space can blossom by help of new companies driving innovations, consumer centricity and transparency. Covid has been the Iphone moment of US Healthcare system. It exposed the gaps and limitations that exist in our current Healthcare system. The pre-Covid system was around concept of scarcity with limited availability of hospital beds, medical devices , drugs and physicians. Contrast this with other industries that transformed themselves from system of scarcity to system of abundance. Instead of physically visiting a store that may not carry a specific product that we need, we can now go online, search for it and order from the numerous stores online that have the product available. E-commerce is now mainstream and it is created around a system of abundance. Our fitness system do not require us to book a class in a gym for us to do get a trainer to help us exercise. We can stream it now to our home. Our healthcare system is at the very early stages of adopting this new model centered around abundance. Looking at Livongo, a chronically ill patient having diabetes and high blood pressure, can now get monitored remotely with help of smart devices and data driven analytics without requiring much involvement from overloaded healthcare system.

This new space called Health Assurance is evolving fast. Livongo was one of the first big success story and it won’t be the last. The authors of “UnHealthcare” estimates that this space will give birth to more than ten to fifteen $100 billion market cap companies. The $3-4 trillion in annual health spending in US will shrink as this value gets increasingly captured by these emerging Health Assurance companies. The companies that will become successful are the ones that can get creative and form mutually beneficial partnerships between technology companies and institutions from traditional healthcare systems. The two world need to merge to drive value and transparency for the end consumer, ending decades of misaligned incentives among stakeholders and reducing overall cost of healthcare per consumer.

Companies in Health Assurance Space

“At some point, you build Amazon — a technology-first stack that’s optimized around access and scale. I think that’s literally what we’re seeing now with healthcare. What’s kind of getting catalyzed right now is we’ve been realizing it applies to the COVID crisis, but also, we started actually working on that for prevention and I think actually it’s going to be applying to a huge surface area in healthcare; basically all the aspects of health that are not acute care where you don’t need to show up in hospital”  - Othman Laraki, CEO of Color

HAAC is managed by General Catalyst Founder Hemant Taneja and other stakeholders who have been associated with him in the past. There have been around 20 companies that General Catalyst have been developing in the Health Assurance space. I came up with the list below after evaluating each and every company in General Catalyst portfolio for relevance to Health Assurance space.

1. Color - A data-driven platform for population health. From population genomics programs to high-throughput COVID-19 testing, Color provides the technology and infrastructure for large-scale health initiatives.

2. Ro - Ro is a mission-driven healthcare technology powering Roman, Rory and Zero.Ro powers three end-to-end verticals: Roman for men’s health, Rory for women’s health, and Zero for fighting addiction (starting with smoking cessation).

3. Commure - Commure is focused on accelerating healthcare software innovation. It’s developer-facing product, based on the FHIR ( pronounced Fire) standard, makes it seamless for software developers to create and deploy next-generation healthcare applications with a secure, reliable, compliant and interoperable foundation based on modern standards.

4. Mindstrong - Mindstrong Health is a healthcare innovation company dedicated to transforming mental health through measurement science. It’s solution and health services help detect mental illness early to deliver preemptive care and improve outcomes.

5. Sondermind - SonderMind is redesigning behavioral healthcare by using a marketplace model to make therapy more approachable, accessible, and utilized.

6. Oscar - Oscar Insurance is aiming to revolutionize health insurance. It is focused on utilizing technology, design and data to humanize healthcare insurance.

7. Cityblock Health is a transformative, value-based healthcare provider for Medicaid and lower-income Medicare beneficiaries. It partners with community-based organizations and health plans to deliver medical care, behavioral health, and social services virtually, in-home, and in their community-based clinics.

8. Curaihealth is using artificial intelligence and machine learning with a user-centric focus to provide instant medical expertise that is accurate, trustworthy, relevant, and actionable. It focuses on providing affordable primary care designed around the consumer.

9. Karius - Karius is a life sciences company focused on generating genomic insights for infectious diseases with a non-invasive blood test that helps clinicians make rapid treatment decisions by mapping each patient’s microbial landscape from a single blood draw.

10. Well - Well is built to deliver personalized, concierge-style health care navigation and advancement to the masses. Well’s concierge health team delivers easy-to-understand explanations, health guidance, and active assistance — live and on-demand.

11. Story health - Story Health is a healthcare technology firm that builds adaptive virtualized care systems for specialists. The firm’s products empower specialists through intelligent embedded clinical software tools, virtual patient programs, and analytics that adapt therapy to the individual needs of specific patients.

12. PathAI - PathAI is evolving pathology using machine learning and deep learning techniques to drive faster more accurate diagnosis of disease. PathAI’s mission is to advance medicine with intelligent pathology. It’s platform provides end-to-end data-driven pathology analysis, resulting in fast, accurate and standardized pathologic diagnoses.

13. Osmind - Osmind is a digital health company that provides software and insights for precision mental health. Osmind provides an electronic health record software (EHR) and patient engagement tool for providers serving patients with treatment-resistant mental health conditions.

14. Om1 - OM1 is a leading healthcare technology company focused on providing outcomes measurement and predictive analytics for value-based and personalized healthcare. Leveraging big clinical data and artificial intelligence technology, OM1 delivers clinically meaningful approach to improve clinical and financial outcomes for stakeholders in healthcare.

15. Ophelia - Ophelia offers telehealth-based medication-assisted treatment (MAT) for the 80% of Americans with opioid use disorder who can’t or won’t go to rehab.

16. OliveAI - Olive is deploying the AI workforce built specifically for healthcare, delivering hospitals and health systems increased revenue, reduced costs, and increased capacity. It automates repetitive, high-volume tasks and workflows, monitoring their performance, identifying improvements and finding opportunities for new work.

Stakeholder Alignment in HAAC

“While there has been an increasing number of technology-focused blank check companies issued in recent months, we believe no other has the same degree of coherent vision, alignment with stakeholders, combination of sector expertise, entrepreneurial mindset, track record, and desire for transformational change.” - HAAC Prospectus

HAAC’s structure is similar to a SPAC investment vehicle looking to merge with companies and form a single public traded entity. However HAAC’s structure represent stakeholder alignment better than conventional SPACs. The management team named this new vehicle as SAIL ( Stakeholder Aligned Initial Listing) in the prospectus. They highlight that the incentive structure of the typical SPAC creates a misalignment with target businesses and public market investors i.e the sponsor is entitled to a return on the sponsor shares regardless of the SPAC's performance, and dilution due to sponsor shares is borne immediately. The SAIL construct, however, uses a performance-based incentive structure to create alignment, designed to replicate a stock price based return in the public markets. Under the SAIL structure, initial stockholders will capture 20% to 30% of the year-of-year share-price performance on all capital raised in connection with the transaction. Thus sponsor’s reward is tied to the long term business performance of the acquired company.

Therefore I come back second time to Charlie Munger’s quote mentioned at the start of this article. The outcome is determined largely by stakeholder incentives which is very positive for HAAC. The incentives of all stakeholders including the sponsors are better aligned here than any other recent SPACs. This gives investors confidence that sponsors are in it for long term success of the company acquired.

HAAC Management Team

HAAC management team is led by Hemant Taneja as Chairman and CEO; Glen Tullman as Director; Stephen K. Klasko, MD, MBA as Director; Quentin Clark as Director; Jennifer Schneider, MD as Director; Anita V. Pramoda as Director; and Evan Sotiriou as COO. This team has entrenched relationships with one another, as well as a broad network within the healthcare and technology industry.

Hemant Taneja has been a managing director at General Catalyst since 2007 and the founder of the firm’s Silicon Valley operations. Mr. Taneja is an early investor in market- leading companies across many sectors of the economy like Anduril, Canva, Pty Ltd (‘‘Canva’’), Color, Gitlab, Grammarly, Gusto, Livongo, Ro, Samsara, Snap, and Stripe. Mr. Taneja is also the founder and Executive Chairman of Commure, a company that has partnered with major health systems to modernize the software infrastructure for the healthcare space since its inception in 2017. Mr. Taneja’s recently published book UnHealthcare , co-authored with Dr. Klasko, lays out their thesis for how the healthcare system needs to transform into a health assurance system to bring consumerism, affordability, and rational economic behavior to this important sector.

Glen Tullman was the Executive Chairman and Founder of Livongo , the consumer first digital health pioneer committed to empowering people with chronic conditions to live better and healthier lives. Livongo was recently merged with Teladoc and Mr. Tullman is currently a member of the Teladoc board alongwith Mr. Taneja. A visionary leader and entrepreneur, Mr. Tullman previously ran two public companies that changed how health care is delivered. Before Livongo, Mr. Tullman served as Chief Executive Officer of Allscripts, which, during his tenure from 1998 to 2012, was a leading provider of electronic health records, practice management, and electronic prescribing systems. Mr. Tullman took Allscripts public in 1999. Prior to Allscripts, Mr. Tullman was Chief Executive Officer of Enterprise Systems from 1997 to 1998, which he also took public and then sold to McKesson/HBOC.

Dr. Stephen K. Klasko - As President and CEO of Philadelphia-based Thomas Jefferson University and Jefferson Health since 2013, Dr. Klasko has led one of the U.S.’s fastest growing academic health institutions based on his vision of the future of higher education. Jefferson Health focuses on managing the health of populations in southeastern Pennsylvania and southern New Jersey. Jefferson has the largest faculty based telehealth network in the country, the NCI-designated Sidney Kimmel Cancer Center, and an outpatient footprint that is among the most technologically advanced in the region.

Quentin Clark is a managing director at General Catalyst. Since joining in 2020, Mr. Clark focuses on investing in healthcare and enterprise SaaS, software, and platforms concentrating on transforming the workplace. Prior to joining General Catalyst, Mr. Clark was CTO at Dropbox (NASDAQ: DBX) from 2017 to 2019, where he led the company’s engineering, product, design, growth, and IT teams. Prior to Dropbox, Mr. Clark spent two decades with Microsoft between 1994 and 2014, eventually leading the whole data platform business into Microsoft’s cloud, Azure. He then joined SAP from 2014 to 2016, first as CTO, then as Chief Business Officer, where he led strategy and product direction for the company.

Dr. Jennifer Schneider has been the President of Livongo since 2018, where she is responsible for product, data science, engineering, marketing, clinical operations, and growth strategy. Dr. Schneider previously served as the company’s Chief Medical Officer from 2015 to 2018, where she led the company’s strategic clinical product vision, data science, clinical trials, and the organization’s certified diabetes educators and coaches.

Anita V. Pramoda has been the CEO of Owned Outcomes, Inc., a health analytics software company, since 2014. Ms. Pramoda has also served as the Chairperson of the Board of Directors of the Federal Reserve Bank of San Francisco (Los Angeles) since 2016, and as a board member (and Chair of Compensation Committee) of Health Catalyst, Inc., (NASDAQ: HCAT), a provider of data and analytics technology and services to healthcare organizations, since 2016.

Evan Sotiriou has served in several senior management capacities of General Catalyst since 2019. Prior to that, Mr. Sotiriou served as the CFO for OrbiMed, which invests globally across the healthcare industry, from 2011 to 2019.

HAAC Acquisition Criteria

HAAC is focusing on companies that are meeting the below criteria-

1. Companies sitting at the intersection between technology and healthcare, including consumer-focused, data-driven, cloud-based platforms

2. Companies that has the potential to change the healthcare system to benefit the consumer (built with empathy, cuts down costs, and prioritizes personalization and consumer outcomes)

3. Where the sponsor team can materially impact the value and growth of the company in partnership with management

4. Companies that are close to sponsor team’s proximal networks of founders, operators, investors, and advisors

5. Where sponsors have a differentiated view on the ability of the target company to create value as a public company

How Sponsors plan to Add value to the Target

We anticipate offering the following benefits to our business combination partner:

• partnership with sponsor management team members who have extensive and proven track records of founding, operating, advising, and investing in market-leading technology and healthcare companies;

• access to sponsor network of leading industry executives, entrepreneurs, and investors;

• increase company presence and visibility with customers, employers, payors, and vendors;

• higher engagement with core, relevant, fundamental investors as anchor stockholders than a traditional IPO book-building process would offer;

• lower risk and expedited path to a public listing with flexible structuring;

• infusion of cash and ongoing access to public capital markets;

• listed public currency for future acquisitions and growth;

• ability for management to retain control and focus on growing the business; and

• opportunity to motivate and retain employees using stock-based compensation.

Catching Fire - FHIR

FHIR ( Fast Healthcare Interoperability Resource, pronounced Fire) is a next generation standards framework based on modern internet conventions. It enables to send the data across different health IT systems and receive it in a readable and usable manner. It enables instant incorporation of medical records from different facilities which makes a complete EHR ( Electronic Health Records) data accessible to patient, practitioner , healthcare organizations and implementers. Companies like Allscripts, Epic, Cerner, GE, eClinicalWorks, Meditech and others are already using FHIR.

There is a seismic shift happening in healthcare data interoperability space driven by FHIR adoption. A report released by CHIME and KLAS finds that both providers and vendors are moving forward on the journey to advance interoperability in healthcare, with the rate of “deep interoperability” doubling since 2017.

This is an encouraging trend that will drive increasing levels of data transparency on health data for consumers. Cloud based software applications can create efficient automated processes removing current expensive and inefficient manual processes in healthcare systems driving down the overall cost of healthcare. Commure ( a key Health Assurance company) is building cloud based open FHIR native platform for healthcare developers to accelerate development of medical apps on its platform thus fostering an healthcare app ecosystem similar to what IPhone did for mobile apps. The fire has started and it is feasting on the dead wood everywhere.

Investment Thesis

“ HAAC is not simply a liquidity vehicle— it is an opportunity to bring a transformational company to the public markets” - HAAC Prospectus

There are several reasons why I think HAAC is a good investment right now ( pre-merger announcement). I bought majority of HAAC shares and warrants around $11.5 to $12.5 price range and it has gone up to around $13.5-$14 since then. It may still be a good long term buy and following are the reasons why I think so.

1. Management par excellence :

   The management team described earlier in detail, is one of the best management teams I find who bring in tremendous expertise both from healthcare space as well as technology. The combined experience of the team covers critical parts of healthcare ecosystem including provider operations ( Dr. Klasko), virtual health services ( Glen Tullman, Hemant Taneja), Electronic Health Records (Anita Pramoda, Hemant Taneja) and Technology Infrastructure ( Dr. Jennifer Schneider, Quentin Clark, Hemant Taneja).

   This expertise is combined with deep networks and relationships that the management team has built with the key players in healthcare and technology industry. Healthcare Industry is not operating as a consumer demand driven free market. There are artificial barriers of entry. Deep network and relationships matter more here than perhaps any other industry. Management’s access to these relationships within healthcare industry players will be a tremendous value for the merged company. New opportunities created will help drive faster business growth while creating barriers for competition. This increases the chance of success for the company and returns for shareholders in HAAC. And because HAAC is represented by such a strong management team that drives value, the target company negotiating merger will give significant weightage to it which can result in HAAC shareholders getting a favorable valuation of the acquired company in the deal giving them more room to make investment returns.

2. Explosive growth of Digital Healthcare :

   The US Annual spend on healthcare is close to $4 Trillion. There is a lot of waste in healthcare as it is not an efficient stakeholder aligned consumer driven system. We covered this in detail in a section earlier. There is a tremendous opportunity to reduce spend while increasing value. HAAC Management believes that Health Assurance space can generate ten to fifteen $100 Billion companies. We saw the explosive growth experienced by Digital Healthcare companies including Teladoc ,Livongo, GoodRX, Amwell among others in recent years. This growth in digital health sector is only set to increase after tailwinds from favorable government regulation and Covid driving the need to free up our hospitals and doctor’s capacity by moving some of the preventative and chronic care to patient homes remotely.

3. Growing Trend of High Deductible Health Plan Adoption(HDHP) :

   There is a growing trend among US population to enroll in High Deductible Health Plans (HDHPs) which is resulting in a dynamic shift of power to the consumers. The share of covered workers enrolled in HDHPs at large employers reached 47% in 2019 from 35% in 2018 and 28% in 2017. With HDHP, consumers are responsible for more out of pocket expenses for their healthcare services and this results in better and more informed decision making in selection of right priced healthcare services. As the power of decision making in choice of healthcare services and products increasingly shifts to end consumer, the adoption of Consumer centric Health Assurance companies will increase acting as a tailwind for companies in this space.

4. HAAC’s stakeholder aligned structure (SAIL) :

   As covered earlier in detail, the HAAC investment structure is not a typical SPAC structure and is designed better to align sponsor’s incentives with shareholder interests. The economics is designed in a way that the HAAC sponsors ( initial stockholders) will capture 20%-30% of the year over year gains in share price performance instead of an upfront gain. This is indicative of two things :

   • Shows the tremendous confidence HAAC management has in the long term share price appreciation ( and hence value) of their target companies

   • Ensures the continued engagement of the HAAC management team contributing to the long term success of the acquired company which is the most important part of our investment thesis.

5. Proven Playbook of Livongo :

   The management team of HAAC already has a proven track record in taking the first Health Assurance company in their portfolio, Livongo to the heights of success culminating in a mega merger with Teladoc. They can enhance and deploy that proven Livongo playbook for the new Health Assurance company/companies that they acquire as part of HAAC. They are confident about this. As HAAC prospectus states : Livongo and chronic disease management are just the beginning of our vision. We want to create the conditions for 1,000 Livongos to bloom.

6. Target Companies in General Catalyst Portfolio:

   “We are not prohibited from pursuing an initial business combination with a company that is affiliated with our initial stockholders, Founders, officers or directors.” - HAAC Prospectus

   It is hard to predict which company ultimately gets acquired by any SPAC vehicle. However, for HAAC they have given very specific criteria for business combination that we covered earlier. Several things are apparent from the business criteria that HAAC has provided which I distill and draw my inference below :

   • Company owning a consumer centric cloud based healthcare technology platform using AI

   • Company benefits end consumer with an empathetic consumer interface focused on personalization and cuts down overall healthcare cost

   • Company is close to the management’s network ( example can be a health-tech company in General Catalyst portfolio)

   • Company that HAAC believes can be transformed into a category leader and management can help influence its transformation and growth

   Based on above distilled criteria, I believe that while we cannot predict the exact target company that will get acquired, it is likely that HAAC team selects one of the consumer centric cloud platform companies in General Catalyst portfolio in the Health Assurance space ( we covered most of them in an earlier section). The target companies should be large enough for the acquisition to make sense. If I am asked my top favorite, I would say it is “Color” and a possible add on company can be “Commure” though unlikely. Color is building the digital public health infrastructure focusing last mile of care delivery and access while also becoming a leading genomics platform in US. Color recently raised a $167 million funding round, bringing its total to $278 million, at a valuation of $1.5 billion which is also a perfect size for HAAC to acquire. Color has also been the face of Health Assurance brand in their podcast series and interviews that I saw which Hemant Taneja has given alongwith Color executives in recent times while talking about his Health Assurance vision and roadmap. Someone already has done a good job making an educated guess on this topic : Check this link out

   If HAAC acquires Color, it can be a phenomenal opportunity for early stockholders in HAAC. It will be an opportunity to get in at the first floor of an elevator that is going to go up many floors in a skyscraper. Covid accelerated and transformed this company which also pivoted successfully beyond just being a genomics platform to being the population health technology infrastructure platform that also does Genomics. Color grew 500% in 2020. Here is an excerpt from the Techcrunch article -

   “Color’s 2020 was a record year for the company, …. Laraki (Color CEO) told me they did about five-fold their prior year’s business, and while the company is already set up to grow on its own sustainably based on the revenue it pulls in from customers, its ambitions and plans for 2021 and beyond made this the right time to help it accelerate further with the addition of more capital.”

   Hemant Taneja also has an added motivation to take Color public. Being a public company helps with transparency, trust and branding which will be essential for Color as it undergoes its journey to forge partnerships with various health organization across US beyond its deep presence in California. This is also where I see HAAC management making the most impact to a company given their deep networks and connections into Federal government and Health Organizations. It is possible, that for various reasons, HAAC may end up acquiring a company other than Color. In that case, the rest of the investment thesis still holds strong. Color just makes HAAC extra attractive as an investment vehicle. Also being a leading Genomics platform and being a disruptive play, it can quickly garner the lofty valuation multiples attributed nowadays with Genomic companies and can also garner additional attention of leading funds like Ark that has shown interest in leading companies in Genomics.

7. Increased adoption for FHIR -

   As covered in an earlier section, Health Data Interoperability set of standards like FHIR are gaining increased adoption among large healthcare organizations enabling faster digital transformation and automation of inefficient processes. This in turn fosters the Health Assurance ecosystem by enabling these companies to deliver greater value to consumers and other healthcare stakeholders. FHIR adoption thus acts as a tailwind for HAAC’s growth.

8. Favorable Government Regulations - Adoption of services from Health Assurance companies accelerated as a result of Covid. Federal government agencies like CMS promoted regulations favoring consumer centric care like Virtual Remote based care and monitoring while also making rules for adoption of health data interoperability standards like FHIR putting consumers first above everything else. This provides a significant growth tailwind in the coming years for companies targeted by HAAC.

Conclusion

Given everything that we discussed, I see HAAC as an attractive investment at this stage pre-merger. As with every investment there are risks and here the biggest unknown is that we do not know which company or companies HAAC management will end up acquiring. Even then, downsides are limited as HAAC price is still not very far from Net Asset Value which is around $10 price point. For the sponsor team at HAAC, this would be their next prominent flagship project after huge success of Livongo. So in my opinion, it is unlikely that they will let this project disappoint investors. Moreover, the SPAC structure that they created as we saw earlier is tied to company’s long term business performance which gives additional confidence to me that the HAAC team is serious about creating the next Livongo or maybe something even bigger.

References : An American Sickness ( Rosenthal), The Price we Pay ( Makary), S-1 filings, public news sites, HAAC website, management team interviews.