Health Tech

Babylon Shuts Down US Operations After Rescue Merger Falls Apart

This week, virtual care company Babylon Health permanently closed its U.S. operations and laid off 94 employees. The news came after the company’s rescue merger fell apart — Babylon had planned to go private through a deal with Swiss digital therapeutics firm MindMaze and Babylon creditor AlbaCore Capital.

Babylon Health has closed its U.S. headquarters in Austin, according to a notice the struggling virtual care company filed with the Texas Workforce Commission on Tuesday.

In the notice, Babylon said that it permanently closed its U.S. operations on Monday and laid off 94 employees. The company did not respond to MedCity News’ request for further details.

Babylon, which is based in London, was founded in 2013. The company offers virtual primary care, including telehealth appointments, symptom checkers and prescription services. As part of its U.S. operations, Babylon also entered into value-based contracts with payers. The firm had more than 261,000 value-based care patients in the U.S. as of the end of last year.

In 2021, the company went public in a special-purpose acquisition company (SPAC) merger. In the years that have followed, its financial situation has been strenuous.

Last year, Babylon reported a net loss of $369.8 million on $1.1 billion in revenue. For context, last year was not a good one in terms of financial performance among public telehealth companies. Teladoc ended the year with a $13.7 billion net loss, and Amwell reported a net loss of $272 million.

In the first quarter of this year, the company posted a $63 million loss— more than double the amount of the $29.1 million loss reported in the first quarter of 2022. Babylon also reported that it had cash and cash equivalents of $77.7 million — and $52.1 million of that was being held for a pending sale.

On June 23, the company announced that it would go private through a deal with Swiss digital therapeutics firm MindMaze and Babylon creditor AlbaCore Capital.

“The transaction provides for a new capital structure with a significant reduction of pro forma company debt, resulting in a substantially strengthened and more flexible financial profile,” Babylon said in its announcement. “In addition, the transaction will include immediate material funding for current business operations as well as a commitment to fund the combined business, allowing the pro forma company to focus on its strategy of delivering concurrent growth and profitability over the near to mid-term.”

At the end of June, the New York Stock Exchange suspended trading of Babylon shares and delisted the company. The stock exchange cited two reasons: Babylon’s average total market capitalization over a consecutive 30 trading-day period was less than $50 million, and the average closing price of its ordinary shares were less than $1 over the same period. The company said it did not intend to cure these deficiencies in light of the expected closing of its rescue merger.

However, Babylon issued a press release on Monday announcing that its deal with MindMaze and AlbaCore “will not proceed.” The company explained that the dissolution of the deal has left it unable to continue operations in the U.S., and it said that it “plans to safely transition its U.S. members to other providers.”

In the press release, Babylon also said that it will look for a buyer to salvage its U.K. business. However, the potential sale of the company’s U.K. business will be subject to AlbaCore’s rights under its debt agreements with Babylon, and the sale proceeds are not expected to exceed the company’s debt to AlbaCore.

Nathan Ray, partner at consulting firm West Monroe, said he wasn’t very surprised when he heard that Babylon was shuttering its U.S. business. In his view, the company “just didn’t quite live up to the rigor of the business model necessary for a multi-state branded primary care platform.”

It’s important to note that Babylon went public in mid-2021, a period when enthusiasm about virtual care was high and digital health companies had overblown valuations. 

“I think we all expect that if a company goes public, it’s stable and mature and investable. But I don’t think that is necessarily the case. It’s just a different way of capitalizing on early investors. They felt that was the way to get the company moving forward, and they obviously found enough capital for it to roll all the way here. But looking at their prospects, the actual maturity of the business, and its cash burn rate, I think they finally just called it quits,” Ray explained.

Similar to Ray, Seth Joseph also said he wasn’t too shocked about Babylon’s news. Joseph is the managing director of Summit Health Advisors.

“I am less certain that Babylon is indicative of broader tech-enabled primary care startups than of just a series of unfortunate decisions. Its strategy just doesn’t appear coherent, at least to outside eyes,” he declared.

Joseph pointed out that Babylon is an early-stage company that operates in 16 different countries with a “multitude of services, revenue models and supporting technology assets.” To him, these circumstances create an “incredible pressure” to operationalize and execute against all of these different initiatives, products and markets. 

It doesn’t seem like the company could do this well, and certainly not efficiently given its consistently progressively negative operating income, Joseph noted.

“When you pair that with rising interest rates and challenging capital markets, it’s a bad recipe,” he said.

Photo: Mykyta Dolmatov, Getty Images