Source: Owen Tripp
The U.S. experiences cycles in liquidity because, well, we just aren’t that creative. In 2006 to 2007 we saw waves of consumer tech IPOs, then the inevitable ebb, followed by the flow of enterprise tech IPOs from 2010 to 2013. But while high profile brands like Twitter and FireEye dominated the news, did you know that 38 healthcare firms went public, compared to 28 in technology? In 2013 we saw healthcare IT investments break records, exceeding $1.9 billion in total investments. And digital health has only scratched the surface: I believe that healthcare IT IPOs will quadruple enterprise tech IPOs this year.
The healthcare IT market is ripe for IPOs for several reasons.
The market is immense, and that word doesn’t really come close to representing the opportunity. According to the World Health Organization (WHO), the U.S. spends more per capita than any other country on healthcare, and that propels the market opportunity to incomparable levels. Consider UnitedHealth Group: In 2012 the company had revenue of $110.6 billion. And that’s just one player in this monolithic system. There is a piece for almost every smart company.
The focus on data
Wealth can be made by those who can help overhaul and modernize our dysfunctional healthcare system. In 2013, companies like NanoString Technologies had successful IPOs but this year the IPOs will move beyond piecemeal solutions like diagnostic machines. Rather than pushing a new little pill or wearable device, the industry is beginning to focus on the core value of health for consumers—data. Many clinics are already using EHRs, which provides physicians with a necessary 360-degree view of a patient’s health, and can help consumers keep tabs on “hot spots” for them like cholesterol levels. Successful companies will embrace technologies like mobile and cloud computing to reinvent the system and give consumers the information they need to achieve optimal health.
Volatility kills IPOs; stability brings life
There will be more hiccups with the Affordable Care Act (ACA), but it is here to stay. Like it or not, there is good news: At least we know that last year’s regulatory issues are behind us and this translates to market stability. Investors need to price the IPO when volatility is at its lowest so they can best predict the fill rate (how much stock will be sold), and therefore how they are paid.
Little reimbursement risk
Unlike the clean tech boom, this wave of IPOs involves software, eliminating the need for pesky regulation, testing or FDA approval. There is real earnings power and revenue here. These companies are earning $100 million in revenue, improving margins and offering investment stability.
Renewed appetite in the country around personal health. I’m not certain what is driving it: Is it the rise of social healthcare with FitBit or MyFitnessPal? Or scary stats like the latest from the WHO, which recently declared that cancer cases will jump to 22 million new cases each year within two decades. Regardless of the cause, consumers are tuned into their health. This appetite has also crawled into the bellies of the employers as they look to provide unique health solutions beyond preventative care to treating illnesses right now by access to the top medical experts or transparent pricing options. Whatever the reason, this interest in health across the board is jazzing up the IPO parties with innovative companies that are literally transforming the system, allowing for transparency, access and overall improved outcomes.
So who’s going to the IPO party?
As we know, Castlight Health will be among the first to go public in 2014. With a projected $2 billion IPO, Castlight is compelling because it is exposing data around pricing, which highly varies per hospital and has been notoriously difficult to find pre-procedure. Castlight studied other companies connecting consumers and enterprises with pricing data to create a more efficient marketplace (think Zillow for the real estate market). And pretty much everyone eventually needs things like blood work and X-rays—people want to be able to price compare and eliminate nasty billing surprises after the fact. I say the company nailed it.
One Medical Group is another company that may get an invite to the IPO party. Who gets excited when they have to visit the doctor? No one—we hate it and One Medical is trying to change that. One Medical is turning office visits on their heads with an affordable, accessible solution that matches individuals to the right doctors, on the same day of inquiry. The company recently announced a $30 million round of funding led by Google Ventures, which brings the total investment in the company to $77 million. With their vision, I may actually look forward to visiting the doctor myself.
ZocDoc might also put an IPO party hat on. ZocDoc helps patients find a local doctor who accepts their insurance, finds real-time availability, and instantly books appointments online. ZocDoc claims more than four million new patients each month, with $95 million in funding. ZocDoc is dial-a-doc personified and on its way to the roadshow.
Market conditions, social mentality and technology have converged to create a perfect storm for digital health IPOs in 2014. Make no mistake: These companies are out to earn money. However, their focus on consumer-centric software will make the world of healthcare better for everyone.