HGP Health IT July InsightsAugust 05, 2019
HGP’s July Health IT Insights provides a summary of Health IT transactions, news, and public company performance during the month of July. Health IT saw four IPOs during a five week period from late June to late July, including Livongo, Health Catalyst, Phreesia, and Change Healthcare. All were welcome by the market with strong first day performance, with Health Catalyst, Phreesia, and Livongo respectively gaining 50%, 39%, and 36% on the first day of trading. To put this wave of IPOs in perspective, the last health IT companies to list on a US exchange were iRhythym Technologies and Tabula Rasa Healthcare in late 2016 - representing an almost three year IPO drought. The month of July was otherwise pretty quiet, except for a regulatory move by the Trump administration to abandon a ban on drug rebates, which resulted in managed care and PBM stocks surging.
The digital health IPO drought finally ended in June and July, with four prominent and successful new issues during the period:
- On July 25, Livongo (chronic care management) shares jumped 36% on the first day of trading to close at $38.10 after issuing at $28/share. The market cap at close on the first day of trading was approximately $3.5 billion or 27.3x run-rate Q1 2019 revenue. Year-over-year Q1 revenue increased 157% to $32.1mm.
- Also on July 25, Health Catalyst (healthcare analytics) shares soared 50% on the first day of trading to close at $39.17 after issuing at $26/share. On the first day of trading, the market cap closed at approximately $1.4 billion or 10x run-rate Q1 2019 revenue. Year-over-year Q1 revenue increased 71% to $35.2mm.
- On July 18, Phreesia (patient payments and registration) shares closed up 39% on the first day of trading to close at $25.08 after issuing at $18/share. The closing market cap on the first day of trading was approximately $890 million or 7.9x run-rate Q1 2019 (April quarter) 2019 revenue. Year-over-year Q1 revenue increased 18.6% to $28.3mm.
- Change Healthcare (healthcare connectivity and revenue cycle) closed up 15% on its June 27 IPO.
Noteworthy M&A transactions during the month include:
- Providence St. Joseph Health announced a digital transformation with its late June acquisition of Bluetree, an Epic consulting firm that it will roll into a broader portfolio of healthcare software and services.
- QGenda solidified its market leadership position in physician scheduling with its acquisition of OpenTempo.
- Net Health Systems expanded its footprint in the post-acute market with the announced acquisition of Optima Healthcare Solutions.
- Walmart acquired an India-based homecare software vendor backed by Accel Partners, FloCare.
- Invitae announced the acquisition of biotech AI vendor Jungla for $50mm with an additional earnout opportunity of $15mm.
- Sedgwick announced the acquisition of York Risk Services Group, resulting in one of the largest risk management vendors serving the insurance industry with 27,000 employees.
Noteworthy investments during the month include:
- Wearable technology vendor GOQii raised $60mm from Mitsui & Co.
- Healthcare market intelligence vendor, Stratasan, raised $26mm from investors including Fulcrum, Frist Cressey and Blue Heron.
- Telemedicine contraceptive vendor Nurx raised $42mm from investors including Union Square, KPCB, and Lowercase Capital.
- Baring Asia acquired health analytics vendor CitiusTech for approximately $1 billion, which values the company at 5x and 18x estimated 2020 revenue and EBITDA, respectively.
- Notable Labs, a decision support platform for individuals with blood cancers, raised $40mm from investors including B Capital, Industry Ventures, LifeForce Capital, and the Capital Group.
Noteworthy News Headlines
Livongo and Health Catalyst began trading on the Nasdaq on July 25, joining a slew of companies to end a nearly three-year drought since the last initial public offering of a digital health company. The two companies joined Phreesia, a healthcare software provider that went public one week earlier on July 18, and Change Healthcare, a revenue cycle management company formed through a series of acquisitions and a merger with McKesson's technology business, which began trading in June.
The Trump administration abandoned one of its signature drug-pricing efforts: a ban on many of the rebates that drug companies pay to pharmacy benefit managers under Medicare. While the White House had argued eliminating rebates would result in drug manufacturers charging lower list prices, the proposal has been controversial since its unveiling in January. Drug manufacturers had largely supported it, while middlemen known as pharmacy benefit managers and insurers were vocally opposed.
Optum’s John Muir Health deal provides a new model for health system collaboration. As part of the deal, Optum will take over non-clinical functions for the provider ranging from IT services, revenue cycle management, analytics and claims processing and bring on more than 500 John Muir Health employees. The idea is to allow John Muir to focus on patient care and lower administrative burden, while utilizing Optum data resources to shift its business to value-based care models.
Tenet Healthcare Corp. will spin off its $1.5 billion revenue cycle subsidiary Conifer Health Solutions as a separate, publicly-traded company, it announced July 21st. At the same time, it was announced Conifer's CEO Stephen M. Mooney stepped down from his position and Kyle Burtnett, who has been Conifer's chief operating officer, was appointed interim CEO. Tenet is conducting a national search for a permanent CEO of Conifer. The announcement is the culmination of a years-long process for the Dallas-based health system giant to divest itself from Conifer.
HHS and the Food and Drug Administration released a plan on July 30 to lay the foundation for safe importation of certain drugs intended for foreign markets. HHS Secretary Alex Azar said that the plan represents a shift in agency thinking regarding importation from foreign countries. HHS has long been resistant to importation due to concerns about drug safety, however President Trump has been pushing for importation in an effort to lower prices.
Public Company Performance
HGP tracks stock indices for publicly traded health IT companies within four different sectors - Health IT, Payers, Healthcare Services, and Health IT & Payer Services. The spike in the Payer Index on July 11 was a result of the Trump Administration abandoning its intent to modify drug rebate programs that would lower prices on drugs, which resulted in similar gains for PBM stocks. The chart below summarizes the performance of these sectors compared to the S&P 500 for the month of July:
The following tables include summary statistics on the four sectors tracked by HGP as well as the S&P 500 and NASDAQ for July 2019: