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Two digital health companies, California-based diabetes management company Livongo and Utah-based health software firm Health Catalyst, made their market debuts on Thursday, signaling an end to the three-year digital health IPO drought.
The first digital health company to go public since iRhythm’s IPO in 2016 was Change Healthcare — a Nashville-based software and analytics company that began trading at the beginning of this month — followed two weeks later by New York-based software company Phreesia.
Here’s what it means: Digital health companies have been around long enough to prove their worth to investors, and with record-high funding over the last year and a half we expect to see more companies go public in the near future.
Almost every digital health company that has gone public this year has been operating for at least 10 years. And the overall age of the industry may be why the IPO floodgates are starting to open again, as previously, the relatively young age of the market meant companies were largely touting flashy tech without proof that their products were worth an investment.
But digital health has been luring strong interest from investors over the last year: $4.2 billion of funding was poured into digital health companies in the first half of 2019, putting VC investments on track to surpass 2018’s record-breaking $8.2 billion total. Jorge Conde, general partner at Andreessen Horowitz, told Business Insider Prime that he sees this new generation of companies as "the first digital health companies … that can grow to be really large."
This may be due in part to the development of hospital IT infrastructure, like the digitization of patient health records, which has made it much easier to build and scale digital health products now than it was 10 years ago. There’s also a growing acceptance among players in the field that healthcare needs to "become more frictionless and modern," per Conde.
The bigger picture: Our team correctly predicted that Change Healthcare and Health Catalyst would go public this year — and now I (Zach) have my eyes set on Ancestry and ZocDoc as the next digital health IPO candidates in the year ahead.
- Ancestry. IPO rumors have swirled around Ancestry since April of this year, when inside sources told Bloomberg that the direct-to-consumer (DTC) genetic testing company was contemplating a public offering for the second half of 2019. When we first covered this story, we noted that Ancestry has sold approximately 14 million tests — 4 million more than its closest competitor in the space, 23andMe — and 7 million of those sales took place in just the last year. This figure tracks with the growth of genetic testing companies overall: The global at-home genetic testing market could reach over 100 million people by 2021 if current growth rates continue, according to the MIT Technology Review. Given Ancestry’s consistent sales growth and the long-term potential of the DTC genetic testing industry, I think we’re likely to see Ancestry go public by early next year.
- ZocDoc. The New York-based patient scheduling company has been operating since 2007 and is one of the most highly valued digital health companies around — at nearly $2 billion in 2015, per Business Insider Prime reporting. The company also enjoys 6 million monthly users. And recent changes to its pricing model indicate that it’s looking for ways to expand its reach: ZocDoc announced early this year that it would be moving from a subscription model to a pay-per-booking structure, which should increase per-user revenue from its existing subscriber base in urban locations like New York, while also growing the company’s footprint in rural areas — where it can be difficult for clinicians to see enough patients for ZocDoc’s services to make financial sense. Overall, a strong recurrent user base combined with the company’s age and lights out valuation make ZocDoc a likely candidate for a near-term public offering.
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