Digital Health IPOs in 2019

Livongo and Health Catalyst made the public markets late last month, showcasing how the market in terms of VC and customer acquisition for B2B healthcare and the wider tech industry will likely adapt.

On the surface both companies may look like healthcare companies but on further observation, they are first, technology companies. This Wall Street Journal article shows how these companies convinced investors of the opportunity in healthcare and the opportunity costs involved in a very large market. While the sales cycle is very long, and there are regulatory burdens and requirements to meet such as when dealing with patients data, the opportunity clearly outweigh the costs. 

It’s surprising that the two companies are the first startups in healthcare tech since 2016 that entered the public markets (Side note: Change Healthcare starting trading in June although a spinout of public company Mckesson). Not particularly surprising for Health Catalyst since they deal with data and AI, a scalable SaaS proposition. Livongo on the other hand, was a dark horse. It’s not so obvious from a layman (especially classic VC types) what the company does. Wall Street journal calls it ‘hardware and software for chronic disease management’. Although that description is somewhat correct, hardware is certainly not a main feature in their pitch deck. The hardware part ie wearables is not so appealing to investors because that involves inventory, manufacturing, in many cases FDA approval and millions of dollars to build such operations that doesn’t contribute to immediate top line growth. 

On looking at Livongo’s board (flanked by insurer and major customer such as Humana), it becomes clear that the public markets is where they will thrive further and raise well needed growth capital. Yet, there were several other companies that could have gotten to the public markets much faster. In this health tech arms race, there are companies in mature verticals such as telemedicine that have raised hundreds of millions of dollars and are still not public. American Well and MD Live are great examples of this trend. Although Teladoc, their competitor went public in 2015. Even in the most mature vertical in digital health (electronic health records software market), market leader Epic is still not public, although competitor Cerner went public in 1986 and athenahealth in 2007 (then acquired and re-privatized in 2018) .

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