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Investors in digital health have been opening their wallets in recent years, with the promise that the coming together of devices, algorithms and consumers' growing obsession with personal health data will translate into big business.
They're finally poised to see some of the rewards, as the IPO market appears ready to crack open.
Livongo, a Silicon Valley provider of services and tools that help people manage chronic medical conditions, has reportedly picked bankers for its IPO, as has HealthCatalyst, a health-care data company. Change Healthcare, which provides technology to bring down the costs of health care, filed its prospectus last month.
In 2018, health-tech start-ups raised more than $8 billion, but the only significant exits came from a few acquisitions, like Roche's purchase of Flatiron Health for almost $2 billion and Amazon's $1 billion acquisition of online pharmacy PillPack. For investors to keep putting in capital, they need companies to not only go public but also to impress financially once they debut.
"To have a well-funded digital heath company performing well and going public, it validates the digital health thesis," said Blake Wu, a health investor at venture capital firm New Enterprise Associates. Wu's investments include Bright Health, a provider of affordable health insurance, and Pager, a digital health platform that helps consumers connect with providers.
To date, most of the notable IPOs in the health-tech market have been from companies with business models that are familiar to Wall Street. For example, Veeva Systems and AthenaHealth sell cloud-based software and Fitbit sells devices.
Digital health companies in the current IPO pipeline are different, in that they emphasize the combination of technology and services, which might include app-based behavioral coaching or nudges toward promoting healthy behavior.
Livongo, which was founded 2014, built its business by working with large companies like Amazon, Microsoft, PepsiCo, Walgreens and Delta, to provide technology that employees with diabetes can use to monitor and manage their disease. The package includes a connected glucose meter and unlimited lancets and test strips, and the company offers coaching and tips through its apps to help people stay healthy, which might result in cost savings for the employers footing the bill.
Livongo has expanded its offerings beyond diabetes management to serve people with high blood pressure and mental health conditions such as depression and anxiety.
It will take time for public market investors to see if this type of business model can generate predictable revenue and lead to sustained profitability, said Marc Albanese, senior director of research at CB insights, a research and strategy firm.
"There hasn't be a true digital health IPO, " Albanese said. "So there is a bit of pressure on Livongo."
Most investors specialize in health or technology businesses, but not both.
"Livongo is truly a cross between health and tech," said Albanese. "Its performance will set the tone for how similar companies are received, which makes it so important."
Livongo is on track to generate more than $100 million in revenue this year, up from $70 million in 2018, and its technology is used by more than 120,000 employees, according to a person with knowledge of the company's financials who asked not to be named because the numbers are confidential. Livongo hired Morgan Stanley, Goldman Sachs and J.P. Morgan Chase to manage its IPO, the Wall Street Journal reported last month.
A Livongo spokesperson declined to comment on its IPO plans.
Digital health research firm Rock Health is ready for the floodgates to open. In a recent report, the company said that while funding will moderate in the early part of 2019, "the end of the digital health IPO drought comes into sight."