Two staff members roll Amwell telemedicine carts at the entrance to the Benioff Children’s University of California Hospital in San Francisco (UCSF) in Mission Bay, San Francisco, California, during a COVID-19 coronavirus outbreak, March 16, 2020.
Smith Collection | Gado | Getty Images
As businesses across the United States see demand plunge after two months of economic closure and skyrocketing unemployment, investors are finding comfort in digital health, where the transition to remote services is taking place at a distorted speed.
From telehealth to telemonitoring tools, publicly traded companies and business-funded businesses are experiencing tremendous growth, helped by an insurance industry that is now paying for its customers to use non-traditional services while they are hosted on site.
Hospital systems report massive peaks in virtual visits. Ochsner Health in Louisiana, one of the coronavirus outbreaks, said it had conducted more than 120,000 virtual consultations to date this year, up from 3,300 in 2019.
“The things that were in 10 years are now here,” said Jake Dollarhide, CEO of Longbow Asset Management, which owns shares of Teladoc, a remote healthcare provider. “As companies wonder, do I need a permanent office or such a large office, they will also say how to save on health.”
Since the stock market peaked on February 19, the S&P 500 has fallen 13% at the close on Friday. During this period, Teladoc climbed 48%, while digital health management company Livongo more than doubled. One Medical, which offers in-person and virtual services, jumped 52%.
Health technology stocks versus S&P 500 since market peak
Private companies also thrive. Teladoc competitor American Well (Amwell) has announced that it has raised nearly $ 200 million in private equity, and Omada Health, which helps patients manage chronic disease, has just withdrawn $ 57 million. dollars. Another hot area is virtual mental health: Mindstrong announced $ 100 million in funding this week after LifeStance attracted $ 1.2 billion in April.
“What we have seen with Covid is that it has been the catalyst in many ways for people to rethink many different areas of life, and access to health care and its delivery are the one of the first and foremost, “said Brian Cuneo, global co-chair of the life sciences and healthcare group of the law firm Latham & Watkins. “We see a ton of innovation and a ton of capital flowing into these markets.”
Treatment with social distancing
Hospitals and clinics focus on patient safety at home while providing adequate treatment. The Centers for Disease Control and Prevention recommend that people who suspect Covid-19 coordinate a telehealth visit before going to the emergency room, where they risk exposing others.
At the same time, governments are easing the rules, making it difficult to grow telehealth businesses. For example, several states have made it easier for doctors to practice across states without requiring additional licenses, and the federal government has agreed to reimburse doctors equally for virtual and physical visits.
Steve Kraus, a partner of Bessemer Venture Partners who has been exploring the healthcare technology space for more than a decade, said it was a “sisyphus task” to advance telemedicine. The pandemic has changed the landscape.
“I said to my partnership,” Don’t think too much if the tail winds are behind us, “said Kraus. “Covid’s moment is real. If you don’t have to push consumers, it’s a lot easier to grow. So yes, let’s watch it.”
The market downturn can be seen more clearly with Livongo, which offers a coaching service that helps people manage chronic illnesses. After the company’s IPO in July, the stock lost more than half of its value over the next two months and remained virtually unchanged until mid-March.
Since then, stocks have almost tripled.
Glen Tullman, CEO of Livongo.
Adam Jeffery | CNBC
Livongo sells to large employers and health plans, which offer it to their employees and members. Earlier this month, the company reported a 115% increase in first quarter sales and raised its forecast for the year. At the same time, it announced a contract with the Government Employees Health Association, which covers more than 2 million people, to provide its digital tools for monitoring diabetes and hypertension and to help prevent diabetes.
Piper Sandler analysts believe the new contract could provide Livongo with an additional 10,000 clients this year, and said the company was able to resume business with Medicare beneficiaries, whose ages make them more likely to have high blood pressure or diabetes.
“We believe that remote monitoring of patients will be part of the” new normal, “” said analysts, who recommend buying the stock.
Livongo founder and executive chairman Glen Tullman predicted that hospitals will increasingly begin to separate the patients they need to see in person from those they can treat remotely. Home surveillance services are taking off, he said, as they help medical teams determine if a problem is urgent. For example, the company now extracts data from more than 20,000 blood pressure checks per hour.
Covid-19 “has been good for our business, which is hard to say,” said Tullman. “You never want to benefit from something so terrible, but we are where we are.”
Teladoc, which offers medical visits by phone and online, raised his forecast in its results report at the end of April, after remote visits had jumped 92% compared to the previous year.
The Teladoc application on a mobile phone.
“Suddenly, now we are in the future”
But even with the huge increase in demand, telehealth remains an expensive activity as companies need to hire expensive medical experts to grow.
Teladoc said its quarterly gross profit, or percentage of revenue remaining after subtracting costs of products sold, fell to 60% from 65% a year earlier in part due to $ 4 million in sales. additional investments made to rapidly increase response capacity to the COVID-19 outbreak. ”
The recovery of Livongo and Teladoc shares has significantly increased income multiples, with investors now betting that they will look more like high-growth tech companies. Teladoc trades at around 21 times its revenue, about double its five-year average, according to FactSet (the company went public in July 2015). This puts him in the same category as Slack and is more than twice the multiple of Salesforce. Livongo’s price / sales ratio of 26.8 has doubled since the end of last year.
Neither company is yet profitable on a GAAP basis. Livongo lost $ 5.6 million in the last quarter and Teladoc recorded a net loss of almost $ 30 million.
Yet investors are more optimistic than ever. Not only did Teladoc’s share hit a record in April, but the company just closed a billion dollar convertible debt sale, taking it from $ 800 million. The notes, which convert to equity based on the performance of the shares, carry an interest rate of only 1.25%. At the same time, Carnival is increasing its debt at a rate of 11.5% and Airbnb is paying between 9% and 11.5% on approximately $ 2 billion in new debt financing.
Meanwhile, Amwell is exploring an IPO, according to people familiar with the subject, and sees peaks of 1,000% in the total number of virtual visits, and even larger increases in certain geographic areas.
“No one has ever modeled this level of growth”, Dr. Ido Schoenberg, CEO of Amwell, told CNBC.
MDLive, another competitor in telehealth, claims to have seen its growth drop from its stable rate of 35% per year to 100% or more in the past two months. CEO Charles Jones said the company is on track to generate $ 115 million in revenue this year and is nearing profitability.
“This pandemic has only accelerated what we could have seen in four or five years,” said Jones in an interview. “Suddenly, we are now in the future.”
The Bessemer Kraus sees a lot of space for actors in distance medicine, because most telehealth companies have utilization rates of less than 10%, which means that if an employer offers the service, only one employee on 10 uses it. Kraus says that a third or more of medical problems can be resolved online.
“There is a ton of space to grow up,” said Kraus. “Telemedicine is well under-penetrated.”
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