A few weeks ago, I talked about the failure of videophones.
For 50 years, they appeared in science fiction as an inevitable future communications tool, but when they became a reality, nobody wanted them.
With a few exceptions.
One of the biggest exceptions I cited was telemedicine. With video chats, texting, email, and other modern communications tech, doctors can virtually meet with patients and save unnecessary trips or keep a closer eye on persistent conditions that require frequent observation.
Based on recent filings with the Securities and Exchange Commission, there could be a new telemedicine IPO on the horizon.
Who is it?
The company is Teladoc Inc., and it recently submitted a confidential draft registration statement with the SEC for a potential IPO.
This type of confidential IPO filing has become an incredibly common way for tech and life science companies to go public. Thanks to a provision of the 2012 JOBS Act, companies with less than a billion in annual revenue can gauge interest for an IPO without having to open their books to the public. It’s kind of a safe way to guarantee a bigger pop when the stocks debut.
The elevator pitch for Teladoc is extremely simple: It’s basically a 24-hour support hotline for medical issues on your electronic health record (EHR).
Concerned patients submit an inquiry and get either a video or telephone call back from a certified, licensed doctor in an average of 16 minutes. The meeting with the doctor can go on as long as it needs to, and the information is logged on the patient’s EHR.
It’s just like setting up an in-person consultation, but it’s more or less instant, can be carried out wherever you are, and the record is accessible to all doctors.
It capitalizes on the still-developing practice of keeping EHRs and utilizes whatever communications technologies are available. If patients don’t have an EHR already, Teladoc makes one, and it can be used anywhere.
Setting up a consultation requires credit card information beforehand, and it is a qualified expense for HSA, FSA, and HRA accounts.
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A Rough Landscape
The real question is whether or not this type of company even has a future.
As you’d expect, the telemedicine industry is still developing, and the biggest cheerleaders are those working within it.
“Telemedicine-related ventures have become a major interest by a variety of private investors over the past 18 months with over $350 million raised in the first quarter of this year,” Jonathan Linkous, CEO of the American Telemedicine Association, said earlier this month. His organization has its annual summit scheduled for the first week in May in Los Angeles.
A look at some companies similar to Teladoc might engender a little less optimism.
San Francisco-based telemedicine company Castlight Health (NYSE: CSLT) went public and raised $178 million in its offering. On the first day of trading, the company was valued at nearly $3 billion, with shares trading at $40.
One year later, it’s a different story. Shares of the company have consistently slid since the IPO pop, and they’re currently trading at less than half of the IPO price of $16.
It should be noted that Castlight also opted for a confidential IPO filing.
Today, Castlight is on the receiving end of a lawsuit from shareholders who allege the company failed to disclose that it was having deployment issues in its IPO prospectus. Investors didn’t know that the company was actually in trouble.
“Castlight’s technology was not adequately scalable to achieve growth in revenues and reduction of costs to reach significant profitability. As a result of the scalability issues, many of its customers were not renewing their contracts,” securities law firm Dunnam and Dunnam said in a statement.
Looking back over the history of telemedicine doesn’t yield much in the way of great investing news, either.
Baltimore-based company Visicu Inc. provided remote video monitoring for ICU patients. It made $10 million in net income and $18.4 million in revenue in 2005. When it went public in 2006, shares debuted at $16. In the first day alone, six million shares were traded, and value soared by as much as 59%.
Not even a year later, the company was acquired by Philips Inc. (NYSE: PHG) at a price of $12 per share, lower than the company’s debut valuation and closer to the initial pre-launch value of between $11 and $13.
Telemedicine isn’t junk; it’s a viable implementation of communications technology. But investing in telemedicine becomes a question of a company’s execution and the strength of its contract pipeline.
A confidential IPO does not give investors any insight into either of these questions.
Good Investing,
Tim Conneally
For the last seven years, Tim Conneally has covered the world of mobile and wireless technology, enterprise software, network hardware, and next generation consumer technology. Tim has previously written for long-running software news outlet Betanews and for financial media powerhouse Forbes.
