The digital health market has seemingly caught fire in 2019, but it remains to be seen whether this blaze will continue or be snuffed out unceremoniously like a lit matchstick in the wind.

In less than two months since late June, four digital health companies — Health Catalyst, Livongo Health, Phreesia and Change Healthcare — have gone public. Peloton went public in October though it’s more a personal wellness company.

The four, with products and services ranging from patient monitoring systems to billing and data analytics software, have collectively raised nearly $1.6 billon from their IPOs. Peloton, which sells stationary exercise bikes, treadmills and a companion monthly subscription-based live and on demand service, raised more than $900 million before filing its intent to go public on June 6.

Health Catalyst, Livongo Health, Phreesia and Change Healthcare are all benefitting from being in the right place at the right time, said Jeff Zell, senior research analyst for IPO Boutique, a syndicate information rating service.

“They are basically capitalizing on the current sentiment being so strong in health care IT, ” he said.

Experts say the digital health sector is attracting public and private investments because of a combination of strong product offerings, increasing revenues, solid management teams, and big markets that have promising growth potential.

Health Catalyst, Livongo Health, Phreesia and Change Healthcare appear to have all of those factors in place, said Michael Greeley, general partner of Flare Capital Partners, a venture fund focused on health care technology and the digital health market.

“In the last four to five years you have had these companies mature into real businesses, and that is what we are so excited about,” Greeley said.

Another venture capitalist echoed his thoughts noting that the IPO flurry is in direct response to the individual companies’ track records.

“What we are actually seeing is what the market’s appetite is for things combined, health care technology and services that have significant revenue, which takes a very long time to achieve in health care,” said Lisa Suennen, managing director of Manatt, a legal strategy and consulting firm, where she runs the company’s venture fund and emerging companies practice.

Health Catalyst, based in Salt Lake City, provides data and analytics technology and services to health care organizations to help them run more efficiently. The company raised $182 million from its IPO, which debuted at $26 a share. Shares jumped by more than 50 percent on its first day of trading and were trading above $44 a share before the tariff-related back and forth between China and President Trump that caused a market meltdown on Friday.

According to its S-1 filing, the company believes its total addressable market is $8 billion, including $2 billion from its cloud-based data operating system, $3 billion from analytics applications, and professional services of around $3 billion.

The company ended the March quarter with revenue of $35.2 million, up from $20.6 million in the year-ago period. It ended 2018 with revenue of $112.6 million compared with $73.1 million in 2017.

New York-based Phreesia is also focused on boosting health care operation efficiencies. The company’s primary product is used to check in patients.  It has also expanded into other areas including payments, appointments, patient surveys and clinical support.

The company raised $167 million from its IPO. The shares were priced at $18. Shares were trading above $27 a share prior to the Trump-China inspired selloff on Friday.

Phreesia already appears to be making a dent in the health care market.  In its S-1 filing, the company said that during its fiscal 2019 ending in January it facilitated more than 54 million patient visits for approximately 50,000 individual providers including physicians, physician assistants, nurse practitioners in nearly 1,600 health care provider organizations in 50 states.  Phreesia also processed more than $1.4 billion in patient payments in the same period.

Revenue in the company’s fiscal 2019 year ending Jan 31 reached $99.9 million, up 25 percent from the year-ago period. In the three-month period ended April 30, Phreesia posted revenue of $28.3 million versus $23.9 million in the same period last year.

Nashville, Tenn.-based Change Healthcare is making its own push to increase efficiencies in the healthcare market with software and analytics products that target several areas including a company’s  overall financial performance, payment accuracy and financial, administrative and clinical transactions.

The company is owned by a joint venture, which includes McKesson and private equity firms Blackstone and Hellman & Friedman. McKesson owns about 70 percent of the company.

Change Healthcare raised $888 million from its IPO offering, priced at $13 a share. Shares are now around $15 a share.

Change Healthcare reported revenue of $855.6 million for its first quarter of 2020 ending on June 30 of this year, up slightly from $823.2 million in the year-ago period. It also reported net income of $71.9 million or 28 cents a share in the quarter.

During a conference call on Aug. 14 to discuss its first earnings report since launching its IPO, Change Healthcare’s chief executive  Neil de Crescenzo said the company is well-positioned to take advantage of its market opportunity.

“With more than 30,000 customers and 700 channel partners, we play a central role in innovating the way health care is managed and delivered,” he said. “We continue to hear from our payer and provider customers that our breadth of capabilities, data-driven insights, and scale are essential to meet their increasingly complex and ever-changing financial, administrative and clinical needs.”

Livongo Health, based in Mountain View, Calif., provides a health care platform for managing diabetes, hypertension, prediabetes, weight management, and behavioral health issues. Livongo raised $355 million from its IPO, priced at $28 a share. Shares ended the first day of trading up 36 percent. It was trading above $36 a share before the selloff on Friday caused by the Chinese trade war escalation.

According to the company’s S-1 filing, in 2014, 147 million Americans had one chronic condition and 40 percent had two or more chronic conditions. The company believes the market for addressing diabetes from patients in self-insured and fully-insured health plans through employers is $12.3 billion. Adults with diabetes receiving coverage under Medicare and Medicaid could expand the market opportunity by another $15.9 billion.

Livongo ended the March quarter with revenue of $32.1 million, up 157% percent from the year-ago period. Revenue of $68.4 million in 2018, jumped 122 percent from the prior year.

The combination of an increasing need for technology solutions in health care and a strong performance by these companies opened the door to the IPO market, Zell said.

“There is a need in a certain area of health care, whether its analyzing statistics or using technology to help doctors make better decisions,” he said. “It takes a while for these companies to mature… and most of the time investors want three years of revenue on the books so they can properly forecast out.”

Change Healthcare posted a profit in its first-quarter since launching its IPO. Even so, the company is still carrying a debt load of  $5 billion.

Phreesia, and Livongo have yet to post a profit.

But profits aren’t really much of a concern to digital health investors, at least not yet, said Suennen.

“Companies have to eventually figure out how to be profitable; you can’t raise money forever, but right now it seems that is not what is bothering people — they are going to give them time to get there,”  she said.

Peloton bike prices start at $1,995. There is also a $250 delivery and installation fee, and a monthly $39 fee for the service.

Greeley believes Peloton is a “hardware subscription story that is super compelling” to investors.

“The home is as good a setting for a workout, getting people active in the places they are most comfortable,” he said but pointed out that it is an expensive product.

While these companies are basking in the glow of a successful IPO – though Peloton faltered in its debut — digital health’s success in the public market is not without some cautionary tales.

Three companies — Castlight Health, Fitbit, and NantHealth — have all stumbled since launching their IPOs in 2014, 2015 and 2016, respectively.

Castlight, which makes cloud-based software to help companies better manage their health care costs, launched its IPO with a $16 share price.  The stock is now trading at around $1.40 a share.

Fitbit, a maker of wearable fitness monitoring systems, priced its IPO at $20 a share. Shares are now hovering at around $3.00.

NantHealth, best known for its cancer test software, starting trading at $14 a share. The stock is now at around 60 cents a share.

Analysts say reasons for these IPO stumbles are more related to internal missteps and unforeseen competitive disadvantages than a reflection of the digital health market.

Rock Health says prime digital health candidates for IPOs include telehealth platform company American Well; 23andMe, a consumer genetics and research company; HeartFlow, which makes medical technology that uses AI for creating a personalized 3D model of the heart; Proteus Digital Health, a maker of digital medicines to improve measurement of treatment effectiveness; and Welltok, which provides a SaaS platform for connecting consumers with personalized health improvement resources.

Greeley believes the digital health IPO movement is likely only just getting started.

“There are two dozen companies that have well over 100 million in (annual) revenues and they are private and venture-backed, and a bunch of people think they could be public companies,” he said. “All the investment banks are running around meeting with those companies, pitching them on the IPO process — that’s happening now.”

In other words, the IPO blitz may continue (provided of course the macroeconomy holds up).

Photo: champc, Getty Images