Inovalon, a firm offering analytics to healthcare customers, is seeking $500 million in an initial public offering, the first digital health IPO of the new year. The Bowie, Md.-based company will be listed on the Nasdaq, according to a filing with the Securities and Exchange Commission.
The company counts several insurers, including several Blue Cross and Blue Shield plans, and Walgreen Co. as clients. It was involved as a subcontractor to National Committee for Quality Assurance in the development of the all-cause hospital readmission measure, which was later adopted by the CMS for its quality measurement program.
The company warns in its filing that its top clients account for a disproportionate share of its revenue. Through Sept. 30, 2014, its top 10 clients accounted for nearly 70% of its $271 million in revenues.
Unlike many digital startups, Inovalon has been consistently profitable. Through the first nine months of 2014, it garnered $ 51.8 million in net income compared with $26.9 million in the same time period in 2013. The firm's filing with the SEC notes that revenues and profits may be volatile, however, and that is reflected in its income statements.
Its net income went from $24.9 million in 2011 to $55.15 million in 2012.
Some of the themes of the broader digital health economy are present in the firm's filing. The scale of Inovalon's MORE2 registry, for example, demonstrates the potential size and reach of such databases. In 2011, the firm had 69 million unique patients' data in its registry. That number has grown to nearly 119 million through September 2014.
The registry features claims data, but also includes patient demographic data, medical record documentation, imaging report data and pharmacy data, among other items. These data allow the firm to run population stimulations, providing control groups to its clients, and thereby “design effective tools for improving their quality of care and clinical outcomes.”
The filing also outlines that Inovalon is interested in expanding to new markets including internationally, and possibly, direct to consumers. In the future, the firm believes its analytics can help consumers select “physicians, hospitals and treatments that best fit their individual needs.”
The filing does warn of weaknesses that worry the sector generally. HIPAA, it says, is a general barrier, and consumer and cultural opinion may become more rigid in protecting patient data.
It also laments the poor quality of healthcare data, which it calls, “fragmented in origin, inconsistent in format, and often incomplete.”
“The degree or amount of data which is knowingly or unknowingly absent or omitted can be material, and we frequently discover data issues and errors during our data integrity checks,” it concludes.
Big data and analytics have been a popular investment area for venture capitalists. According to Rock Health's year-end review of healthcare funding, big data and analytics was the most popular investment area among venture capitalists from 2011 to 2014, having raised $393 million.
Inovalon has largely stayed in the hands of its executive team, rather than of venture capitalists. The team collectively holds 73% of the firm's stock, according to the filing.
Follow Darius Tahir on Twitter: @dariustahir