Digital health investors and analysts will see how Wall Street responds to digital health’s first U.S.-based initial public offering in 2023 before declaring another IPO window has opened.
Healthcare payment technology company Waystar announced its parent company, Waystar Holding Corp., had filed a registration statement on Monday with the Securities and Exchange Commission related to a proposed initial public offering. Waystar did not include pricing or the number of shares it will offer in its filing. The company said in the filing it would go public as soon as feasible, once the registration was declared effective.
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“The one company that we know is going to IPO and everyone's looking at is Waystar,” said Sofia Guerra, vice president at venture capital firm Bessemer Venture Partners. “Everyone's kind of waiting to see how that's going to go.”
In its filing, Waystar said it posted a net loss of $21.4 million in the first six months of 2023 compared with a $25.4 million loss during the same time period in 2022. The company’s revenue for the first six months of this year was $387.1 million, a 12% increase compared with revenue of $344.8 million for the same period in 2022.
A lack of profitability and an inability to accurately predict future business metrics has the potential to hurt any potential digital health IPO candidate, said Tom Cassels, president and CEO at Rock Health Advisory, a digital health and innovation strategy group. He said a greater share of digital health companies will have to show consistent, positive business metrics before the IPO market window opens again.
“We see [Waystar] as an outlier rather than a signal,” Cassels said.
Waystar isn’t the only healthcare company showing interest in a jump from the private to public market. Louisville, Kentucky-based home and community-based healthcare company BrightSpring Health Services filed paperwork in October 2021 but eventually withdrew the request in November 2022. According to a Bloomberg report, BrightSpring is again planning to go public and has confidentially refiled with the goal of raising $1 billion.
Virtual musculoskeletal company Hinge Health has expressed interest in an IPO and a month ago posted a job opening for a senior director of SEC reporting and technical accounting.
Waystar declined to comment beyond its news release. BrightSpring and Hinge Health declined to comment.
Learning from the IPOs of 2020 and 2021
Most investors and analysts say the digital health market is normalizing compared with 2020 and 2021 when valuations were high and companies had access to cheap capital. During the 2021 funding boom, many emerging companies were given ‘unicorn’ valuations of more than $1 billion and used that to go public. But since then, many of those same companies have struggled to achieve profitability, had to lay off employees, sell lagging businesses and even file for bankruptcy.
Read more: 7 digital health ‘unicorns’ that have struggled
Since early 2022, the IPO market has come to a near standstill. The last digital health company to go public in August 2022 was Akili, which has since faced its share of challenges.
Experts say a better understanding of the long-term growth metrics for digital health companies should mark the next IPO market.
“I actually think [with] the next cohort that goes public ... there will be a more fundamental understanding by the sector experts of how digital health companies should be valued,” said Steve Kraus, partner at Bessemer Venture Partners.
This could lead to starts and stops. Grocery technology company Instacart, which launched a healthcare offering in September 2022, went public in September of this year. The company has seen its shares decrease 25% from trading at $40 per share on its opening day to $25.41 at the end of day Wednesday.
Dr. Sunny Kumar, partner at venture capital firm GSR Ventures, said these kind of results could mean companies will hesitate in going public.
“It seemed like the [IPO market] was good for a week or two and then it closed off again,” Kumar said. “I think it might be a little while before it opens up again.”
Jordan Cohen, a partner specializing in healthcare at law firm Akerman, agrees that macroeconomic conditions need to improve to spur an uptick of companies going public. But he could see companies start to shift once an initial cohort goes public.
“I'm a bit hesitant to make any grand predictions here, but I do think that there has been a tendency, when the drip [of IPO activity] starts, for there to be some potential fear of missing out,” Cohen said.