Category: Health Tech

Update on LTBH Portfolio: SHOP, SNAP, TDOC and ATOM

Posted on by io-fund

Shopify: Increasing LTBH Position

We made a point to cover Shopify last December to emphasize that we did not believe the company was covid-dependent. We spelled out exactly why we were writing a second LTBH PDF on the company during a time of doubt for “covid stocks” (and during the exuberance for small caps).

Most importantly, the trends we outlined in December were recently confirmed in the most recent earnings report. This is what we want to see – analysis that gets in front of results so that we can confirm our ongoing conviction and increase our position (transparently with real-time trades).

The reason we want to increase our position in Shopify throughout the year is fairly straight forward – Shopify is now reaching billions of consumers through social media. The distribution potential of these partnerships reminds me of an avalanche trigger as Shopify will reach billions with Facebook and Tik Tok and hundreds of millions with Pinterest. Now, they only need to build out the Fulfillment Center and focus on improving their own app; although borrowing these mega size audiences is probably the fastest path to growth for our purposes.

I don’t believe Facebook will let Shopify dominate its platform, so keep an eye out for attempts to strengthen Facebook Marketplace. I’m not too worried because Shopify has merchant relationships and it’ll be hard for Facebook to replicate their business model although they may certainly try.

Here are some highlights regarding Social Commerce from the call:

· “The number of shops actively selling on Facebook Shops has more than quadrupled since Q1 a year ago, as well as the GMV through Facebook. While still small, the launch of Facebook Shops in May of last year is clearly starting to make a difference here.”

· “In Q1, we expanded our marketing partnership with TikTok internationally to an additional 14 countries in North America, EMEA and APAC. So far, we've seen good traction in the adoption of TikTok in the U.S. since we launched the integration last October. And we've recently expanded our Pinterest channel into 27 additional markets, opening discoverability and sales opportunities worldwide.”

There are many exciting things going on at Shopify, which we’ve covered at length in the past, including the Fulfillment Center and Shop Pay. Most importantly, we covered exactly why Shopify had taken market share from Amazon and eBay shortly after we launched our premium site. Access October 2019 analysis here.

We also covered Shopify’s positioning in terms of taking over eBay here when we re-iterated our LTBH conviction back in December of 2020. We had been discussing why this was important leading up to the report, and why moving from third position to second position was key for investors during a time of doubt for Shopify.

We also discussed in the LTBH PDF in December of 2020 that “e-Commerce is eating retail” and the various demographics that a company like Shopify can target when partnering with social media apps. The younger demographics is key for social commerce.

To summarize, there are a few reasons that Shopify is set to continue its winning streak and why we plan to increase our position:

1. New distribution channels will reach billions of customers via social media

2. Product-market fit to be achieved in 2021-2023 (we covered this in 2019)

3. Social media spending on ads will increase 18% this year as covered in our free newsletter

4. Second place and has overtaken eBay (we covered this in December)

5. Behavioral ad targeting coming under pressure with Apple’s IDFA – look for an increase in social commerce to offset the shift towards potentially lower CPMs.

Underlying key metrics on Shopify were strong and covered by CNBC here. Shopify’s Q1 2021 Results can be found here.

Snap: Increasing LTBH Position

We were the first to talk about Snap as an AR/VR stock. The story is moving faster than we previously predicted and we hope you remember the site that brought you this trend first. J

One day, every person on Twitter will say “Snap was clearly a AR/VR story from the beginning” but nobody is talking about this right now. In fact, it’s buried under Facebook’s beat, Pinterest’s DAU concerns and Twitter’s nose dive.

Our job is to talk to you about future trends, and to also silence the noise during periods of extreme sentiment or even around earnings (lots and lots of noise around earnings). We wouldn’t want to add to that noise and assume you read the highlights of any companies you own from the dozen or so sources who cover them.

What’s not being spoken about is that Snap owns the perfect audience for AR/VR. Facebook is in a dilemma here as their subscribership skews older and are less likely to adopt a visually stimulating technology. We will see as time goes on but our money is on Snap. What is the 18-35 year old demographic and also the under 18 demographic really worth? We have yet to find out. Where most tech companies must aggressively take market share or compete at a high level, Snap has to simply keep doing what it’s doing.

Here is the more important take-aways and why are looking to increase our position:

· The company is positive free cash flow for the first time and has strong forward EPS growth this year and next year

· Off-platform AR opportunities such as Camera Kit plus partnerships with companies like Samsung and expanding Android base to reach audiences outside the United States

· Ability to surface premium content through Spotlight and Snap originals and augment these with AR; i.e., Snap is moving beyond social media into original content

· Increased monetization opportunities with AR merging with e-commerce. An example of a successful campaign can drive 30%-40% lift in incremental sales

· Although DAU growth is slow in the United States, it’s strong internationally at 57% this past quarter for Rest of World. Forward growth of 22% on DAU next quarter is impressive considering tough covid comps

· United States ARPU is on a tear at 66% growth leading to 75% revenue growth in this region. Rest of World ARPU is also healthy at 46% growth YoY. Strong guidance on revenue of 85%

Probably the most important statistic from the ER is of the countries that comprise over half of the world’s digital ad spend, Snapchat reaches 70% of 13 to 34-year olds. We want to be AR/VR investors and this is the correct demographic for this trend. Plus, this is important for targeting purposes assuming we do see the IDFA changes from Apple.

Telehealth: We remain in Teladoc …but also still like Amwell

If you want to know what it feels like to invest in the early stages of a trend, telehealth is the perfect example. Remember when I said Nvidia would be an AI leader and dominate the data center, and then there was negative growth in this segment for the first two quarters after my analysis? Seems preposterous that the data center was a low-yielding segment for Nvidia and had negative growth YoY with barely a blip being reported from AI only two years ago.

However, Nvidia/data centers is not an apples-to-apples example for Teladoc because this company faces a much bigger challenge … and nobody knows how it’ll turn out.

I’m not talking about the need for the health insurance companies to reimburse telemedicine permanently (rather than a temporary covid provision). I’d consider this a hurdle and one that I think telemedicine will clear over time.

The big challenge I am talking about is the incredible amount of competition that Teladoc faces. There are many startups receiving funding in the private markets. Zocdoc, a professional booking platform for doctors, launched video consultations last May with the help of Twilio. The company raised $150 million in its last round. Kry is a company popular in Europe that has helped over 3 million patients see a doctor, nurse or psychologist. The company recently closed a $312 million Series D round after its telehealth tools grew 100% year-over-year. Epic Systems, a medical records software company that is used by 54% of patients in the United States, also tapped Twilio for telehealth video conferencing at the start of covid.

Last year, health-tech funding broke records in 2020 with $15.3 billion in funding in the private markets, up from $10.6 billion in 2019. For the first time, healthcare surpassed biopharma with 614 total deals.

Health insurance companies are also in the space, such as United Health Care, with a motivating drive to offset reimbursement costs. This many players commoditizes telemedicine and puts pressure on pricing. This isn’t reflected in the current earnings right now, and in fact, Teladoc is able to increase revenue per user. However, the market is growing nervous because key metrics are flat and there is uncertainty as to how telemedicine will perform in a post-covid world.

Telehealth Trend Overview:

Prior to 2020, telehealth was projected to grow at a CAGR of 25.2% with the global market growing from $61.4 billion in 2019 to reach $559 billion by 2027. The global market is especially important to ensure healthcare is available in remote areas of underdeveloped countries. Internet access remains a barrier for telehealth in remote regions, such as rural India for instance, which has a 20.2% high-speed internet penetration.

In the United States, telehealth was a $26 billion market in 2019.

According to the Centers for Medicare and Medicaid Services, the U.S. spent 17.7% of GDP, or 3.6 trillion on health care in 2018, partly due to an increase in mental and chronic health conditions. The study also highlights that patient monitoring is popular with the elderly with 1 million remote cardiac monitors being used in America.

There is no denying that telehealth had a breakthrough year in 2020. Despite the many breakthroughs ushered in by covid, such as remote work (Zoom, Teams), gym workouts at home (Peloton) and online shopping (Etsy, Overstock), telehealth showed the most rapid growth by far of nearly 4,000% growth across key metrics. Therefore, it’s understandable that the market is attempting to weigh what the growth in telehealth will look like after the one-time event of 2020.

In addition to the market and management attempting to predict what a normal rate of growth will be, the telehealth trend is dependent on federal and state legislation dictating how private payers reimburse telehealth. Full reimbursement is called “payment parity.”

There are 43 states that have some state telehealth statute for commercial payers, yet only 22 states maintain laws that address telehealth reimbursement with a mere 14 states that offer payment parity for telehealth. This is up from 16 and 10 states in 2019.

In the meantime, temporary waivers were offered during covid. We’ve covered in the past how the federal government has passed telehealth bills for Medicare under the CARES Act and other covid legislation. As of now, many of the temporary waivers and emergency legislation is set to expire 90 days after covid’s emergency status is removed.

According to Blue Cross Blue Shield of Massachusetts, the insurance company will continue to support and cover telehealth. However, states like New Hampshire are discussing a bill that would eliminate payment parity as the bill asserts that in-patient care should be paid at a higher rate than telehealth. Opponents point towards mental health and substance abuse as primary reasons the bill should be struck down.

Teladoc ER Overview – Big Revenue Growth but Flat Key Metrics

Teladoc beat on revenue of $453 million, representing 151% growth. The company raised guidance for the year to $2 billion at the mid-point for FY2021 for an increase of $20 million. Revenue in the United States was up 175% and international up 29%.

Despite a strong report on revenue, Teladoc reported a net loss of $1.31 per share – missing expectations by $0.71 for a net loss of about $200 million. This partly contributed to the stock selling off nearly 12% since the report. According to management, “the larger net loss was primarily attributable to increase stock-based compensation, amortization of acquired intangibles, and income tax adjustments primarily related to the merger at Livongo.”

Gross margins increased to 67% up from 59.2% in the year-ago quarter. The adjusted gross margin was 67.8% compared to 60% in the year-ago quarter.

Total visits were up 56% to 3.2 million with the number of consumers enrolled in more than one chronic care program “tripling year-over-year.” The United States made up the bulk of this growth at 69% with international growth at 8%.

Forward revenue guidance is quite strong for Teladoc in the next quarter with $500 million at the mid-point on revenue and positive adjusted EBITDA of $61 million to $64 million up from $56 million adjusted EBITDA in the current quarter.

The management points towards increased revenue per customer as to one reason they are able to sustain this level of revenue growth. Average per member per month (PMPM) was $2.24 in the first quarter, up from $1.76 in the prior quarter. According to management, of the $0.48, half was driven by an extra month of Livongo revenue in the first quarter.

The key metric that showed lower growth (and was most alarming) was 20% growth in paid memberships from 43 million to 51.5 million and 15% growth in U.S. Visit Fee Only access from 19.2 million to 22 million. Forward guidance on this important key metric is expected to be in the range of 52 million to 53 million – in other words, flat sequentially.

For full year, the guidance isn’t much better for this metric with paid membership in the 52 million to 54 million range. Visit fee access is also flat per guidance at 22 to 23 million for FY 2021.

Pictured above: Teladoc US Paid Members are to remain flat year-over-year (YoY)

Total visits are re-accelerating, however, from a plateau in Q2-Q3 2020 where the company stagnated at 2.3 million and 2.4 million, or growth of about 100K visits. Teladoc grew to 200K visits in the last two quarters and is guiding for growth of 400K to 600K visits between Q1 and Q2 2021.

The utilization rate is also climbing, which is important to note. Telemedicine utilization is equal to the number of consults divided by the number of covered employees. Industry averages were between 1-10% prior to covid, yet we see strength in this number sequentially even after many doctor offices have opened up. Besides showing the penetration of telemedicine, the number is important because it affects the cost savings to employers.

Data points from Livongo are also growing nicely and actually accelerated in the most recent quarter compared to when Livongo was a standalone company in Q1-Q2 2020.

Teladoc has strategically added debt over the past several years as the company focuses on growth at all costs.  TDOC ended Q1 with $1.35B in long term debt and $723 million in cash. 

While debt has increased notably over the past year, Teladoc’s balance sheet still appears to be in very good health.  Teladoc’s Debt to Equity Ratio currently stands at 0.086, which is near its 5 year low.  A low debt to equity ratio indicates lower risk, because debt holders have less claims on the company's assets.

A Debt to Equity Ratio under 1.0 is ideal because it indicates that for every $1 of equity, the company has less than $1 of debt.  In the case of TDOC, we are seeing a strong Debt to Equity ratio of 0.086 that has improved over time, even as the company has taken on more long-term debt.

Teladoc also has a strong Debt to Assets ratio, which is a ratio used to determine how much debt a company has on its balance sheet relative to total assets. 

A Debt to Assets ratio under 100% is ideal because it indicates that the company owns more assets than debt.  The lower the Debt to Assets Ratio, the less risk the company is carrying on its balance sheet.    

Teladoc’s Debt to Assets Ratio is currently standing at a healthy 7.7% and near a 5-year low.  Teladoc’s Debt to Assets Ratio means the company is backed by 7.7% of debt, which is a significant improvement from 2020. 

While Teladoc’s debt has increased over time, it is much more a factor of a company that is in hypergrowth mode than a company that is struggling financially. This becomes evident when we compare Teladoc’s long-term debt to its equity and assets. Management appears content to strategically use debt in order to fuel growth. This is not uncommon for a company in hypergrowth mode and it is evident in analyzing Teladoc’s balance sheet that the company’s debt is at sensible levels and not a major risk to the business. 

Valuation

Teladoc is now valued at 13.58x forward revenue after peaking above 25x at the end of 2020. 

In comparison to some others in the space, TDOC looks attractively valued with forward growth expected to eclipse 80% in 2021. The other three stocks we listed for comparison (VEEV, GDRX, AMWL) are not projected to eclipse 40% YoY revenue growth in 2021. 

In Q1, legacy Teladoc grew roughly 69% YoY and 9% QoQ.  Below is a breakdown of Teladoc’s revenue mix in Q1 from Credit Suisse:

Credit Suisse notes that it is not an apples-to-apples comparison as if Livongo were still a standalone company due to the realization of deferred revenue following the acquisition of Livongo. We are still seeing strong growth from Livongo and legacy Teladoc with 9% and 10% QoQ growth rates, respectively.

It should also be noted that InTouch is now part of TDOC’s single Hospital & Health System business. In Q1, TDOC’s Hospital & Health System business grew YoY as well as QoQ.

There is some investor concern about TDOC missing on EPS two quarters in row, with both misses being caused by expenses related to M&A. 

While some Teladoc’s M&A has been more expensive than originally thought in the short-term, this does not affect the long-term thesis. Teladoc is built to be able to incur short term losses and focus primarily on top line revenue growth.

Amwell:

We closed our Amwell position after the company provided low revenue guidance for FY2021 and analyst estimates also showed low revenue guidance for 2022. We simply can’t force timing on a trend even though we continue to keep Amwell on our radar. Notably, Knox trimmed Teladoc in the high-$200s as his technical were also telling us we were too early to the trend.

After Teladoc’s earnings report, there were a few press releases that telehealth has become commoditized. If we were talking strictly about the ability to have a video call with a doctor, then this would be true. But obviously, the goal is how to provide multiple data touchpoints for virtual care. Teladoc has moved into remote monitoring while Amwell is gearing up for AI assistants/carts.

What is intriguing about Amwell is the Google backing, which we covered in the Amwell PDF last year. Google has $100 million of stock in the company with plans to merge AI with health care, including digital waiting rooms, language translations, offloading tasks from the provider to conversational AI and to help manage chronic conditions. Anthem is a large client of Amwell’s and accounts for about 25% of revenue.

The company’s customers often deploy telemedicine through a variety of proprietary Carepoints, which are medical carts and kiosks designed for various clinical and community settings. The company also offers software development kits (SDKs) and APIs to integrate telehealth digitally and to embed into workflows. This includes web and mobile apps, 24-hour nurse and customer support, and electronic health record (EHR) software.

On the same day as Teladoc’s earnings report, Amwell released an announcement on their new telehealth platform that will allow developers to host and deploy telehealth applications. The platform offers a single code base to build a unified care experience to develop apps that utilize Google Cloud’s AI and NLP technologies, TytoCare’s handheld exam kit, connections to clinic physicians (looks like the beta version will be in Cleveland), and Biobeat’s patient monitoring devices. I assume the list of integrations will grow over time.

The new platform may not change Amwell’s revenue trajectory in the short-term but it’s certainly something we are keeping our eye on.

To be frank, we don’t with who the winner is between TDOC and AMWL as long as we get to participate. Therefore, the I/O Fund is remaining flexible between these two and will be looking for signs of strength to determine what position(s) we hold and our allocation as time goes on. Notably, there is a lot of deal flow in the private markets because this a big market to crack for the company who does it.

Atomera:

You can read my update regarding Atomera on the forum here: https://community.beth.technology/post/atomera-update-608b8644ea42db67cf9b54b4

Two Stocks to Play a Biotech Bottom

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Biotech Sector (XBI)

XBI is the ETF that tracks the S&P Biotechnology Select Index. This ETF is equal weighted and distributed amongst small, medium and large cap companies. It’s one that I use as a proxy for the biotech industry.

Relatively speaking, this sector performed poorly over the last 3 weeks.

That being said, any attempt to buy biotech right now would be a countertrend move, which comes with risks. Stocks in motion tend to stay in motion; however, there is evidence that we could be approaching a bottom, which could provide an opportunity.

Note how XBI is finding support at the $139-$141 price region. This is a heavy confluence of important prices. Furthermore, the RSI, CCI, and Accumulation/Distribution lines are all diverging, suggesting that the selling pressure is fading.

The Accumulation/Distribution line implies that smart money is beginning to buy at these levels. This is further backed by the volume patterns declining into the correction, implying that the sellers are drying up. Also, note the two large green volume spikes. These are signs you look for when looking for a potential bottom.

Two Biotech Stocks we like

Please note, we have looked at these stocks fundamentally but will lean heavier on technicals for Biotech as the space is complicated and requires domain knowledge to trade purely on fundamentals.

Sarepta Therapeutics (SRPT)

SRPT is setting up for a nice breakout above the $180-$185 region. The targets on this move will be the $425-$570 region if confirmed. Also, there are several levels in play which need to be monitored.

The $167-$176 region signals a breakout for the large base formed since it topped in June of 2018. Also, note the ascending inverse head and shoulder pattern that is also at play (in green). Price failed to breakout from the neckline around $180-$182. Since then, we are seeing a retest of the $167 region.

I’d look for a buy at the lower trend channel on any weakness, which is implying support between $128 – $135, depending on how fast it gets tested on any weakness. If we do not see this caliber of correction, we will be looking for a breakout buy on this position.

Sangamo Therapeutics (SGMO)

SGMO is setting for a multi-year breakout. The chart appears to be tracking a leading diagonal pattern, which is overlapping, with sharp moves, yet trending up since 2003.

I believe that we are in the final 5th wave of this leading diagonal pattern, which can take us well into 2021, if confirmed and held. We will be playing the $19.25 breakout on this move.

Amwell: IPO Analysis

Posted on by io-fund

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Amwell: IPO Analysis

Introduction:

Please reference the Telehealth PDF which discusses why we are bullish on the telehealth trend and reviews three additional companies in the space: Teladoc, Livongo and Veeva. Telehealth PDF which discusses why we are bullish on the telehealth trend and reviews three additional companies in the space: Teladoc, Livongo and Veeva.

We are very interested in the Amwell IPO and will attempt to initiate on opening day. Please see the valuation section for the range we are targeting. 

Amwell’s mobile and telehealth platform connects patients with doctors over video and handles administration. As of June 30th, 2020, the company powers the digital care programs of 55 health plans – which equates to 36,000 employees and 80 million insured. The company also works with 150 of the nation’s largest health systems, encompassing more than 2,000 hospitals. 

Amwell’s growth has accelerated substantially from 31% year-over-year in 2019 to 77% year-over-year in H1 2020. Net losses increased in both the fiscal year and the first six months of 2020. We review this in more detail below.

There are three classes of shareholders with Class A common stock, Class B held by the founders at 51% of voting power and Class C common stock. Google Cloud has agreed to purchase $100 million of the Class C common stock in a private placement. 

There was an announcement in late August announcing Google Cloud’s partnership with Amwell. The announcement discusses how Google Cloud plans to merge AI with health care, including digital waiting rooms, language translations, offloading tasks from the provider to conversational AI and to help manage chronic conditions. The announcement is worth a read.  

Telehealth is a microtrend we covered in June with an increase of 3,000 to 4,000% in telehealth patient volume. Facilities such as NYU Langone Health saw 7,000 video visits per day or about 100,000 video visits in April compared to 300 visits per month pre-pandemic. According to American Telemed, three-quarters of U.S. hospitals are using digital technology to reach their patients via video, audio, chat, or email. You can read more here in the Telehealth PDF.  

According to Amwell’s S-1 filing, healthcare expenditures in the United States more than doubled from $1.3 trillion to $3.6 trillion from 2000 to 2018. In 2019, the average employer health insurance was $20,576 representing an increase of 54% over the last decade. Meanwhile, health system operating margins declined by 39% as margins were impacted by reimbursement pressures and increased cost structures. 

Telehealth addresses these issues and mitigates rising costs. An urgent care telehealth visits costs $79 before insurance compared to a visit cost of up to $150 for urgent care and $1,389 for the emergency room plus any additional services rendered on-site. Some plans will offer telehealth visits at $0 to avoid the high cost of these in-person visits.

The temporary federal policy changes that allowed health care providers to expand telehealth and mHealth for the covid-19 emergency had an expiration date that was extended by HHS secretary Alex Azar from July of 2020 to mid-October. 

There is pressure from all sides to approve a dozen or more telehealth bills that would make telehealth coverage permanent and/or to expand coverage for Medicare. For instance, the Telehealth Modernization Act, the CONNECT for Health Act, Protecting Access to Post COVID-19 Telehealth Act, and many more.  According to reports in July, there were 340 health care organizations that published an open letter asking Congress to enact permanent changes to telemedicine regulations. The pressure is bi-partisan. 

Anthem is a large client for Amwell and accounted for 23% of 2019 revenue. The risk of high concentration in one customer is muted as Anthem owns 3% of Amwell’s outstanding shares. Furthermore, AMG clinical visits represented 51% of H1 2020 revenue (see below).

We expect the telehealth trend to continue being a dominant trend this year and into next year due to patient demand, easing government regulations around telehealth coverage, and from more doctors and health care providers seeking to reach as many patients as possible as quickly as possible. 

Amwell Overview:

The Amwell platform is a complete “digital care delivery solution” that provides tools to enable new models of care for patients and members. Amwell’s primary function is to facilitate consultations between patients and providers.

The company sells the Amwell platform on a subscription basis. In order to support the Amwell Platform, the company offers professional services on a fee-for-service basis and a range of patient and provider access Carepoints that support hospital and home use cases. 

The company’s customers often deploy telemedicine through a variety of proprietary Carepoints, which are medical carts and kiosks designed for various clinical and community settings. This is digitized approach is likely why Google is interested as these access points range across desktop, mobile devices, console kiosks, enclosed kiosks, polycom-codec based carts and Cisco-codec based carts (pictured below).

Module offerings include Acute Behavioral Health, Urgent Care, Speciality Consult, School Health, Telestroke, Behavioral Health Therapy, Retail Health, Triage in the ED and Dialysis.

The company offers software development kits (SDKs) and APIs to integrate telehealth digitally and to embed into workflows. This includes web and mobile apps, 24-hour nurse and customer support, electronic health record (EHR) systems — including Cerner and Epic – with the ability to launch telehealth visits from within the EHR, and administration functions, like enrollment.

Subscription fees are recurring and are determined by the initial forecast of the number of overall consultations throughout the entire health system on the Amwell Platform and net patient revenue of the health system. 

Subscriptions include a maximum number of consultations, when it exceeds the contractual maximum, overages result in higher subscription fees in the following annual period.

The company also provides access to AMG, the company’s affiliated medical group that provides clinical services on a fee-for-service basis. Amwell’s contracts are typically three years in length or longer. AMG services are provided on a fee-for-service basis. These clinical fees vary significantly from $59 to more than $800 per consultation or case based on the specialty and may require an additional module subscription, such as telepsychiatry.

Amwell’s partner AMG has built a network of over 5,000 providers who are registered and credentialed to deliver care on the Amwell Platform. AMG earns fee-for-service revenue for each episode of care delivered on the Amwell Platform by its providers with fees varying by physician specialty or clinical program. Health systems often choose to purchase clinical services from AMG to deliver care for certain specialties, such as telepsychiatry, behavioral health therapy and general urgent care, or as backup for off-hours. 

Amwell’s Growth:

Here’s a visualization provided by the company in the S1 that shows how the telehealth microtrend is playing out on the provider level and the tailwinds this has provided to Amwell:

Here’s how monthly visits across customers has grown with some of the numbers retreating once shelter-in-home restrictions were lifted. Visits in April 2020 were as high as 40K per day compared to 3K per day in April 2019 and 5,500 visits in January and February.

There is overlap with Teladoc and Amwell, yet Amwell has more of a slant towards emergency and urgent care services. The company is also distributed across more kiosks and “care points” and is centered around two major partnerships (AMG and Anthem). Anthem began using Amwell for urgent care in 2013 with psychology and integrated EAP added in 2016 (this is where Teladoc competes). According to the S-1 filing, if the Anthem-Amwell product “LiveHealth” had not been offered, then 6% would have gone to the emergency room, 42% to urgent care and 33% to a physician’s office. 

Finances:

Amwell reported revenue growth of 31% year-over-year to $148.9 million in 2019. The company saw phenomenal revenue acceleration of 77% in the first six months of 2020 from $69 million to $122.3 million for an annual run rate of $244.6 million.

There are worsening losses in both periods. Net losses increased year-over-year from negative $52.7 million in 2018 to negative $87.2 million in 2019. For the first six months of 2020, net losses increased from negative $40.7 million to negative $111 million, or $222 million annual run rate for losses. This will represent an increase of over 200% year-over-year.

The company had cash and investments of $262.7 million and no debt as of June 30th.

Subscription fees received from health system clients totaled $27.3 million for the year ended December 31, 2018, and $38.8 million for the year ended December 31, 2019, respectively, and $17.9 million for the 1H 2019 ended June 30, 2019, and $23.6 million for the 1H 2020 ended June 30, 2020.

According to the S-1 filing, the subscription revenue market for health plan and health system customers is $8.7 billion and $3.7 billion, respectively. The company believes the 290 million that are insured in the United States are potential customers. They have identified 802 health systems that could benefit from Amwell. 

The urgent care market is $18.2 billion. According to a 2016 report referenced in the S-1, there are 883 million ambulatory care visits in the United States. Amwell states 35% of these visits, or 309 million could be handled through telehealth. 

Revenue Mix

The company has a mix of revenue from health systems, health plans and AMG paid visits. As of June 30th, the company had 55 health plans (covering 80 million lives) and 150 health systems (more than 2,000 hospitals). AMG’s active provider network grew 145% year-over-year to a total of 3,800 active providers. 

For the year ending 2019, where total revenue was $148.9 million, 57% was platform and 27% clinical visits. 

•       $38.8 million in Health Systems revenue, or 26% 

•       $30.6 million in Health Plans revenue, or 20.5% 

•       $40.7 million in AMG Paid Visits, or 27.3% 

•       11% Sales of additional services

•       5% Care Points/Hardware

In 2020, the Amwell platform (Health Systems and Health Plans) represented 38% of revenue while clinical visits represented 51% of H1 2020 revenue. Here we see that the 2020 growth was primarily driven by AMG. 

Risks:

The relaxation of regulatory and reimbursement barriers could be temporary without support from Congress, especially for Medicare. Telehealth is a new trend that could slow once there is a vaccine and treatment for the coronavirus. Amwell believes their partnership with AMG and adherence to HIPAA regulations will cause them to stand out over time and even in the face of a return to tighter regulations. 

AMG is a very large concentration of revenue although this partnership does not appear to be at risk at this time. Per the Revenue Mix section in this analysis, it should be noted the revenue acceleration we saw in H1 2020 came from AMG clinical visits rather than the platform. 

The net loss increase is substantial, with the net loss-to-revenue ratio increasing from 46% to 93% between FY2018 and H1 2020.

Valuation:

Amwell plans to raise $525 million by offering 35 million shares at a price range of $14 to $16. The company will raise an additional $100 million in the private placement with Google. At the midpoint, this places Amwell’s diluted market value at $3.6 billion.

Amwell Valuation Table

$3.6 billion $4.0 billion $4.5 billion $5.0 billion

TTM Revenue $202 million 17.8 19.8 22.2 25

Current Year 70% $330 million 10.9 12.2 13.6 15

Forward Revenue 70% $415 million 8.7 9.6 10.8 12

1-year Forward 60% $665 million 5.41 6 6.8 7.5

1-year forward 80% $747 million 4.8 5.4 6 6.69

We can comfortably go up to a $6.6 billion valuation and still trade at the forward P/S of Teladoc, which saw a similar range of revenue acceleration from 30-40% pre-covid to 85% post-covid. Livongo is not the best comparable as the company reported much higher revenue growth of 100%+ both pre-covid and post-covid.

Therefore, we will go as high as $6 billion market cap on opening day. The risk is that the addressable market is not very large at this time relative to market cap. We are comfortable with this risk in light of the strength in the telehealth trend.

IoT Medical Devices: Our Scariest Security Threat Yet

Posted on by io-fund

IoT medical devices may be our scariest security threat yet. Implanted devices such as pacemakers draw big headlines for security threats. However, there are 36,000 other health-care related devices in the United States that are discoverable on the connected device search engine Shodan – which doesn’t even take into account the global level of unprotected devices (source: Wired).

In fact, U.S. hospitals have an average of ten to 15 connected IoT medical devices per bed with some hospitals registering 5,000 beds (or 50,000 connected devices). Therefore, the magnitude of the risks associated with these medical IoT devices is a gripping proposition.

Most hacks will not be a life or death situation, although a few exposed vulnerabilities could be potentially fatal, such as with Johnson & Johnson’s insulin pumps, which could potentially administer a fatal dose of insulin, or the Animas OneTouch Ping with a vulnerable wireless controller. The most common hack is for medical records, which can be sold on a Dark Web aftermarket with a value of $500 per Medicare or Medicaid record [2] . As The Hill reports, tens of millions of electronic health records have been compromised over the last few years, whereas there has not been a single implant device death or documented patient harm, according to Zach Rothstein, associated vice president of the Advanced Medical Technology Association. In 2015 over 113 million personal health records were compromised, up 9x from 2014, according to the Department of Health and Human Services (DHS).

While medical record theft and device hacks are well documented, there are many reasons hackers target the vast array of medical devices on the market. Ransomware is the practice of taking over a mobile app until a ransom is paid. A similar exploit can be performed on hospitals by entering a weak point, such as unsecured wireless connections, to access the system and take it over for a ransom. For instance, the Los Angeles Hollywood Medical Center had to pay hackers $17,000 to regain control of critical computer systems [3] . A similar attack also occurred in Mount Pleasant, Texas, where a hospital had its core electronic medical system knocked offline until a ransom was paid. According to those in the security industry, while ransomware attacks are prevalent, they are rarely made public for a variety of reasons.

Other reasons hacks that can occur include changing medical records for allergies or diagnoses. There is at least one case where medical devices were hacked to disseminate information and change stock prices, such as with Muddy Waters, a short selling firm that hired a boutique cybersecurity firm to conduct test attacks on a St. Jude’s pacemaker from 10 feet (3 meters) away, but up to 100 feet with an antenna and software defined radio, according to Reuters.

Medical devices extend beyond healthcare facilities and now overlap with mobile apps, as well. Last year, the Medicines and Healthcare products Regulatory Agency (MHRA) has issued updated guidance today to help identify health apps that are medical devices – and how to secure these mobile vulnerabilities. The apps that are of concern gather data from either the person or a diagnostic device, collecting information such as heartbeat or blood glucose levels, and then interpret the data to make a diagnosis, or to recommend treatment4 . As the MRHA director of medical devices says, “We live in an increasingly digital world, both healthcare professionals, patients and the public use software and stand-alone apps to aid diagnosis and monitor health.” There are also many apps connected to medical devices, providing another entry point for hackers.

“Mobile apps are unleashing amazing creativity,” Bakul Patel said from the FDA’s Center for Devices and Radiological Health. “At the same time, we have set risk-based priorities and are focusing FDA’s oversight on mobile apps that are devices for which safety and effectiveness are critical.”

This article first appeared on Intertrust.comIntertrust.com

To learn more on how to protect IoT Medical Devices and how Intertrust drives advancements in healthcare with secure data collaborations, data privacy and security, contact sales@whitecryption.com Intertrust drives advancements in healthcare with secure data collaborations, data privacy and security, contact sales@whitecryption.com 

SOURCES:

[1] WIRED, Medical Devices Next Security Nightmare

[2] NextGov, This Is the Real Threat Posed by Hacked Medical Devices at VA

[3] NYTimes,  Los Angeles Hackers Pay $17,000 After Attack

Hot Startups in IoT

Posted on by io-fund

The Internet of Things (IoT) has enjoyed a lot of attention from analysts and researchers who expect the number of IoT connections to surpass the human population this year. It’s no surprise there are quite a few startups in IoT. But how many of these products will actually be used? And does IoT simplify life or only add more gadgets in an already gadget-frenzied world?

An open-source analysis of IoT user behavior conducted by Harvard Business Review collected from 1,000 IoT technology platforms and 279,000 early adopters found that the most heavily used IoT programs made home life easier. The top 3 most preferred systems extended security, quantified the self, such as measuring body mass index (BMI) or sleeping patterns), and optimized machines to automate functions such as turning off lights when someone leaves the house.

A few months back, Santa Clara hosted the IoT World conference, which is known as the largest IoT conference in the world with 400 speakers, 250 sponsors and exhibitors, and an attendance of over 11,000 people. I attended this conference and found the following startups in IoT to be on the mark for both innovation and also answering demand for consumer needs:

 

Hot Startups in IoT:

1. Owlet:

Owlet has created a smart sock to track a baby's heart rate and oxygen levels while they sleep

In 2015, there were about 3,700 sudden unexpected infant deaths (SUID) in the United States with 1,600 confirmed from SIDS. These deaths occur in infants less than 1-year-old and have no immediate obvious cause, creating stress for parents of newborn babies. Owlet has created a smart sock to track a baby’s heart rate and oxygen levels while they sleep. The gadget features a sensor within the sock that connects to a smartphone to log and track the data collected. The technology is called “pulse oximetry” that works like the red light used in hospitals placed on the index finger to measure heart rate and oxygen. If the baby’s oxygen levels or heart rate exceeds the acceptable range, the monitor sounds the alarm. Owlet is still in the process of FDA approval and cannot yet claim to prevent SIDS, however, some parents already claim to be sleeping better.

 

2. Swarm Technology

Swarm Intelligence was introduced in 1989 by Jing Wang as a collective behavior of decentralized, self-organized systems and was employed for artificial intelligence, especially in regards to cellular robotic systems. The inspiration for “intelligent” global behavior comes from nature, such as ant colonies, bird flocks, animal herding and bacterial growth. The company, Swarm Technology, takes this concept and applies it to distributed processing, heterogeneous processing, machine learning and multi-agent artificial intelligence. Alfonso Inguez, the electrical engineer who developed the idea, explains the CPU broadcasts ‘this is what I need’ and the other computers or hardware that are interconnected and part of the internet of things lends to the fulfillment of what is being broadcast. Iniquz explains the key concept is “that the co-processors are not sitting idle waiting to be told what to do; they’re actively looking for work.”

Swarm Intelligence was introduced in 1989 by Jing Wang as a collective behavior of decentralized, self-organized systems and was employed for artificial intelligence, especially in regards to cellular robotic systems.

 

3. Grid Connect

The smart home market continues to be plagued by high device prices, limited value and hard to install devices as pointed out in my article in VentureBeat.  Centralization may be necessary for the connected home to work, but where should we limit this? If the benefits we’re looking for are interoperability and efficiency, then the connected home should limit centralization to only this, allowing the rest of the appliances and electronics to be decentralized. GridConnect helps facilitate this balance with the Connect Sense Smart Outlet. Released in 2015, the company announced the addition of power monitoring to the Smart Outlet and ConnectSense app in late 2016. With the ConnectSense app, users can integrate scenes and rules for the Smart Outlet and other home automation devices regardless of manufacturer. The power monitoring also helps to give insight into the power consumption of the devices plugged into the Smart Outlet. The ConnectSense app also gives the ability to create rules based on power usage.

4. Mynt

Smart trackers are becoming increasingly sophisticated and Mynt is not only reasonably priced but offers a full set of features such as accurate position tracking, playing music, taking a picture, recording video and sharing location, to name a few. By attaching Mynt to your valuables, your smartphone will alert you if you leave your keys or wallet behind, or if your pet is lost. Mynt is also a bi-directional tracker that has a built-in buzzer if you leave your phone. You can also locate your car by saving your parking location or take a selfie with Mynt by using it as a remote control for your cell phone camera. Although not the only Bluetooth tracker on the market, Mynt is extremely thin and reasonably priced at $19.99.

Please note: The I/O Fund conducts research and draws conclusions for the Fund’s positions. We then share that information with our readers. This is not a guarantee of a stock’s performance. Please consult your personal financial advisor before buying any stock in the companies mentioned in this analysis.