October 2019 CNBC; One Medical, a chain of primary care clinics that’s backed by Google’s parent company Alphabet and tries to bring a modern feel to the typical doctor’s office, has hired banks including J.P. Morgan and Morgan Stanley for its IPO, according to people familiar with the matter.
The company, which was valued at about $1.5 billion in a financing round last year, is expected to file its prospectus by the first quarter of 2020 and possibly sooner, said the people, who asked not to be named because the plans are confidential. Representatives from One Medical, J.P. Morgan and Morgan Stanley all declined to comment.
Should One Medical make it out successfully, it will join a growing class of health-technology companies to test the public markets, though Wall Street hasn’t show much enthusiasm for the category of late. Livongo, a chronic disease management company, has plunged 27% since it started trading in July, and Health Catalyst, a data and analytics company, is up just 9% from its initial price. Progyny, a fertility benefits provider, just filed for its IPO.
The challenge for One Medical is that hospitals and medical clinics don’t get a high multiple from public investors because profit margins are thin and they largely rely on insurance reimbursements. But One Medical has Silicon Valley DNA in the company that can help to differentiate its story. The San Francisco-based company is backed by Alphabet’s GV venture arm and venture capital firm Benchmark, and secondary share sales have recently valued the company at over $2 billion.
But public markets have provided a reality check to other companies that claim to have a technological advantage. Uber and Lyft have struggled since their debuts earlier this year amid hefty losses and WeWork had to withdraw its IPO filing.
One Medical was founded in 2007 by Tom Lee, a doctor who set out to create a modern primary care experience. Lee was CEO until 2017, when he was succeeded by Amir Rubin, a former UnitedHealth group executive.
Rubin recently told CNBC that the company has seen “tremendous growth” in other areas of its business, including partnerships with self-insured employers for on-site and nearby health clinics. One Medical has more than 70 clinics across the country, which promote themselves as having “second to none technology.”
Investors will wait to see, “Do they have health services margin, which is single digits or teens, or do they have tech margins?” said Farzad Mostashari, CEO of Aledade, a technology company that works with independent primary care groups. “And how quickly does it scale?”
One Medical offers mobile apps with online scheduling, virtual consults and same-day appointments. It also recently expanded into areas such as mental health care and pediatrics. The company takes most health insurance plans, as well as cash payments, and charges members $199 a year for use of its digital apps and other services.
Mostashari said that one way to potentially boost profits is on the cost side, if the company can “show they’re saving money for an insurer by keeping patients out of the hospital.”