We knew a month ago that telemedicine service provider Teladoc was preparing to file for an initial public offering. We just didn’t expect the Form S-1 registration statement to hit the Securities and Exchange Commission database at 4:53 pm EDT on Friday, just in time to spoil our weekend a bit.
As is customary, the S-1 gives detailed insight into what has been a privately held business since Teladoc’s inception in 2002. Teladoc did not include a listing price or say how many shares it would be offering, so we don’t know when the IPO will occur or how much the company hopes to raise. But here are seven surprising or interesting things we found from reading that document:
Teladoc has never been profitable.
The company reported a net loss of $17 million in 2014, compared to a loss of $6 million the previous year. In the first quarter of 2015, the company lost $12.7 million, vs. loss of $2.3 million in red ink during the same period a year earlier. Teladoc carried $85.2 million in accumulated deficit as of March 31.
“These losses and accumulated deficit reflect the substantial investments we made to acquire new clients, build our proprietary network of healthcare providers and develop our technology platform. We intend to continue scaling our business to increase our client, member and provider bases, broaden the scope of services we offer and expand our applications of technology through which members can access our services,” the filing said.
“Accordingly, we anticipate that cost of revenue and operating expenses will increase substantially in the foreseeable future. These efforts may prove more expensive than we currently anticipate and we may not succeed in increasing our revenue sufficiently to offset these higher expenses. We cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will be able to sustain or increase profitability. Our prior losses, combined with our expected future losses, have had and will continue to have an adverse effect on our stockholders’ equity and working capital. As a result of these factors, we may need to raise additional capital through debt or equity financings in order to fund our operations, and such capital may not be available on reasonable terms, if at all.”
A Deep-dive Into Specialty Pharma
A specialty drug is a class of prescription medications used to treat complex, chronic or rare medical conditions. Although this classification was originally intended to define the treatment of rare, also termed “orphan” diseases, affecting fewer than 200,000 people in the US, more recently, specialty drugs have emerged as the cornerstone of treatment for chronic and complex diseases such as cancer, autoimmune conditions, diabetes, hepatitis C, and HIV/AIDS.
Despite the losses, business is growing rapidly.
Teladoc handled 298,833 patient visits in 2014, 135 percent higher than the 127,107 encounters reported in 2013.
Revenue from subscription fees paid for by corporate clients on behalf of their employees and representing about 85 percent of total revenue, more than doubled last year as well, to $43.5 million, compared to $19.9 million a year earlier.
The market upside is huge.
Teladoc estimates that as much as one-third of all ambulatory care visits in the U.S. — including those at physician offices, outpatient clinics and hospital emergency departments — could be handled remotely with telehealth technology. The Centers for Disease Control and Prevention reported that there are about 1.25 billion ambulatory care visits a year, so based on Teladoc’s estimate, the annual market potential for telehealth is 417 million visits or $17 billion.
“According to the CDC, 79.7 percent of emergency room visits not resulting in a hospital admission were due to lack of access to an alternative provider, and a recent study published in The Journal of American Medical Association estimated that approximately $734 billion, or 27 percent of all healthcare spending in 2011 was wasted due to factors such as the provision of unnecessary services, inefficient delivery of care and inflated prices,” the IPO registration said.
“Our platform is highly scalable and can support substantial growth in our current membership base. Our platform provides for broad interconnectivity between healthcare constituents and, we believe, uniquely positions us as a focal point in the rapidly evolving healthcare industry to introduce innovative, technology-based solutions, such as remote patient monitoring, post-discharge treatment plan adherence and in-home and chronic care.”
Home Depot is doing very well as a Teladoc customer.
Home Depot has been offering Teladoc services to employees for about three years and is responsible for about 150,000 Teladoc members. While Teladoc only referred to its client in the filing as the “nation’s largest home-improvement retailer,” it’s easy to read between the lines.
A study commissioned by Teladoc, reported in the SEC filing, said that this client saved an average of $1,157 per employee receiving care through the telehealth platform, compared to other care settings for the same diagnosis. “The study demonstrated a meaningful reduction in average per-member-per-month spending of $21.30 to the client relative to predicted cost, or a monthly healthcare expenditure savings of 9.8 percent per member,” the document said. That resulted in a return on investment of $9.10 for each dollar Home Depot spent on Teladoc fees.
Plus, according to Teladoc, 92 percent of Home Depot beneficiaries who used Teladoc services were able to resolve their medical issues “completely,” without a follow-up visit in a traditional care setting.
Teladoc serves 160 of the Fortune 1000.
The client base includes 160 of the Fortune 1000 companies, but that is not enough for Teladoc executives. The filing said that the fact Teladoc does not have contracts with the other 840 on this list “represent[s] a significant opportunity for new client growth with large employers.”
Teladoc is actually based in New York.
It’s long been reported that Teladoc was based in Dallas. While its physician operations are run out of Big D, it turns out that the executive offices are in Purchase, N.Y. Still, Texas accounts for at least 20 percent of the company’s business.
Meanwhile, the legal challenge continues against the April ruling by the Texas Medical Board that bars physicians from making diagnoses or prescribing drugs via telephone or the Internet for any patient they do not have a previously existing, in-person relationship with. We didn’t learn this from the IPO registration, but on Friday, a federal judge blocked the change from taking place on the scheduled June 3 start date until the lawsuit plays out.
“We are currently unable to form a reasonable estimate of the amount or range of loss that could result from a legally effective adoption of the rule amendments as proposed or when the issue will be decided,” Teladoc said in its SEC filing.
Teladoc pulled out of two states.
Last year, Teladoc ceased operations in Arkansas and Idaho. “In each state, the board of medicine took the position that our business model did not meet the state’s applicable legal requirements in order for our affiliated physicians to prescribe medications for our members,” the company said.
Photo: Flickr user Simon Cunningham
