From casting light to total eclipse? Can a new CEO turn around Castlight Health?

Back on March 14, 2014, benefits health tech company Castlight Health went public in a highly anticipated initial public offering and saw it’s stock jump a whopping 149 percent to nearly $40.

The San Francisco company didn’t have even a penny in profits and skeptics noted that, but it was the dawn of a new era. In Castlight’s debut on the New York Stock Exchange, investors saw the potential of a cloud-based software company attempting to shed light on the opaque world of medical costs thereby helping people shop smarter and reducing employers’ overall healthcare costs. It was the new face of the industry: digital, consumer-centric and would drag the eternally tech-laggard healthcare industry into the 21st Century.

Fast forward to 2019 and investors have punished the company for poor performance. On July 30, Castlight Health slashed its earnings outlook for the year even though management had reiterated its 2019 guidance in just the previous quarter. It reported a second-quarterly revenue of $35.9 million, which declined 5 percent from a year ago. It missed analyst expectations for both revenue and earnings per share.

The stock tumbled and currently trades at around $1.60. In fact, in the past five years, the vaunted digital health company hasn’t once achieved its IPO-day high price again. Not ever. What’s more, Castlight announced that John Doyle who had been CEO at the company since just April 2017 was leaving (the usual niceties around executive departures were conspicuously absent from the press release. Doyle had been with Castlight since 2012 and been promoted to CEO). With the board’s blessing, Maeve O’Meara, previously Castlight’s executive vice president of product and customer experience, has replaced Doyle.

Can she turn around the struggling company?

It’s important to understand Castlight’s recent history and the dynamics of the employer benefits market, to comprehend the challenge that O’Meara faces. Richard Close, an analyst with investment bank Canaccord Genuity, said that Castlight which had one product when it went public — price transparency — was initially “relatively successful in adding customers.”  Soon enough, though things were less rosy.

“They went through a time when they were able to get through the initial contracts and then they experienced some churn,” Close said in a recent phone interview. [Employers] were not necessarily maybe fully recognizing a return on their investment.”

Perhaps that wasn’t surprising.

An employee will likely shop around for doctors and hospitals when they are in need of a procedure or have some kind of difficult health situation. That is not always 100 percent of the employee universe, 100 percent of the time. So, employers were not getting the most bang for their benefits buck.

That led to a desire the broaden the Castlight platform, Close said, and ultimately to acquiring Jiff in 2017. Jiff had a mobile, wellness solution for employees and at the time Doyle, then Castlight’s COO, explained that Jiff had been able to apply engagement strategies to the broader area of engaging employees in wellness. That made it attractive.

But like so many acquisitions, the Jiff integration was bumpy. Doyle admitted in a conference call in the third quarter of 2018 to some customers leaving as Castlight wasn’t able to properly support the standalone Jiff product and the customers became “exasperated.” Castlight was moving to create an integrated solution focused on wellness, price transparency and care guidance which they named Castlight Complete – that launch occurred in the third quarter of 2018. Castlight Complete was heralded as the product that would effectively end the company’s churn issues and bring growth in 2019.

However, not all customers jumped on the Castlight Complete bandwagon including Walmart, which ended its relationship with Castlight at the end of 2018. Still, the bright spot in the business was the Anthem channel partnership. Castlight created Anthem Engage for Anthem’s self-insured customers based on its Castlight Complete product and to this day continues to deliver on that, Close, the Canaccord analyst said. He added that Castlight needs more such partnerships.

Despite the success with Anthem, customer churn continues to be a problem to this day. On the July 30 conference call, management pointed out that customers were eschewing Castlight for the free Rally Health solution offered by United Healthcare. Close noted that employers are not seeing enough distinction between such products to justify purchasing Castlight Complete.

Another analyst painted a dire picture of the overall health benefits market.

“If you think back three years ago, this idea of wellness plus care navigation was a really hot topic,” said Charles Rhyee, an analyst with Cowen, in a recent phone interview. “That kind of enthusiasm seems to have fizzled. I am not sure why but when we speak with industry consultants it seems like the focus has moved away. I am not sure whether it’s because employers haven’t been able to see the returns, the value from these services.”

Rhyee added: “It’s a tough market. If you look at the demos of Rally … the gap has shrunk and unless you are a discerning employer, very progressive with a lot of experience in knowing the differences of what you are getting, it’s going to be a problem.”

So can O’Meara, who has been with the company since 2010, get Castlight Health out of its doldrums? Not only are there free options but there’s also a myriad variety of competitors that employers can choose from. For Close, it’s too early to tell whether the change in leadership is good. For Rhyee, it may not even matter.

“The question you might want to ask is where the company is [today], is it because of John’s specific strategy and that strategy didn’t bear out? So in that sense, Maeve could be successful because everyone was really implementing this guy’s strategy. Or is the question more about – the market dynamics are such that in a sense it doesn’t really matter who’s there.”

In a phone interview, O’Meara pushed back on the skepticism about her leadership while candidly acknowledging Castlight’s past missteps, the opportunities ahead and her immediate priorities to deliver a turnaround. Here’s the slightly edited exchange:

MedCity News: Churn is a word that keeps popping up in your earnings calls. Are employers not seeing the value of your products?

O’Meara: The truth is that we’ve had different reasons for churn at different times. So in the first chapter of the company, there was churn around transparency largely due to the fact the price-value equation was very much out of whack.

In the second chapter, we did experience a series of operational issues magnified by the challenge of integrating two companies. We were bringing together Castlight and Jiff and then the most recent chapter of churn is really about the fact that after having close to a decade in the space when I think about what does a healthy book of business look like – I think you need to have three things in place. Candidly we haven’t done a great job of having all three in place consistently.

1) Value – Across our book of business we see 1.5 to 2 percent in terms of total medical costs savings, so we actually do have value but that needs to be really well understood by the buyer and able to be communicated upwards toward their executive management. The challenge in the space has been communicating value both in a credible and understood way.

2) Pattern of Continuous Innovation – Because of the fact we had been so heads down putting the two companies together that we did not do as good a job as we should have of continuing the velocity of innovation. We were maintaining two different platforms and investing energy to bring them together. So that was an issue that needed to be directly resolved and also once again understood and communicated, which is an ongoing challenge.

3) Relationship – To have a healthy book of business, relationships really matter across every level of the organization. There’s a lot of competition and they are constantly bombarding employers, so having relationships at every level of the organization, having relationships with the benefits consultant, the health plan, [those are important]. We really have to play well within that ecosystem.

Frankly, as we’ve matured as a company we’ve realized that you have to be doing all three of these things well because there is this natural, gravitational pull into free, check-the-box solutions. So that is a real pressure out there in addition to the fact that there’s just a huge volume of competition and new entrants.

MedCity News: So you mentioned the three areas that you fell short on in the past after going public and do you think that’s the reason that John Doyle, the previous CEO, was asked to leave?

O’Meara (after a six-second pause): I think in terms of what the company was looking for in terms of leadership it was really someone who understood the product and had a broader vision for the data and technology.  So what the board wanted to have in place was a product visionary CEO and particularly one that really understands our customers. I have had the benefit of being at Castlight for quite some time and have tremendous relationships with both our customers and our largest partners.

The board focus really has been this: We need somebody who understands the technology, the data, the product and the opportunity associated with continuing to build on the momentum that we have within the employer space but also leveraging that technology across health plans and new markets.

That was really what the board was trying to solve for.

MedCity News: Analysts I talked to are saying that the employer market is really hard and employers are not making a distinction between different tech solutions out there and choose to go with the free, payer solution. If that is indeed the case, does it really matter who leads Castlight Health?

O’Meara: I think that your point is true that to play and win in the employer market, the bar is incredibly high around delivering credible value and continued innovation. But to be clear why does it matter who leads Castlight? A big part of our thesis is that we know we can do frankly a lot better in terms of supporting and adding value to our employer customers, who are our core business. We also have a very clear opportunity to build on what we’ve done with our Anthem relationship and expand a health plan go-to-market, which we haven’t done yet and that does require an understanding of the technology and the data needs.

So I was the original person who was leading our Anthem relationship so I have a lot of insight into how we use the technology in a health plan world. Right now there about 260 customers and about 20 million lives who have access to Castlight. [Separately, O’Meara clarified in an email that though utilization varies by customer and product type, for Castlight Complete customers, “we are seeing monthly active user numbers ranging from 30 percent to over 70 percent.”]

So there is a very significant opportunity to expand the health plan go-to-market, which is a key part of our strategy.

And then the third leg of the strategy is how do we take the product technology and data assets, and given all of the macro shifts that are happening in healthcare, influence other organizations that are closer to the point of care to effectively make better decisions. Part of this is saying we can power other experiences through apps we didn’t build ourselves and so all of that requires a deep understanding of the product.

MedCity News: The stock is trading at around $1.60 and that’s a far cry from IPO price, which you’ve never achieved again in your cycle as a public company. Do you owe it to your shareholders to look for alternative solutions?

O’Meara: So, I am clearly not going to comment on the record on anything related to M&A. The answer really is that we are focused on our mission and executing on leveraging what we believe to be an incredibly powerful asset. So when we think about the size of our 260 customers and who those customers are, the data pipelines I mention connect to 85 percent of plans, the steerage asset that is saving 1.5 to 2 percent, our personalization engine and what that’s done and the ecosystem which is the broadest available today, those technology and customer assets are really the reason that we believe that there is a huge opportunity for growth and a lot of that growth will come from partnerships, to be clear.

MedCity News: What is your health plan strategy and can you explain the distinction between having health plans as a direct customer as opposed to a channel partner like Anthem is?

O’Meara: Our relationship with Anthem began to help them better serve their national account customers. So we were serving as their health navigation platform — we were serving their self-insured customers. The realization in that process and in speaking with other health plans is that there are similar needs for their fully-insured populations. And so that is the use case where the health plan would be a customer because they have a similar incentive to provide a great experience and drive the cost of care savings for their fully-insured populations.

We believe that as we approach our health plan go-to-market more broadly, that our thesis is that it is going to be more important to be able to support health plans across both of those fully-insured populations as well as their self-insured populations.

MedCity News: Can you describe your strategy when it comes to other markets you have mentioned – telehealth providers, pharmacy and labs?

O’Meara: When you think about the macro shifts in healthcare, the biggest one that would influence us potentially is the shift to value-based care. What that’s created is a series of organizations both very large and smaller all of whom have a greater interest in effectively providing better care coordination for the patients that they come into interaction with.

So the telehealth example, which would also hold true for an onsite or near-site clinic, is that when an employee goes to that clinic and they need a referral, there isn’t a very clear way for that provider to know where to send them.  This is an issue for really any provider that is in a value-based care arrangement.

The incentive for these organizations to really want to know more about that patient when they are treating that patient which is information that Castlight has. That’s information we would be able to pass on to that telehealth provider or onsite, near-site clinic, to a pharmacist to a lab tech, who increasingly are going to be influencing care decisions.

This isn’t us about owning the app or being the app on that person’s phone. It’s actually about putting the technology in the hands of the person that is treating or interacting with the patient whether in the community, whether through the telehealth or on-site near-site pharmacy and lab.

MedCity News: Have you had a chance to look at the Rally Health offering and I am guessing you will say Castlight is better?

O’Meara: I think if you look at the history of where Rally started versus where Castlight started, Castlight started in a much more healthcare-centric capacity whereas Rally started a little bit on the wellbeing, Jiff-end of the spectrum and certainly the two are converging. I believe that Castlight’s advantage really lies in the areas around data and personalization. We don’t use machine learning as a buzz word. We use it to identify at-risk populations and really try to get them to the right care with the right provider.

And then we believe in the ecosystem with apps like Omada and Livongo and we don’t believe we should build everything ourselves. We try to build in thoughtful, seamless integration that makes it easy for the end-user and being able to do that leveraging the personalization data has set us apart in this industry.

Our challenge, to your point, is, we are competing with free very frequently. So our ability to communicate that value and that ROI is something that we have to improve on and there’s a lot of things we are doing to increase the value and make the gap bigger effectively.

The areas where we are differentiated is personalization and how we integrate point solutions. We do consider ourselves to be the best in class there.

MedCity News: Being a public company is a huge pressure and you are in turnaround mode, which is an even bigger pressure. So what are your three-month goals so that the story of the stock changes a bit?

O’Meara: In terms of my focus, it’s really around team, customers and partners. On all three of those dimensions, I have very specific goals around bringing some new talent into the organization. We’re really moving quickly to solidify the customer base and I think we’ve made some great progress in terms of people and the account management model.

From a partnership perspective, we’re looking to move quickly to continue to improve and expand our relationship with our existing partners, Anthem mainly. But also be able to share partnerships that validate our thesis.

When companies have executed turnarounds, it’s typically been by leveraging the power of technology, reinvigorating employees to empower them to innovate and then really create a partnership. That has been the formula that has really worked in a number of organizations.

 

For O’Meara’s sake and the roughly 500 people that work at Castlight, here’s hoping that’s a winning formula.

Featured Photo and Price transparency graphic: DNY59, Getty Images and Castlight Health