Disruptive Healthcare 3/15/2024
Disruptive healthcare valuation, trends and analysis weekly.
Disruptive Healthcare Public Comps:
Top 5 Revenue Multiples:
This top 5 group is a subset of the broader disruptive healthcare peer set. These 5 currently have the largest EV / 2024 Revenue multiple. This group trades at 6.8x 2024E revenue versus the broader group at 3.4x. This group also boasts an average EBITDA margin of 31.6% on 2024E projections versus the broader group at 17.6% ‘24E EBITDA margin on average.
Comps Weekly Share Price Performance:
Disruptive healthcare companies traded down 4.3% this week on average which is significantly below the broader market which was relatively flat this week.
Valuation — EV / NTM Revenue:
Mature healthcare comps are generally valued based on their earnings (see the broader comps at the bottom of this post). However, earlier stage businesses such as startups, and to an extent these younger, disruptive healthcare public companies often don’t have positive earnings yet or they may have positive earnings, but they haven’t reached the margin profile they will achieve upon maturity as a business. As a result, it’s harder to compare these companies on an apples-to-apples basis using EV to earnings. So, we use EV/NTM revenue to triangulate valuation for these companies and for startups in similar markets.
5 Year Average: 7.0x
Today: 3.4x
Peak: 15.1x
Trough: 2.5x
Summary of top 5 EV / NTM Revenue Valuation Stats:
Top 5 companies include VEEV, HQY, GDRX, and PHR as of today.
5 Year Average: 11.2x
Today: 6.8x
Peak: 23.7x
Trough: 4.9x
Valuation — EV / NTM EBITDA:
It’s a little bit harder to value the earlier cycle businesses on an EV / NTM EBITDA, but it’s worth considering the data point. Only 8 of these 16 companies have positive NTM EBITDA projections right now, or barely positive EBITDA. The ones with barely positive EBITDA yield EBITDA multiples that aren’t realistic (so we consider them not meaningful “NM”). To create an index, I only include the peers who have a substantial believable positive EBITDA forecast for 2024 based on the average of Wall Street equity research reports. Those companies include: VEEV, HQY, DOCS, RCM, PGNY, TDOC, GDRX and GOCO. That’s not to say the other Companies won’t have positive EBITDA in 2024, but the multiples are relevant right now. Here’s how the chart looks.
Summary EV / NTM EBITDA Valuation Stats:
5 Year Average: 36.3x
Today: 14.7x
Peak: 64.4x
Trough: 11.9x
As these companies mature and begin to trade on EBITDA multiples or even P/E multiples (much like the hospital facilities and MCO peers) then this chart will tell us more. This is certainly a data point we can look at for profitable growth equity stage private companies. I’d expect those companies to be valued closer to the 5-year average or slightly lower. Some of that data in 2019 and 2020 is elevated because the EBITDA estimates back then were very small or barely positive for some of these companies driving an artificially high multiple that wasn’t driving valuation but rather was a dependent variable.
Stock Price Trends:
In the stock price charts below we compare the Disruptive Healthcare peers to the S&P 500, the XLV and the inverse of the 10 Year Treasury rate over various time horizons. For those that aren’t familiar, the XLV is the S&P500 healthcare ETF which includes a wide mix of companies in the health care equipment and supplies, health care providers and services, biotechnology, and pharma industries. Some companies in the XLV include Johnson & Johnson, Pfizer, UnitedHealth, AbbVie and Eli Lilly and their peers.
Our disruptive healthcare peers seem to have bottomed as a group on November 9th, 2023. Since that time, they have outperformed the broader market.
Broader Healthcare Comps as of 3/15/2024:
This newsletter is mostly focused on the disruptive healthcare comps and how their performance drives valuation for our private market portfolio at What If Ventures. However, we do keep a much broader set of comps that includes Healthcare Facilities and Managed Care Organizations. I know the font is small, but you should be able to click on these and expand.
^I realize this is too small to read, but if you double click on the image it should expand. Or you can just email me and I’ll send you the backup.
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About What If Ventures — What If Ventures invests in mental health and digital health startups from seed stage to growth equity. To date, we have invested over $83mm into 72 healthcare startups since January 2020.
If you have questions about any of this analysis or want to collaborate with What If Ventures, please reach out via info@whatif.vc. We’d love to connect with entrepreneurs and investors in the space.
You can follow more of my commentary on twitter here: @hazesyah