Field Of Band Aids: Healtheon Tries For IPO

Healtheon is back at the IPO plate, taking a swing its second time at bat,
some four months after its first attempt to go public that left it headed
hitless for the dugout looking for an oxygen inhaler. This time around
Healtheon is back trying to swing for the fences–but the Internet IPO
pipeline has been active awhile now.

Same thing happened to Healtheon a
few months ago. The IPO market was dry then heated up and suddenly there
was an Internet IPO just about everyday for a brief time in July and
October. Now there’s a whole parade again.

This week alone we count
several IPO hopefuls: Healtheon, Prodigy and VerticalNet. Already public
are scores:, Pacific Internet, Infospace,,



Pro forma IPO


Shares out




Fully-diluted shares


IPO price per share

$ 7.00

IPO market cap FDS

$ 619.69

Undiluted IPO mkt cap

$ 415.96





9 months to Sept ’98

$ 33.23

9 months to Sept ’98

$ (35.86)

Annualized at that rate

$ 44.31

Annualized at that rate

$ (47.81)



Projected 1999 revenue

$ 51.00



Revenue multiples


using est. 1999 revenue


IPO market cap FDS


Undiluted IPO mkt cap


all figures in millions, except multiples and share price

So timing may not be working for Healtheon’s favor 100% this time around
either. Too many issues. Add to that a broad market that’s been correcting
and cutting some of the bull off the top.

All that before we delve into
just what Healtheon is trying to do as a business. The basic premise seems
to be for the firm, which has been working on this since January 1996 to
bring the efficiency, order, flow and distribution aspects of the Internet
into the paperwork-ridden healthcare system. In a word, fix the babel-like
world of healthcare.

Now anyone that’s tried to get their insurance
company to pay its bills on time (your claims), find your patient record,
talk to you with a live person (and not a voice-mail menu), and in general
act like a business knows and applauds Healtheon’s goals.

This is the
vision: “HEALTHEON’S VIRTUAL HEALTHCARE NETWORKS connect providers, payers,
consumers and suppliers over the public Internet or private intranets, and
provide services and applications that enable the secure exchange of
information, transactions and simplified workflows across the healthcare
industry. At the center of these networks is THE HEALTHEON PLATFORM, an
open framework for providing mission-critical applications and supporting
complex healthcare transactions, while at the same time ensuring
scalability, availability and security.”

The reality is four customers
generated more than 90% of Healtheon’s $33.23 million revenue for the nine
months ending September 30, 1998 and most of that came through ActaMed,
which Healtheon acquired May, 1998. It provides network technology to
healthcare providers and jumpstarted Healtheon in that market. In August
1998, Healtheon acquired Metis, LLC, which creates Internet and
intranet-based solutions for medical centers.

Between the two buys we
think we see the future of Healtheon, and that is as a consolidator of
already small but successful medical and healthcare-focused networks, Web
sites and services to this sector. Meanwhile it deploys its Internet-based
vision that the healthcare system doesn’t seem to share at this juncture,
preferring band aids to cures for the disparate and disorganized and hugely
inefficient healthcare system.

As such from an investment point of view
we think Healtheon’s field of dreams currently looks more like a tough
field to plow. If it succeeds then it will have created the equivalent of
the digital nervous system for the 21st century healthcare system, tying
together insurance, doctors, patients, records, billing systems into its
platform. Right now that’s a big “if” in our opinion.

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