Definitive Healthcare hauls in $420M in IPO, joining steady stream of health tech firms to go public

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Proceeds from Definitive Healthcare's IPO will enable the company to invest in new data and analytics capabilities to better serve its clients in the healthcare industry, Jason Krantz, company founder and CEO, told Fierce Healthcare. (Getty/FroYo_92)

Riding the wave of investor interest in the red-hot health tech market, Definitive Healthcare saw its stock surge 50% on its first day of trading Wednesday after raising $420 million in its initial public offering.

The healthcare commercial intelligence company went public Wednesday on the Nasdaq exchange offering 15.6 million shares priced at $27 a share. The Framingham, Massachusetts-based company had previously filed to offer the same number of shares at a range of $21 to $24. The stock is listed on the Nasdaq exchange under the ticker symbol "DH." 

Goldman Sachs, JPMorgan, Morgan Stanley, Barclays, Credit Suisse and Deutsche Bank are the joint bookrunners on the deal. 

At the revised pricing, the company could be valued at up to $3.9 billion.

The company began trading at $37.25 per share, 38% above its IPO price.

Definitive Healthcare's 2,600 customers include biopharmaceutical and medical device companies, healthcare information technology companies, healthcare providers and other diversified companies in the healthcare ecosystem.

Proceeds from the IPO will enable the company to invest in new data and analytics capabilities to better serve its clients in the healthcare industry, Jason Krantz, Definitive Healthcare founder and CEO, told Fierce Healthcare.

"Our clients are coming to us with new problems to solve and new use cases where they can use our intelligence and analytics to solve challenges and transform the healthcare industry. This will provide us with the proceeds to innovate at an accelerated pace, so we’ll build new analytics and we’ll continue to collect more data and provide more software to the industry. It’s about growth and achieving our objectives more quickly," he said.

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The company plans to use the proceeds from the IPO to pay down debt, invest in new products and pursue tuck-in acquisitions where the opportunities arise, Krantz said.

Definitive Healthcare joins a growing list of healthcare and health tech companies to go public in the past two years, including Livongo, Accolade, Phreesia, Progyny, One Medical, GoodRx, SOC Telemed, Hims & Hers, Amwell (American Well), Signify Health, Privia Health and Doximity.

In 2020 and 2021, there's been a huge spike in initial public offerings among so-called special purpose acquisition corporations, as healthcare companies capitalize on the meteoric rise of shell companies pouring billions of dollars into taking them public. Talkspace, Sharecare and 23andMe have gone public through SPAC deals, and Babylon Health also plans to go public through a blank-check deal.

But Definitive Healthcare decided to go public through a traditional IPO.

"If you think about the financial metrics of Definitive Healthcare, we are truly unique and rare. We are a combination of really high growth and high profitability and high visibility into long-term sustainable growth. As a result, we are a perfect candidate for a traditional IPO," Krantz said.

Before founding Definitive Healthcare in 2011, Krantz started Infinata. The company, founded in 1999, provided online databases of information for the pharmaceutical industry under the brand BioPharm Insight.

Similar to other startups, Definitive Healthcare started in a second bedroom and grew over 10 years to be a powerhouse in healthcare commercial intelligence with more than 600 workers in the Boston area.  

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The company brought in $118 million in revenue for the year ending December 2020 and $86 million in 2019, representing 38% growth, according to its S-1 filing with the U.S. Securities and Exchange Commission. Definitive Health generated revenue of $77 million in the six months ended June 30, 2021, up 41% year over year.

The company reported a net loss of $51 million in 2020 and a net loss of $26 million for the six months ended June 30, 2021, based on generally accepted accounting principles (GAAP). On a non-GAAP basis, the company reported an adjusted net income of $15 million in 2020 and a profit of $10 million for the first half of 2021, according to its S-1 filing.

The company reported an adjusted gross margin of 91% in 2020, and adjusted EBITDA was $54 million, reflecting an adjusted EBITDA margin of 45% for 2020. As of June 30, 2021, and December 31, 2020, the company had unrestricted cash and cash equivalents of $38 million and $25 million, respectively. 
 
There are major tailwinds propelling the company's growth as it provides software that helps companies efficiently sell into the healthcare market, a nearly $4 trillion sector.

Definitive Healthcare executives project the company has a total addressable market of more than $10 billion, with more than 100,000 companies in its primary target markets.

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"What makes healthcare unique is the complexity. It’s a hard industry to understand and difficult to sell into and compete in. What we do is provide data and analytics through a software-as-a-service platform to help our clients understand, research, navigate and sell into the healthcare market," Krantz said.

Definitive Healthcare focuses on helping healthcare industry players solve challenging problems, he said.

"Over the years, we have innovated in key three ways. The data that we analyze and collect from hundreds of thousands of sources has grown over time. Now, we track the entire healthcare ecosystem and every relationship between these organizations and offer deep analytics on things like procedure and diagnosis volumes and technology infrastructure. On top of getting more data, we’ve also enhanced our data science," he said.

As an example, the COVID-19 pandemic drove a telehealth boom in the sector. To offer more insights into this trend, the company's data scientists used proprietary intelligence to develop a telemedicine propensity score. "This tells our clients not only who is using telehealth today, but we are able to predict who is going to use it in the future," Krantz noted.

"We have a lot of runway and a lot of opportunities. We have created a deep data moat and enhanced data science to ingest information from hundreds of thousands of sources to provide a comprehensive view of the market that doesn’t exist anywhere else," he said. "With our unique financial performance, this is a special opportunity to invest in our organization and continue to grow."