Will a NantHealth IPO Happen in 2015?
In a June 2014 article, we highlighted a company called NantHealth, led by Patrick Soon-Shiong who is the wealthiest American in the healthcare industry having amassed a fortune of $7.2 billion for building and selling Abraxis Biosciences and American Pharma Partners. NantHealth is building what is referred to as the “clinical operating system” (cOS) which promises to revolutionize cancer treatment through aggregating and analyzing cancer patient data. The Company has already spent $1.5 billion in the past decade and most recently completed a $320 million dollar Series B investment round in October of 2014 bringing a total of $818 million raised in the last six months alone from sovereign wealth funds and private equity groups. This is a massive amount of funding raised in a very short period of time. While NantHealth sounds like an incredibly promising company, a recent lawsuit filed by ex-employees exposes some dirty laundry that may bring into question the Company’s future potential.
Just one week ago, a lawsuit was filed against NantHealth by ex-employees Stevie Davidson and Bill Lynch who were fired for “inappropriate behavior”. According to NantHealth, Ms. Davidson was employed for less than 3 months and Mr. Lynch for less than 9 months. Prior to filing the lawsuit, NantHealth claimed that the couple who were in a relationship demanded a payment of $2 million or they would launch a smear campaign according to this article by Forbes. That payment was never made, and consequently, a lawsuit was then filed against Nanthealth, details of which can be seen here.
The lawsuit filing document is rather lengthy, but contains some very significant accusations. NantHealth is accused of being engaged in “a multitude of fraudulent activities” that if known would “likely cause the end of the IPO”. The clinical operating system” (cOS) is said to be “10 years behind in technology capability” with notable deficiencies in the areas of quality assurance and scalability. A compliance audit conducted by FDA Compliance Group in October 2014 claimed that NantHealth had “multiple areas of noncompliance” that could become a major finding in a proper FDA audit. The lawsuit also claims that NantHealth’s products “are defective and pose significant patient safety compliance and security risks”. The ex-employees are suing under a Florida law that prohibits employers from firing employees for reporting violations of laws or regulations to superiors or authorities.
One interesting piece of information in the lawsuit filing is that NantHealth is said to be ramping up for an IPO that is speculated to have a $4 billion valuation. For a company that has already spent upwards of $1.5 billion on their venture so far, a payoff to ex-employees of $2 million would represent a mere drop in the bucket or just .625% of the latest funding round. NantHealth would have to believe that the claims were entirely unmerited and that the lawsuit would have no impact on their current client base or their planned IPO.
One could argue that maybe egos and/or principles stood in the way of a quick $2 million payoff but this doesn’t seem likely. When you have an investor base of sophisticated firms that have committed over $800 million to your venture, you would certainly consult with them prior to making a decision about paying off ex-employees a relatively “small” amount of money to avoid a lawsuit. If all the key stakeholders collectively made the decision not to payoff these disgruntled employees, then that would lead us to believe that the outcome of this lawsuit would most likely be favorable for NantHealth and not negatively impact any possible plans for an IPO.