NantWorks Debuts Their Second IPO – NantHealth (NH)

Regular readers know that we like to keep a close eye on NantWorks, a collection of companies built by the wealthiest American in the healthcare industry, Dr. Patrick Soon-Shiong, who has amassed a fortune of $7.2 billion building and selling successful pharma companies. We first talked about one of his companies, NantHealth, back in 2014 when we suggested that it could very well revolutionize the U.S. healthcare system. We were hoping to see a NantHealth IPO last year, but noted a pending lawsuit with significant accusations of fraudulent behavior on the part of Nanthealth. Well that lawsuit appears to have been dismissed, and NantHealth just completed their IPO which began trading last week under the symbol (NASDAQ:NH) making this the second IPO to debt from the NantWorks collection of 11 companies. Let’s take a closer look at the NantHealth IPO and subsequent S-1 filing.

Before tucking into the S-1, here are a few facts about the IPO itself. The IPO prospectus offered 6.5 million shares with a maximum offering price of $15.50 per share. The shares began trading last Thursday and spiked up to $21 per share then closed at around $18.59 per share which is where they sit today giving NantHealth a market cap of $2.18 billion. Cash on hand following the IPO sits at around $97 million with existing stockholders still holding 94.5% of the company. In other words, they didn’t give away very much of the company through the IPO and they didn’t get that much cash from it neither.

Now onto the S-1 filing. The first thing that NantHealth elaborates upon extensively is what exactly they provide, which is an end-to-end personalized healthcare platform for treating patients with critical illnesses as seen below:

NantHealth_OfferingThe first step involves comparing the patient’s genetic profile to nearly 13,000 active clinical trials updated weekly and over 2,500 evidence-based treatment regimens for the treatment of cancer which are made available through a platform they call “eviti” which 75% of all oncology practices in the United States have used. Once a personalized treatment regime is defined, they can then identify a treatment provider from the approximately 450 revenue-generating clients that access the platform. Payments are handled through their “payor” which handles 30 million monthly payer-provider transactions. Their “clinical operating system” called NantOs provides the connectivity needed to collect and centralize all this “big data” while making it accessible to all parties:

Nant_cOSWhile this all sounds great on paper, is NantHealth driving any revenues from their platform? They are indeed. In 2015, the Company realized $58.3 million in revenues which was up +75% from the year prior. However these 2015 revenues were offset by losses of $72 million compared to losses in 2014 of $84 million. As for competitors, NantHealth cites genomics companies like Foundation Medicine, Electronic Health Record vendors, and healthcare information technology decision support vendors like Truven Health Analytics which was acquired by IBM for $2.6 billion earlier this year and has around 8,500 clients. With IBM citing “healthcare” as a strategic focus, could Nanthealth be an attractive acquisition candidate for IBM?

Now before you get too excited and immediately open a large position in NantHealth, remember that biotech stocks are volatile and you can tell very little about valuations from arbitrary share prices, especially immediately following an IPO. Remember the first IPO from NantWorks, NantKwest (NASDAQ:NK)? If you bought shares of NK on their first day of trading you’d be down -77% to-date. With NK not even showing revenues yet, it’s hard to see Nanthealth following that same trajectory. Perhaps the best thing to do if you want to establish a position in NantHealth is to buy smaller chunks of your target position size over a longer period of time to minimize market timing effects. It’s also likely we’ll see more IPOs from other NantWorks companies which would then allow us to create a NantWorks “motif” using the Motif Investing platform.

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