Augmedix Stock – A Remote Clinical Documentation IPO
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We don’t usually do this sort of stuff, but we’d like to start this article off letting everyone know about an exciting SPAC opportunity. John from Cameroon – a region in the great country of Africa – emailed us about a pre-revenue cosmetics/wood timber/software development outsourcing company that’s looking for a SPAC to have an IPO with. They’re dabbling in a bit of everything, so we’re not sure how to do the comparables slide which benchmarks their lofty 2024-2025 revenue estimates against someone else’s lofty 2024-2025 revenue estimates, but if you’re interested, give us a shout.
Moving on, today we’re going to talk about a SPAC-like merger for a company that’s a bit more focused. Augmedix is a startup we came across a while back that was developing a service offering which lets doctors use Google Glass during facetime with patients to reduce the need to take notes during consultations. Now, they’ve decided to go public using a shell company called Malo Holdings Corporation. Unlike most SPACs, Augmedix actually provided loads of information in their SEC filing for our hungry MBAs to digest.
About Augmedix Stock
Founded in 2013, San Francisco startup Augmedix has taken in $82 million in disclosed funding so far to create a remote medical documentation offering. Simply put, they use hardware like Google Glass, or an app on the doctor’s smartphone, to capture audio and/or video during patient consultations, and then use the output to populate electronic health records (EHRs).
Unlike your typical SPAC, the shell company Augmedix plans to merge with isn’t actually trading, but will soon be quoted on an over-the-counter (OTC) market that lists early-stage and developing companies in the U.S. and international markets. Unlike most garbage that trades on the OTC market, Augmedix actually has traction and revenues. A look under the hood shows a big opportunity that Augmedix may not have the technological capabilities to address.
The Opportunity
Doctors spend a lot of time taking and transcribing notes following patient visits. Using the Augmedix solution, a physician saves two to three hours per day in exchange for an average current subscription price of $1,800/doctor/month. The company’s existing enterprise healthcare customers represent about 19% of the U.S. addressable market which totals $6.0 billion annually. With around 510 physicians as of mid-2020, Augmedix has only penetrated about ½ of one percent of the potential that resides within their existing enterprise customer base.
Since launching its commercial real-time, remote documentation services in 2014, Augmedix has generated in excess of four million medical notes (they’re currently delivering over 35,000 notes to customers each week). Two of their customers, Sutter Health and Dignity Health, accounted for 26% and 17%, respectively, of Augmedix’s 2019 revenues of just over $14 million. Having such a large percentage of revenues coming from two customers is risky, and they can address that by scaling the business and selling to a broader set of customers. That seems unlikely to happen without some automation.
Too Many Humans in the Loop
In today’s information age, businesses achieve exponential growth by using automation as much as possible with some humans-in-the-loop to handle exceptions. That’s not the case at Augmedix, where all their note transfers are conducted manually by remote documentation specialists (RDSs), many of whom are being recruited from a large, established pool of medical transcriptionists in India who are losing their jobs because of advancements in natural language processing (NLP).
While Augmedix runs a 288-person operation in Bangladesh, they’re also outsourcing a whole bunch of work to vendors in India where nearly 70% of their RDSs reside. In other words, a majority of their work is being performed by third parties, making it difficult for Augmedix to assure quality. Based on what we can extrapolate from the SEC filings, somewhere around 750 RDSs are processing medical notes in India, with possibly more than 1,000 humans transcribing medical notes altogether, though the tasks are much more complicated than just transcribing audio or video.
Transcription vs. Remote Clinical Documentation
Medical transcription is a verbatim rendition of recorded audio which means natural language processing is an easy fit. However, the work performed by the RDSs is dynamic, and substantially more complex than transcription, as it requires critical thinking and understanding of nuanced physician-patient interactions. Still, automation can help the process scale. Augmedix is currently developing artificial intelligence (AI) capabilities to increase efficiency by automatically providing note suggestions to their RDSs to further reduce the amount of human intervention needed to create a medical note. Unfortunately, the competition seems well ahead of them in that respect.
The Competition
Augmedix did a great job of breaking down their service offering into three segments, then identifying the competition for each. These are:
- Dictation software providers – basic NLP software solutions that are economically priced and provide notes after the fact. (Competitors: Dragon, an offering of Nuance Communications, Inc. and Fluency from M-Modal.)
- Third-party, non-real-time medical note generators – more costly than dictation software but provides more value because they more accurately capture and reflect the ambient conversation between clinician and patient which they use as their primary input source. (Competitors: KS Healthcare, Robin Healthcare, and Saykara.)
- Real-time medical note documentation services. These solutions deliver the most value to physicians given their timeliness and synchronous nature. The largest participant in this sector, Scribe America, provides this service in-person. (Competitors: Scribe America, M-Modal.)
In our previous article on An AI Technology Stock Focusing on Healthcare, we looked at how one of Augmedix’s competitors, Nuance (NUAN), is betting big on healthcare. From that piece:
According to Epic, hospitals that use their software held medical records of 64% of patients in the United States – more than 250 million patient records. Nuance has partnered with Epic to streamline the documentation workflow so that information is captured – using Nuance’s three decades of experience in understanding medical language – in an intelligent manner which adds value to the medical provider and the patient.
Credit: Nanalyze
In that same article, we talk about how 3M’s M-Modal offering is integrated with more than 250 EHR providers and used by more than 250,000 physicians today. Just over a year ago, 3M issued a press release touting their advanced AI tools that deliver real-time clinical insight to clinicians. Augmedix clearly appears to be the underdog here. We’ll often root for the underdog in a sports match, but in our stock portfolio, we use our investment dollars to back leaders.
To Buy or Not to Buy
The bull case here is all the data being generated by the humans processing these clinical notes which can be used to train machine learning algorithms. The bear case is more extensive, and largely surrounds what appears to technological shortcomings. Just last month, the Chief Technology Officer of Augmedix resigned to join a larger company after being employed for less than 1.5 years. The intellectual property portfolio he left behind consists of three pending patent applications in the United States. To put that into perspective, their competitor, Nuance, has approximately 2,700 patents and patent applications.
Then there’s the large number of C-suite executives who have only come on board in the last few years, including their COO, CRO, CMO, CFO, and of course the CTO they need to hire who needs to develop the automation capabilities that will transition the company from linear growth to exponential growth. Without using technology, Augmedix can only scale by bringing more Johns-in-Mumbai on board. Having to employ more third-party workers to process medical notes means the quality of their service is in the hands of someone else, something that represents operational risk which they cannot control.
Conclusion
We don’t invest in over the counter companies at all. If a company can’t list on a proper exchange for whatever reason, it doesn’t belong in our portfolio. While Augmedix isn’t your typical OTC company, their technology isn’t where it should be, their revenues are concentrated, and growth is currently restricted to how many humans they can hire and train. In this case, we believe the risks far outweigh the rewards.
If the transaction goes through as planned, Augmedix will trade under the symbol AUGX.
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