Doximity Jumps 69% In Debut After Company's $4.6 Billion IPO

Doximity, the company that describes itself as the LinkedIn of doctors, jumped 69% when it debuted on Thursday after raising nearly $500 million in its IPO.

On Wednesday night, Doximity sold 19 million shares for $26 each, exceeding its forecasted range of $20 to $23, and an existing investor sold an additional $4.3 million. The offer valued the company at $4.6 billion. The stock, which trades under the name "DOCS," jumped to $44.13 shortly after the market opened.

Doximity, which was founded in 2010, has grown rapidly in recent years, becoming the primary app used by doctors to stay in touch with one another, sharing the latest research and updates on new drugs. With 1.8 million US healthcare professionals on the site, more than 80% of whom are physicians, Doximity has increased revenue by allowing pharmaceutical companies to promote drugs and treatments and providing medical recruiters with a central location to find prospects.

According to the prospectus, revenue increased by 77 percent to $206.9 million in the previous fiscal year. Operating costs for Doximity are lower than most venture-backed software businesses because it spends virtually no money on advertising. This enabled Doximity to increase its net income by 69% to $50.2 million in the fiscal year that ended in March.

The intersection between health and technology took center stage last year as the coronavirus pandemic forced patients to familiarize themselves with remote visits and strained the resources of medical systems across the country. Investors have jumped at the chance to profit from the changes in the economy.

In August, telehealth provider Teladoc acquired Livongo, which specializes in remote coaching for chronic illnesses, creating what was then a $37 billion company. Amwell, a telehealth competitor, went public in September. Prices have fallen for Teladoc and Amwell recently as Covid-19 cases have plummeted and future business growth rates have been brought into question.

Meanwhile, telehealth business MDLive was acquired by Cigna in February for an undisclosed amount, and two venture capital-backed health technology companies, Grand Rounds and Doctor on Demand, merged in March, creating a multi-billion dollar business.

For Doximity, telehealth is a new profession. The company has been offering a free service since 2016 that allows doctors to call patients using their work number on a mobile phone. Doximity moved the numbering service to its main application in 2019.

In May 2020, a video service was added, which was described as its "first telemedicine offering." Doximity has launched a paid enterprise version, although it has said the video service will be free until January 2021. In its prospectus, Doximity said it had signed subscription agreements with more than 150 hospitals by the end of the month of March.

Jeff Tangney, co-founder and CEO of Doximity, said in an interview that although over 80% of physicians are on the network, the company has at least a decade of "what we consider strong growth" due to the value it could bring to the health system. For example, the referral system could become much stronger, so that doctors could know exactly where in the country to send patients with a rare cancer.

He also said that Doximity had many opportunities to grow in telehealth given the size of its user base for its core product.

"Telehealth is 2% of the plan today, and it's such a green field," said Tangney, after ringing the opening bell on the New York Stock Exchange. "We haven’t been aggressive on pricing yet"

Doximity's overall growth is less dependent on telehealth than that of other vendors in the market, as its primary sources of revenue are unrelated to physician-patient communications. However, the company recognizes that when the pandemic is over, its business could suffer. More medical offices brought their marketing budgets online, and some of that spending can be traced back to physical advertising.

"The circumstances that have accelerated the growth of our business due to the effects of the COVID-19 pandemic may not continue in the future," said Doximity. "If these clients reallocate a significant portion of their budgets to in-person marketing, it could cause our growth to decline in future periods. "

Tangney, who previously co-founded the digital health site Epocrates, is the largest stakeholder in the company, with shares valued at around $1.3 billion, based on the IPO price. Emergence Capital is the largest outside investor, with a stake of $627 million, followed by InterWest Partners and Morgenthaler.

The IPO marks Doximity's first funding since 2014, when the company raised $54 million at a valuation of $355 million, according to PitchBook.

As part of the offer, Doximity has reserved 15% of the shares for doctors in the network. Assuming the doctors maximized their stake, they bought about $91 million worth of Doximity shares.

Tangney said more than 10,000 doctors took part in the offer, buying up to $24,000 worth of shares. "As a group, they own more stocks than any new investor", he said.