Accolade Inc., a Plymouth Meeting health-care navigator, branches out into second opinions to help patients
Companies hire Accolade to help their employees navigate the health-care system. Those services will soon include second opinions.
Shares in Accolade Inc. rose nearly 10% Friday on news that the company agreed to pay $360 million for 2nd.MD, a Houston company that will extend Accolade’s health-care navigation services into second opinions by specialists online.
The price could rise to $460 million if revenue targets are met, Accolade said. The deal was announced Thursday and is expected to close by the end of next month.
“This acquisition of 2nd.MD is for us a very natural extension of what we do into an area that’s really important, which is helping a person get the world’s best specialists for their own acute situation,” said Steve Barnes, chief financial officer of Accolade, which has dual headquarters in Plymouth Meeting and Seattle.
Accolade, which went public in July for $22 a share, is paying for privately held 2nd.MD with $230 million in cash raised from selling shares last summer and fall, and additional stock. Founded in the Philadelphia region in 2007, Accolade’s stock market value is $2.9 billion. Its shares closed Friday at $52.35, up $4.59 or 9.6%, on Nasdaq.
Accolade helps employees of big companies navigate the health-care maze. The firm’s top four customers are American Airlines, Comcast Cable, Lowe’s, and State Farm, according to a Securities and Exchange Commission filing last summer.
The acquisition of 2nd.MD for more than 10 times its 2020 revenue of $35 million fits with a flood of money into telemedicine and digital health. Teledoc paid $18.5 billion for Livongo Health, which provides remote monitoring for diabetes and other remote services, even though Livongo had just $160.7 million in revenue in its final six months as a public company.
Separately, Thomas Jefferson University chief executive Stephen K. Klasko is part of a group including Livongo’s founders that raised $525 million last fall to make acquisitions that will enable “the digital transformation of care, bringing disruptive innovation to the healthcare system through technology,” an SEC filing said.
“The market is looking for the next big thing,” Barnes said. “The valuations that are being applied are recognizing that the market’s changing dramatically. Just like you might see in other industries, like cars or electric cars or things like that, large industries getting disrupted by technology often command higher valuations.”
Like Accolade, large employers hire 2nd.MD and pay a per-member-per-month fee for the company’s services. 2nd.MD says its has more than 900 specialists across 120 specialties who review cases and make recommendations, saving the employer an average of more than $5,000 per consultation — a number that rises to $27,000 when surgery is involved.
2nd.MD has more than 300 customers, including some health plans, and more than 7 million members. Accolade has about 100 customers and more than 2 million members. In the nine months ended Nov. 30, Accolade had a net loss of $46 million on $111 million in revenue.
What attracted Accolade to 2nd.MD was its reliance not only on technology, but also on human interaction through a video consultation within three to four days, Accolade’s Seattle-based chief executive Rajeev Singh told analysts on a conference call Thursday. “That is substantively different than the rest of the industry” where two- or three-week turnaround times and written reports are standard, Singh said.
Matthew Gillmor who covers health care information technology investments for Baird, said Accolade’s acquisition of 2nd.MD “makes perfect sense, both strategically and financially.” He wrote in a note to clients that 2nd.MD complements Accolades current services, expands its market reach, and offers cross-selling opportunities.