Dive Brief:
- Consumer-facing digital health startup Hims & Hers on Wednesday completed its merger with special purpose acquisition company Oaktree Acquisition Corp., in a deal valuing the company at $1.6 billion.
- Hims & Hers received proceeds of almost $280 million as a result of the deal, which it plans to reinvest in driving geographic growth and new product lines.
- Beginning Thursday, Hims & Hers will trade on the New York Stock Exchange under the symbol HIMS.
Dive Insight:
Wall Street has seen a flurry of digital health companies going public in recent months as the coronavirus pandemic continues to drive investor interest in the sector. Funding for digital health startups shattered records in 2020, with global equity funding hitting an all-time high of $26.5 billion last year.
Hims & Hers, which launched in November 2017, was originally geared toward addressing men's health issues such as erectile dysfunction and hair loss. In the past three years, the company added a women's health division, an online pharmacy and its own EHR.
Now, it operates as a telehealth platform connecting consumers nationwide to doctors in a variety of specialties, including mental health, sexual health, dermatology and primary care.
Hims & Hers is entirely cash-pay and doesn't contract with any insurance, though the company has said that could change in the future. Instead, members pay a subscription of around $20 a month for access to unlimited online consultations and a supply of generic medications.
Hims & Hers markets itself as a one-stop shop for consumers, allowing them to bypass the traditional in-person care delivery pathway. It can be more expensive than other telehealth offerings, but is still generally cheaper than the unbundled price of a doctor's visit and full-price prescription, according to SVB Leerink analyst Stephanie Davis.
The company has seen rapid growth. Since its launch a little more than three years ago, Hims & Hers has run more than 2 million telehealth visits and seen 100% compounded annual revenue growth, from $27 million in 2018 to $83 million in 2019 and an expected $138 million this year, per internal data.
Hims & Hers has more than doubled gross margins to 71%, with recurring revenue making up 91% of its top line. However, the company has yet to turn a profit, reporting a $69 million net loss in 2019, and doesn't expect that to change in the near-term as it reinvests in growth, according to financial documents filed with the SEC in December.
Beyond growing pains, Hims & Hers also faces additional risk as it looks to scale in the increasingly crowded and rapidly evolving virtual care market, elbowing against telehealth giants like Teladoc and Amwell and technology behemoths and retail pharmacies interested in the lucrative space, such as Amazon and CVS Health.
"We operate in highly competitive markets and face competition from large, well-established healthcare providers and more traditional retailers and pharmaceutical providers with significant resources," Hims & Hers said in the prospectus.
Additionally, the company noted it may not be successful in its nascent women's health and wellness initiatives. A substantial majority of its annual revenue is from male customers, so new and developing efforts to attract new female customers and retain existing ones could be challenging, according to the S-4.
The deal, approved Tuesday by Oaktree's shareholders, was first announced in October, closing in under three months. It values Hims & Hers at $1.6 billion, equal to 8.9 times estimated 2021 revenue, and 12.2 times estimated 2021 gross profit.
Of the $279.5 million in proceeds, about $204.5 million is cash from Oaktree Acquisition's trust account and $75 million is from private placement investors, including Franklin Templeton and other Oaktree clients. The San Francisco-based company's venture investors include McKesson Ventures, Founders Fund and IVP.
Hims & Hers' management and existing equity holders have also rolled between 90% and 100% of their equity into the combined venture, which will continue to be led by CEO and co-founder Andrew Dudum, along with much of its existing leadership team.
Merging with SPACs to go public as opposed to a traditional IPO has become an increasingly popular route for healthcare companies, as it generally allows founders and investors to retain more control with guaranteed access to capital. Another telemedicine company, SOC Telemed, went public in a similar deal in late July with special purpose acquisition company Healthcare Merger. Other healthcare companies using SPACs to go public in the fourth quarter include devicemaker Butterfly Network and medical documentation company AugMedix.