With a banner of its logo draped over the New York Stock Exchange on the Friday before St. Patrick's Day, Castlight Health went public – another sign that reducing friction and opacity in healthcare is sparking a gold rush of sorts.
Self-appraised at $1.39 billion in Securities and Exchange Commission filings, the healthcare price comparison company Castlight Health raised $178 million from 11.1 million shares priced at $16 apiece leading up to its IPO – apparently the first ever of a healthcare technology company selling price transparency.
While Castlight hasn't yet turned a profit, like so many other Silicon Valley companies, some analysts think the market for healthcare transparency and cost management technology could be as high as $5 billion.
Though it had 59 customers at the close of 2013, the San Francisco-based company actually took a loss of some $62 million, garnering $13 million in revenue while spending $34 million on marketing and sales, $15 million on R&D and $9 million on administration.
But by the metric of growth, one of the most fundamental to Silicon Valley investors, Castlight could have a bright future. Castlight's sales grew from $4 million to $13 million over 2013 – and it has a sales backlog of some $108 million from 106 customers as of December 31.
Founded in 2008 by athenahealth co-founder and current U.S. CTO Todd Park, former RelayHealth CEO Giovanni Colella, MD, and Bryan Roberts, partner at the Rockefeller family's VC arm Venrock, Castlight offers the employees of mostly self-insured companies price- and quality-based comparisons of physicians, hospitals and medical procedures. Through a platform recently rebranded as the "enterprise health cloud," Castlight promises to reduce clients' healthcare costs by as much as 13 percent annually.
Among its customers is one of largest self-funded employers, Walmart, along with ConAgra, CVS Caremark, Liberty Mutual, Microsoft, Honeywell, Kraft Foods, Tesla, Baylor, Indiana and Purdue universities, and the state of Indiana.
Using Castlight, Indiana was the first state government to offer public workers a healthcare comparison and transparency tool, Colella, Castlight's CEO, said in a media release at the time. The company has also inked a deal with Harvard Pilgrim to offer a customized comparison tool for about 600,000 of its 1.2 million members.
While the healthcare transparency market may be growing as the unsustainability of the current system becomes more obvious in and outside the healthcare industry, there's also a fair amount of competition for Castlight – among them Truven Health Analytics, ClearCost Health, Change Healthcare Corporation, Healthcare Blue Book and HealthSparq, as Castlight noted in its SEC filings.
"In addition, large, well-financed health plans, with whom we cooperate and on whom we depend in order to obtain the pricing and claims data we need to deliver our offering to customers, have in some cases developed their own cost and quality estimation tools and provide these solutions to their customers at discounted prices or often for free," the company added, noting initiatives by Aetna, Cigna, UnitedHealth and WellPoint.
Whatever that competition and the long-term challenge that could come if and when the cost opacity problem is solved by providers actually listing prices for consumers, as businesses do in most industries, Castlight could end up being quite successful at least in the short-term.
Already, some on Wall Street seem bullish of Castlight's prospects. Starting its first day of trading at $16 a share, Castlight closed at $39.80, an increase of almost 150 percent. Goldman Sachs and Morgan Stanley were the IPO's underwriters.