Athenahealth's IPO Builds Buzz

By Kristen A. Lee 09.14.07, 2:02 PM ET
NEW YORK, Associated Press -

A small initial public offering planned for next week has generated outsized buzz by boasting a recurring revenue stream in a sector poised for growth - and some very strong government connections.

Athenahealth Inc., which provides Internet-based business services for medical practices, happens to be helmed by Jonathan S. Bush, the 38-year-old cousin of a certain president of the United States.

Bush, who serves as chairman, president and chief executive of Athenahealth, got his start in health care as a paramedic in New Orleans. He was also trained as a medic in the U.S. Army.

In 1997, Bush co-founded Athenahealth, which automates and manages billing for physician practices and provides them with electronic medical records.

Health information technology is a hot-button issue in the industry and has become a priority of the Bush Administration and Congress.

The Department of Health and Human Services has made adoption of information technology by the health care sector a top priority. The agency said broad use of health IT will prevent medical errors, reduce health care costs, increase efficiency and expand access to affordable care.

As of June 30, Athenahealth said more than 10,500 medical providers, including about 8,000 physicians, were using the company's services.

The company has not achieved profitability. In the six months ended June 30, Athenahealth widened its loss to $6.1 million, from $4.6 million in the prior year.

But analysts say the company's recurring, predictable revenue stream is its key selling point. Athenahealth ties its revenue to the financial performance of its customers by taking fees that typically represent about 2 percent to 8 percent of a medical practice's total collections.

The Watertown, Mass.-based company also boasts a contract renewal rate of at least 97 percent in each of the last five years. "People absolutely love predictable revenue streams, especially those that are increasing," said Francis Gaskins, president of research company IPODesktop.com.

In the six months ended June 30, the company increased its revenue to $46.4 million from $35.3 million.

"I think we expect them to turn profitable in the next quarter or two," said Phil Stiller, an analyst with Renaissance Capital.

Athenahealth expects its IPO, which totals 6.3 million shares, to price between $14 and $16 per share. The company is offering 5 million shares and a group of stockholders are selling the remaining 1.3 million shares.

Companies like business software maker Salesforce.com Inc. have proven that the concept of "on-demand" software can produce impressive returns. Salesforce.com has more than quadrupled its share price since it went public at $11 per share in 2004.

Goldman Sachs, Merrill Lynch, Piper Jaffray & Co. and Jefferies & Co. are underwriting the IPO. The underwriters have an option to buy up to 943,023 additional shares from the selling shareholders, including 80,000 shares from Bush, to cover any overallotments.

Athenahealth plans to list its shares on the Nasdaq Stock Market under the symbol "ATHN."