Athenahealth, Led by Bush's Cousin, Jumps After IPO

By Tim Mullaney

Sept. 20 (Bloomberg) -- Athenahealth Inc., a medical software firm run by President George W. Bush's cousin, almost doubled in its first trading day, registering the best gain for a technology IPO since 2000 and a market value of $1.16 billion.

Athenahealth gained $17.50 to $35.50 at 4 p.m. New York time in Nasdaq Stock Market trading. The Watertown, Massachusetts-based company and its investors sold 6.29 million shares at $18 each, topping the $14 to $16 projected in a regulatory filing.

The 10-year-old company sells Web-based services that automate doctors' insurance collections and patients' medical records. The last technology IPO to rise that much was chipmaker Transmeta Corp., which more than doubled in its debut on Nov. 7, 2000, said Jay Ritter, who teaches finance at the University of Florida in Gainesville.

``It's been a long time,'' Ritter said.

Led by Chief Executive Jonathan Bush, 38, Athenahealth posted its first monthly operating profit in June, according to U.S. Securities and Exchange Commission filings. The company lost $5.28 million on sales of $46.4 million in the first half of 2007. Sales were up 31 percent from a year earlier.

``As we get older and more grown up and well-known, doctors are getting onto the network,'' Jonathan Bush said today on CNBC.

The company has more than 10,000 clients and retains 97 percent of them each year, said Francis Gaskins, president of IPODesktop.com Inc., a research service in Marina del Rey, California.

Software or Service?

The offering was priced as if Athenahealth were a traditional software company that charges licensing fees. Some investors gave the company a higher valuation accorded to companies such as Salesforce.com Inc., which sell software as a service, delivered over the Internet, said Gaskins.

``It's a little bit of both,'' said Leerink Swann & Co. analyst George Hill in Boston. ``Maybe it deserves a hybrid multiple. Where it closed implies a growth rate well above the health-care information technology industry average.''

Jonathan Bush and co-founder Todd Park, 34, each own about 1.45 million shares and options.

The company sold 5 million shares and investors sold 1.29 million, together equaling 20 percent. The shares trade under the ticker symbol ATHN. The valuation assumes underwriters led by Goldman Sachs and Merrill Lynch & Co. exercise an option to sell another 943,000 shares.

Proceeds

Athenahealth will use the cash to reduce debt and for general purposes including marketing and product development.

The company charges doctors 2 percent to 8 percent of their monthly collections rather than demanding up-front payments as traditional software companies do. Allscripts Healthcare Solutions Inc. and Quality Systems Inc. compete with Athenahealth for sales to practices of 10 doctors or more.

Athenahealth's fastest growth is likely to come from selling to offices with fewer doctors, where competitors tend to be small, local firms without rival technology, said analyst Phil Stiller of Greenwich, Connecticut-based Renaissance Capital.

In interviews before Athenahealth registered its IPO with the SEC, analysts including William Blair & Co.'s Corey Tobin said the company would be worth $500 million to $600 million, based on Allscripts' valuation.

Ann Lamont, a venture capitalist and member of Athenahealth's board, said then that ``Jonathan firmly believes this is a billion-dollar opportunity.