Oscar Health Inc., the digital health insurance company known to New Yorkers thanks to a subway advertising campaign, is going public and could value the company up to $ 8 billion.
OSCR plans to offer 31 million shares at a price of $ 32 to $ 34 to raise approximately $ 1.05 billion. Underwriters can purchase around 4.65 million more shares.
The price range implies a market capitalization of $ 7.05 billion to $ 8 billion, according to Rohit Kulkarni, an analyst at MKM Partners, assuming there will be around 234 million shares outstanding. Oscar was valued at $ 3.2 billion in a funding round in early 2019, and Google parent company Alphabet Inc., + 1.17%, + 1.15%, is its largest shareholder with a stake of about 18% above the IPO, the MKM analyst wrote a note.
MKM does not participate in the offer and does not make a recommendation or initiate reporting, said Kulkarni.
“However, we watched Oscar’s roadshow presentation and product demo and were impressed with a fairly comprehensive suite of technology-based user experiences and Oscar’s continued focus on rethinking every building block of it [the] Health insurance supply chain, ”he wrote on the note.
Oscar was founded in 2012 by Joshua Kushner, Kevin Nazemi and Mario Schlosser, who is currently managing director. Kushner is a brother of former White House advisor Jared Kushner, son-in-law of the former US President, and is married to supermodel Karlie Kloss.
Kushner is also the managing director of New York venture capital firm Thrive Capital Management.
Today Oscar has enrolled more than 500,000 people in 18 states on his platform offering individual and family, small group, and Medicare Advantage plans. Benefits include telemedicine visits at no additional cost and a network of doctors and hospitals to choose from.
There are 10 banks writing the deal, led by Goldman Sachs, Morgan Stanley, Allen & Co., and Wells Fargo Securities. The proceeds will be used to repay debt and for general corporate purposes including growing the business and technology development.
The company has applied to be listed on the New York Stock Exchange under the ticker symbol “OSCR”.
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“We created Oscar because of our own frustrations with the US healthcare system,” the prospectus reads. “The US health care system is the largest and most expensive in the world – it has estimated it cost over $ 4 trillion in 2020 – but health outcomes are worse than other advanced economies.”
The cost is so high that medical bills account for around 66% of all personal bankruptcies in the United States
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“It doesn’t have to be like that,” says the Oscar prospectus. “According to a report published in the Journal of the American Medical Association in 2019, nearly 25% of US healthcare spending is wasted. This is the result of a system plagued by misaligned incentives, lack of coordination, and administrative complexities.”
Health insurers play a key role in this facility as they pay out 75 cents of every health dollar spent. However, after decades of effort, the mainstream insurers have failed to contain costs or motivate key stakeholders to improve the system.
“We founded Oscar to solve these problems and give consumers access to affordable, quality healthcare they deserve,” she continues.
In a letter from the founders in the prospectus, they explain that the name Oscar is that of Kushner’s great-grandfather, an immigrant who is said to have acquired the name on Ellis Island. The name was also inspired by the doctor who looked after Schlosser in his youth in a small German town, a doctor who made home calls to patients in the afternoon on most weekday afternoons. Upon arriving in the United States, Schlosser was surprised to learn that the family doctor model was not available.
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“He saw that the reason was not a lack of commitment among American caregivers,” the letter says. “That was because of the fee system – a system that achieves worse results than in other countries and at a higher cost.”
Here are five things you should know about Oscar before going public:
Oscar has a great market opportunity
The US health insurance market is huge, accounting for about $ 4 trillion in annual spending, or 18% of GDP. As a new tech-savvy company, Oscar has a pretty strong market opportunity, provided it can compete with the mainstream insurers.
The company believes it is the third largest for profit health insurer in the 18 states in which it operates. The company could also benefit from the move to telemedicine, which accelerated during the coronavirus pandemic and saw 62% more telemedicine visits per 10,000 members in March 2020 compared to the same month last year. It could also benefit from an overall positive response from other recent telemedicine IPOs, including Teladoc Health Inc. TDOC (-0.57%).,
Lemonade LMND, -0.20% and American Well Corp. AMWL, + 1.15%.,
according to Kulkarni from MKM.
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Oscar’s founders retain control of the company
The IPO envisions a dual class share structure with Class A and B shares, the latter holding 20 votes per share compared to one vote per Class A share. The Class B shares are said to be held by co-founders Kushner and Schlosser and Kushner’s Thrive Capital, who together will own approximately 82.9% of the voting rights upon completion of the transaction.
That means common shareholders will have little control over the running of the company.
Other investors include Tiger Capital, Coatue Management and Dragoneer Investment Group, who have stated that they are interested in buying shares valued at $ 125 million each or shares valued at $ 375 million in total.
Oscar is not profitable and never can be
The company has never made a profit and, according to its prospectus, had a cumulative deficit of $ 1.427 billion as of December 31, 2020.
“For the years ended December 31, 2019 and 2020, net losses were $ 261.2 million and $ 406.8 million, respectively,” the prospectus states.
Sales fell to $ 462. 8 million out of $ 488.2 million.
The company’s adjusted Ebitda losses (earnings before interest, taxes, depreciation, and amortization) are also rising, rising from $ 222.2 million in 2019 to $ 402.4 million in 2020.
The medical claims ratio was 84.7% at the end of 2020, while the administrative ratio was 26%, which equates to a combined overall ratio of more than 110%, which “implies negative operating margins despite the growing magnitude,” said MKM analyst Kulkarni.
The company intends to make “significant investments” to further market, develop and grow the business, with an emphasis on its technology platform and member engagement engine. These efforts mean hiring more people. As a public company, she also expects higher legal, accounting, and compliance costs than before, as long as it was private.
“We may not achieve or maintain profitability and will continue to suffer significant losses in the future,” the company’s list of risk factors reads.
Oscar is heavily exposed to the Affordable Care Act
Oscar is heavily exposed to the Affordable Care Act, the health care law enacted during Barack Obama’s presidency, which continues to be the subject of lawsuits and efforts to amend its provisions. Plans regulated under the ACA accounted for 95% of its revenue in 2020 and 96% of its revenue in 2019, the prospectus says.
While the law may remain safe under President Joe Biden – Obama’s vice-president – there is no guarantee that a future Republican administration would not try to overthrow it, and with it much of Oskar’s business.
A constitutional challenge initiated in Texas in December 2018 is still working its way through the system and is now headed California v Texas pending a Supreme Court decision, the prospectus reads.
In the meantime, Congress and President Biden may consider other laws and / or executive orders to amend elements of the ACA, including, for example, the Executive Order issued by President Biden on January 28, 2021 directing the Secretary of HHS to open of a special should consider the health insurance market registration deadline and instructing federal agencies to review all existing regulations, ordinances, guides, guidelines, and similar agency measures to determine whether such measures are inconsistent with those set out in the Executive Ordinance on Protection and Enhancement Guidelines are compatible with Medicaid and the ACA and make high-quality health care accessible and affordable for every American, “it says.
These changes could have a material impact on Oscar’s business, results, and financial condition.
Oscar has no plans to pay dividends
Like many first-time public companies, Oscar is not planning on paying a dividend for the foreseeable future. This means that shareholders have to rely on price gains for returns.
The ability to pay dividends in the future will also be limited by some terms of the revolving credit facility that may be embedded in future credit agreements, the prospectus states.
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