Doximity surges 69% in NYSE debut after IPO values health-tech company at $4.6 billion

• Doximity's revenue climbed 77% in the latest fiscal year to $206.9 million and net income jumped 69% to $50.2 million.
• Founded in 2011, Doximity has established itself as the LinkedIn for doctors, and now has over 1.8 million medical professionals on its network.
• The company makes money primarily by allowing drugmakers to promote products and services to doctors and as a recruiting tool for medical systems.

Doximity, the company that describes itself as the LinkedIn for doctors, jumped 69% in its stock market debut on Thursday after raising close to $500 million in its IPO.

Doximity sold 19 million shares for $26 a piece Wednesday night, above its projected range of $20 to $23, and an existing investor sold another 4.3 million. The offering valued the company at $4.6 billion. The stock, trading under ticker symbol "DOCS," climbed to $44.13 shortly after opening.

Founded in 2010, Doximity has grown rapidly in recent years by becoming the primary app that doctors use to stay connected with one another, sharing the latest research and updates on new drugs. With 1.8 million medical professionals in the U.S. on the site, including over 80% of physicians, Doximity has bolstered revenue by allowing pharmaceutical companies to promote drugs and treatments and by giving medical recruiters a central place to find prospects.

Revenue jumped 77% in the latest fiscal year to $206.9 million, according to the company's prospectus. Because Doximity spends virtually no money on advertising, operating costs are lower than at most venture-backed software companies. That allowed Doximity to boost net income 69% to $50.2 million in the fiscal year that ended in March.

The intersection between health and technology took center stage last year as coronavirus pandemic forced patients to get comfortable with remote visits and strained the resources of medical systems across the country. Investors seized the opportunity to profit from the economic shifts.

In August, telehealth provider Teladoc acquired Livongo, which specializes in remote coaching for chronic conditions, creating at the time a $37 billion company. Telehealth rival Amwell went public in September. Teladoc and Amwell have both traded lower in recent months as Covid-19 cases have plummeted and future growth rates for the businesses have come into question.

Meanwhile, telehealth company MDLive was acquired by Cigna in February for an undisclosed amount and two venture-backed health-tech companies, Grand Rounds and Doctor on Demand, merged in March, creating a multibillion-dollar business.

For Doximity, telehealth is a new business. The company has offered a free service since 2016 that allows doctors to call patients using their work number on a mobile phone. Doximity moved the dialer service to its main app in 2019.

In May 2020, the company added video, which it described as its "first telemedicine offering." Doximity launched a paid enterprise version, though it said the video service would be free through January 2021. In its prospectus, Doximity said it had signed subscription agreements with over 150 hospitals as of the end of March.

Jeff Tangney, Doximity's co-founder and CEO, said in an interview that even though over 80% of physicians are on the network, the company has at least a decade of "what we consider high growth" ahead because of the value it can bring to the health-care system. For example, the referral system can get much stronger, so that doctors know exactly where in the country to send patients who have a rare cancer.

He also said that Doximity has plenty of opportunities to expand in telehealth given the size of its user base for its core product.

"Telehealth is 2% of rev today and it's such a greenfield," Tangney said, after ringing the opening bell at the New York Stock Exchange. "We haven't been aggressive on pricing yet."

Doximity's overall growth is less reliant on telehealth than are other vendors in the market because its primary sources of revenue are not tied to doctor-patient communications. However, the company acknowledges that as the pandemic ends, its business could be hurt. Doximity benefited as more medical offices brought their marketing budgets online, and some of that spending could revert back to physical advertising.

"The circumstances that have accelerated the growth of our business stemming from the effects of the COVID-19 pandemic may not continue in the future," Doximity said. "If these customers reallocate a significant portion of their budgets back to in-person marketing, this could cause our growth to decline in future periods."

Tangney, who previously co-founded digital health site Epocrates, is the company's biggest stakeholder, with shares valued at about $1.3 billion, based on the IPO price. Emergence Capital is the largest outside investor, with a $627 million stake, followed by InterWest Partners and Morgenthaler.

The IPO marks Doximity's first financing since 2014, when the company raised $54 million at a $355 million valuation, according to PitchBook.

As part of the offering, Doximity reserved 15% of the shares for doctors in the network. Assuming doctors maxed out their participation, they purchased about $91 million worth of Doximity stock.

Tangney said over 10,000 physicians participated in the offering, purchasing up to $24,000 worth of shares. As a group, they own more stock than any single new investor, he said.

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