Doctor Care Anywhere Group — DOC from home

DOC is a fast-growing telehealth company focused on delivering high-quality, effective and efficient care to its patients, while reducing the cost of providing healthcare for health insurers and healthcare providers. The company operates a business to business to consumer (B2B2C) model, using its relationships with health insurers, healthcare providers and employee benefits providers to offer its patients a range of telehealth services, which currently includes Video GP (VGP), Internet Hospital and Mental Healthcare services. Healthcare systems are traditionally very fragmented, which often gives rise to inefficiencies for both patients and providers. DOC aims to deliver health insurers a reduction in claims costs of up to 20% by joining up primary and secondary care, and in doing so, reduce unnecessary appointments and diagnostic tests. Patients benefit from better and quicker access to healthcare, with fewer in-person appointments. DOC’s experienced management team is led by co-founder and CEO Dr Bayju Thakar. The company has strong corporate governance with six non-executive directors, four of whom are independent.

The global telehealth market is forecast to grow at a CAGR of 23.1% from US$5.3bn in 2019 to US$14.9bn by 2024, primarily driven by COVID-19 related changes to consumer habits. The robust growth in demand for telehealth since the start of the pandemic combined with the stellar returns investors earned by investing in Teladoc, the largest Telehealth company in the world (up 10x since its June 2015 IPO on the NYSE), led to a raft of telehealth company listings in 2020. Four telehealth companies raised an aggregate US$1.88bn in IPO proceeds and have posted a median return of 26.9% since listing, which has meant that investor appetite for IPOs is likely to continue in 2021.

We forecast DOC to continue to grow robustly in 2021, with revenue increasing 85% y-o-y to £21.4m on the back of a 101% growth in consultations. In 2022 we forecast revenue to grow 75% yoy to £37.4m, with consultations increasing 75%. This implies an 80% revenue CAGR over the two-year period. We estimate that DOC will remain loss making through the forecast period, given the company’s investments in growth, but is fully funded through the forecast period, to execute on management’s growth strategy. In 2023 we believe DOC will have to raise further growth capital.

DOC trades at 6.9x our 2021e revenue forecast on an EV/sales multiple, which is a sizable 60% discount to its peer group of global telehealth companies. Applying a 20% discount to the peer average multiple results in an EV of £277m (A$499m) or A$1.73 (£0.96) per share, which 65% ahead of DOC’s current A$1.05 share price. We believe DOC’s valuation discount to its telehealth peers will reduce over the next 12–18 months, as it increases its activated customer base and consultations, expands into new international markets, signs up partners for its mental healthcare service and meets or beats market expectations on revenue and KPIs.

The key sensitivity is customer concentration. DOC’s relationship with AXA Health accounted for 80% of 2019 revenue and is expected to have been a similar proportion in 2020. In the near term we see AXA Health being a large proportion of DOC’s revenue, but note that 2020 partnerships with HCA and Allianz should help diversify revenue in the longer term.

DOC is a fast-growing telehealth company focused on delivering high-quality, effective and efficient care to its patients, while reducing the cost of providing healthcare for health insurers and healthcare providers. The company operates a business to business to consumer (B2B2C) model, using its relationships with health insurers, healthcare providers and employee benefits providers to offer its patients a range of telehealth services, which currently includes Video GP (VGP), Internet Hospital and Mental Healthcare services.

DOC’s main market currently is the UK, where it is focused on the private health sector. The company has ambitious plans to grow its service offerings as well as expand into new markets in Europe and Asia-Pacific. DOC was founded in 2013 in London, where its headquarters are. The company is listed on the Australian Stock Exchange (ASX) under the ticker DOC.

DOC was founded in 2013 to provide better access to healthcare for patients by using technology, while saving costs for insurers and healthcare providers.

The company has grown rapidly as it launched new service offerings and partnered with large insurers and healthcare and employee benefit providers. In 2015 DOC entered its first strategic relationship with health insurer AXA Health to provide its Virtual GP services. The partnership with AXA has been key to the growth of the company, with DOC and AXA establishing a UK JV in 2020. Other important partnerships include Nuffield Health (2016); Perkbox (2018); HCA Healthcare (2020) and Allianz Partners (2020).

A key element of DOC’s rapid growth has been the increase in its service offering, which is an important part of the company’s growth strategy. In 2019 it completed a pilot of its Internet Hospital, which combines primary and secondary healthcare, which subsequently led to a full-service launch of the Internet Hospital with AXA in early 2020. In November 2020 it expanded its service offering to include Mental Healthcare and in January 2021 it partnered with digital mental healthcare pioneers Koa Health and Kooth.

DOC made its first foray outside the UK in 2020, expanding into the Republic of Ireland using a team of doctors registered by the Irish Medical Council. The company capped off an eventful 2020 by becoming a publicly listed company with its successful IPO on the ASX.

DOC’s December 2020 IPO saw it raise A$102m/£56.4m3 in total proceeds at an A$0.80 issue price, of which A$65m/£35.9m (gross) were received by the company. The remaining A$37m/£20.4m went to long-term shareholders, which sold off a part of their holdings. None of DOC’s board of directors or senior management team sold any shares as part of the IPO. Management, as well as the remaining interest held by major pre-IPO investors, are subject to a 24-month lock-in from the date of listing (until early December 2022). A breakdown of the use of proceeds from the issue of shares at the IPO is detailed in the table below.

DOC is more than just a technology platform to connect patients to doctors. The company has 193 GPs, 22 specialists and nine triage practitioners (as of the end of June 2020). GPs are either employed by DOC or self-employed and contract with the company, while specialists are all currently self-employed and have contracts with DOC that can be terminated at short notice. The medical practitioners are overseen by clinical leads, who are responsible for the recruitment, training, quality assurance and performance management of DOC’s medical practitioners.

Patient safety and service quality are a key focus for DOC’s senior management, with high standards of clinical quality governance integral to the company’s strategy. There is an independent Clinical Governance Committee (CGC), which reports to the board on matters such as effectiveness of clinical governance, quality and compliance arrangements and performance. DOC’s chief medical officer holds primary accountability for clinical governance, while the chairman of the CGC provides assurance oversight of the application and effectiveness of clinical governance standards and performance. Additionally, DOC is regulated by the Care Quality Commission (CQC)4 and obtained an overall rating of Good5 at its last assessment in September 2019.

DOC’s core technology platform is built in a modular and scalable manner, allowing it to be customised to clients’ specific needs. The platform is deployed over Microsoft’s Azure cloud service as well as the UK public health cloud – UK Cloud – facilitating the launch of DOC’s services into new geographies as well as additional service offerings. Electronic health records (EHRs) are a key part of the platform. Both patients and medical practitioners are able to access records related to their consultations over the DOC platform online 24/7, thereby leading to more complete information for the practitioner to base their decision on. DOC plans to invest in further developing its EHR to substantially expand its functionality.

Virtual consultations over the platform are encrypted to ensure patient data remains private as well as appropriately stored and used. Cyber security protocols have been embedded into the platform from its inception and DOC has been General Data Protection Regulation (GDPR) compliant since 2018 and has a set of policies in place to govern data protection and breaches.

DOC’s route to market is through channel relationships, which provide a lower cost of customer acquisition than a direct business to consumer (B2C) model. The company has built up an impressive list of partners including major global health insurers such as AXA Health and Allianz Partners, large healthcare providers like HCA Healthcare and Nuffield Health, among others, through which it provides its telehealth services. AXA was the third largest insurer in the world by non-banking assets and net premiums written (NPW), and Allianz was the largest by assets and ranked seventh by NPW in 2019.6 DOC currently services over 1,500 corporate clients and had a base of 2.2 million patients at the end of 2020.

AXA Health is DOC’s oldest partner, dating back to 2015, when it established a commercial relationship with DOC. This subsequently led to a UK JV between AXA Health and DOC in January 2020, with the JV partners launching their Internet Hospital in April 2020. Given DOC’s participation in the UK JV, it has an exclusive relationship with AXA, which prevents the company from working with other health insurers in the UK. However, this does not prevent DOC from partnering in the UK with healthcare providers like HCA and Nuffield or potentially other avenues such as retail pharmacies.

DOC operates a B2B2C model. The company’s route to market is through its channel relationships and partnerships, which provides a lower cost of customer acquisition than a direct B2C model. DOC currently services over 1,500 corporate and SME clients through its major channel relationships. Revenue is largely generated from the provision of services in connection with:

DOC’s business model is designed to capture revenue from different parts of the patient journey. The majority of revenue is generated through either a utilisation-based model or a subscription model for VGP consultations and specialist reviews. Licence fees are also charged to some channel relationships for development work and access to the platform. Additionally DOC will also receive its share of any dividends paid by the AXA Health JV. The JV, which was set up in 2020, is currently loss making.

DOC was founded specifically to address the fragmentation found in health systems globally, which leads to cost inefficiencies and poor patient outcomes. The company aims to deliver health insurers a reduction in claims costs of up to 20% by joining up primary and secondary care, and in doing so, reduce unnecessary appointments and diagnostic tests. Patients benefit from better and quicker access to private healthcare, with fewer in-person appointments. DOC’s strategy is to move towards ‘total care’ by capturing a greater proportion of the care pathway. It plans to do this by developing and optimising treatment pathways across its seven medical specialties and expanding into other areas, combining primary care and secondary care, acute and chronic conditions, physical and mental health management.

The company has detailed five key areas of growth:

DOC’s executive board (bios on page 17) consists of co-founder and CEO Dr Bayju Thakar and Chairman Jonathan Baines. Bayju is a medical doctor and previously worked at McKinsey & Co. He co-founded DOC and has been key to the company’s growth into an integrated digital healthcare provider. Jonathan, who has served as chairman since November 2018, has extensive board and governance experience. He had a successful career in the search industry, which included founding and selling his own firm to serving as chairman of Korn Ferry in EMEA. Bayju and Jonathan have built up a solid executive management team (bios on page 17), which includes: CFO and company secretary Dan Curran, chief clinical innovation officer Dr Kate Bunyan, chief commercial officer Paul Tambeau and chief information officer Mark Findlater.

The executive board and management team are augmented by six experienced high-profile non-executive directors: David Ravech, Simon Calver and independent non-executives Dr Leanne Rowe, Richard Dammery, Romana Abdin and Vanessa Wallace.

DOC currently offers both primary and secondary clinical services, which are delivered through its proprietary cloud-based platform. It integrates virtual consultations with diagnostic reviews, resulting in both time and cost efficiencies as well as an improved patient experience. DOC currently has two established service offerings:

DOC’s Virtual GP (VGP) provides patients with a virtual consultation by a doctor, at a time that is convenient to them, from any location where the internet or a phone signal is accessible. The service provides patients with:

The target segment for VGP services includes payors (healthcare insurers like AXA Health and Allianz Partners), healthcare providers (like HCA and Nuffield), health services resellers (such as Perkbox) and corporates.

DOC’s Internet Hospital combines primary and secondary care into a single seamless experience for the patient, while saving costs for the payor. A pilot of the Internet Hospital was launched with AXA Health in January 2019, with a full commercial launch in April 2020.

The Internet Hospital currently covers seven medical specialities: cardiology, ENT (ear nose and throat), gastroenterology, gynaecology, orthopaedics, spinal and urology.

The seamless proposition the Internet Hospital provides patients is best illustrated with an example of how a patient’s journey would compare if they used it versus a traditional in-person solution.

Additionally, the number of in-person visits, in our example above, are greatly reduced by DOC’s Internet Hospital at just one versus three for the traditional healthcare set up. This two-thirds reduction in in-person visits is a win-win, given it is both more convenient and faster for the patient, while reducing the cost of providing the care for the payor.

Expanding DOC’s services is a key part of the company’s growth strategy, with management having earmarked AS$11.6m (c 18% of gross proceeds from the IPO) towards expansion of services. The two services include Mental Health and Virtual Specialist Solutions.

DOC’s Mental Health Services is led by GPs specifically trained to manage mental conditions. It looks to integrate a range of digital and in-person treatment options, including digital therapies and access to self-management tools to improve accessibility and effectiveness.

In January 2021, DOC announced it was working together with Koa Health, a digital mental health care provider, and Kooth, a leading online mental health platform. Through these partnerships with Koa and Kooth, DOC’s GPs in addition to being able to identify and advise patients on physical and mental health conditions, would also be able to provide them with access to additional and specialist support as part of an integrated mental health solution. The new digital services will initially be made available to selected patients, who can access a range of programmes, including audio clips, meditations and games designed to enhance sleep and relaxation and combat depression, offered by Koa. Additionally, Kooth’s online platform will provide outreach on an anonymous basis to an online peer community, with trained professionals monitoring and engaging with users to ensure safety and the effectiveness of the service.

Key target segments for Mental Health services include corporate clients that wish to provide these services as an employee benefit, healthcare providers looking to incorporate mental health into their services, and private medical insurers wanting to offer the right course of timely mental health care to their members.

The Virtual Specialist Solution would be similar to DOC’s VGP service, enabling patients to have virtual consultations with a specialist (instead of a GP), such as a cardiologist, orthopaedic surgeon or gynaecologist, among others. Enabled by DOC’s EHR, referrals could be made directly to specialists in advance of diagnostic tests or immediately afterwards. The specialist can arrange additional tests if necessary, to develop the patient’s care plan. This would replace numerous expensive and time consuming in-person visits, with potentially disjointed information flows, that patients often experience when specialist care is required. Private medical insurers and specialist consultants are the key target clients.

Telehealth is the provision of healthcare services at a distance, using information and communication technology (ICT), instead of traditional in-person treatment. ICT such as computers and smartphones with video calling, digital imaging and health care monitoring devices have made it possible for doctors and other clinical staff to monitor, diagnose and treat patients remotely. Telehealth is a broad term that covers any type of healthcare that is delivered remotely, including medical information provided online, calling a nurse hotline, apps that provide information and initial diagnosis, sending data from a device like a heart monitor via the telephone to a cardiologist, among others.

There are three ways in which telehealth can be delivered:

The healthcare services provided by DOC fall under the synchronous and asynchronous categories.

Adopting telehealth to deliver healthcare has a number of advantages, including cost savings, convenience and the ability to provide healthcare to people with mobility constraints, or those living in remote areas, where there is limited access to a doctor or clinic. As a result telehealth usage has increased significantly over the last decade. According to the Harvard Medical School, 76% of US hospitals had adopted telehealth in 2020, up from 35% a decade earlier. A key limitation to telehealth is that not all healthcare services can be provided remotely. Patients still need to visit a diagnostic test centre for things such as X-rays or MRI scans, blood and other samples for instance or for some diagnoses that require a more hands-on approach. Additionally, not all patients have the ICT, broadband or the ability to use such tech.

Historically, medical training was based on the notion that physical examination (eg auscultation, palpation, percussion) was a necessary part of evaluating a patient. Additionally, every medical decision potentially carries a legal risk for the physicians. As a result, the medical fraternity pushed back against the adoption of telehealth either due to dogmatic views gained during the university years or simply out of fear of legal action. However, in spite of these hurdles there has been a slow and steady appreciation of the benefits of telehealth. The ongoing restrictions caused by the pandemic have served as a catalyst in speeding up the adoption of telehealth.

The highly contagious nature of SARS-CoV-2 (coronavirus) led to fears that patients as well as healthcare staff could be exposed to the virus from traditional in-person visits to the doctor. This, combined with lockdowns and the need for social distancing, led to healthcare providers the world over having to embrace telehealth services to continue to serve their patients. In early March 2020, NHS England instructed the 7,000 GP surgeries it oversees to begin conducting as many remote consultations, as soon as possible. Data from the Royal College of General Practitioners showed that in the four weeks leading up to 12 April 2020, 71% of GP consultations in the UK were delivered remotely compared with just 25% for the same period in 2019. According to McKinsey, US consumer adoption of telehealth expanded from 11% in 2019 to 46% by mid-2020, leading to healthcare providers rapidly scaling up their telehealth offerings. According to Harvard Medical School, three-quarters of Americans surveyed said the pandemic had made them more eager to seek telehealth solutions.

The global telehealth market is forecast to grow at a CAGR of 23.1% from US$5.3bn in 2019 to US$14.9bn (+181%) in 2024, according to Signify research, primarily driven by COVID-19 related changes to consumer habits. Despite industry estimates varying greatly, the consensus that telehealth is poised for higher adoption and robust growth remains broadly consistent. Global Market Insights, for example, estimates that the global telehealth market will increase by a CAGR of 25.2% between 2019 and 2026, from US$45.5bn to US$175.5bn.

Key growth drivers for increased telehealth adoption and growth include increased prevalence of chronic diseases, long waiting times at hospitals, greater need for cost-saving in healthcare delivery, a growing number of smartphone users and advances in consumer information and communications technologies. By region, the Americas is the largest telehealth market, accounting for 66% of the total market in 2019, followed by Europe, Middle East and Africa (EMEA) at 21% and Asia with 13%. Although the ranking of the three regions is forecast to remain unchanged come 2024, rapid growth in Asian telehealth sees the region increase its share of the global telehealth market to 19% (from 13% in 2019). The anticipated relaxation of regulation within many European countries over the next few years and improved access to care from remote areas are key drivers for the adoption of telehealth within the region, with the European market increasing from US$1.1bn (21% of global) in 2019 to US$3bn (20% of global) by 2024.

Teladoc (TDOC), the telehealth market leader in the US and the largest telehealth company in the world by revenue and value, was the first telehealth company to go public.

TDOC shares began trading on the NYSE on 1 July 2015, at an IPO price of $19 per share, giving the company a market capitalisation of US$758m. TDOC shares have since increased by 837% to US$178 per share (7 April market close) translating to a market cap of US$27.2bn.

As we can see from Exhibits 9 and 10 above, TDOC shares have solidly outperformed the major US, UK and Australian indices as well as the fast-growing FAANG (Facebook, Amazon, Apple, Netflix and Google) stocks.

The robust growth in demand for telehealth since the start of the pandemic combined with the stellar returns earned by TDOC investors led to a raft of telehealth company listings in 2020.

The four telehealth IPOs listed in Exbibit 10 above raised an aggregate US$1.88bn in proceeds at IPO. More importantly all four companies have performed solidly with a median return of 26.9%. The robust share price gains of the class of 2020 have meant that investor appetite for telehealth IPOs should continue into 2021. MDLive, based in Miramar, Florida, with 60 million eligible patients through their health insurance plans, is widely reported to be planning a listing in early 2021. In late February, Bloomberg reported that Babylon, a UK telehealth unicorn, was working on an IPO in the US and had also been approached by a number of special purpose acquisition companies (SPACs). Babylon, last valued at US$1.9bn in 2019 when it raised US$450m in funding, could be valued at over US$4bn according to Bloomberg.

In addition to traditional IPOs, companies like Hims & Hers Health Inc. listed on the NYSE on 21 January by way of being acquired by a SPAC, valuing the business at US$1.6bn. SPAC GigCapital2 acquired two telehealth companies, UpHealth and Cloudbreak, to create a telehealth company called UpHealth, valued at US$1.35bn and it is expected to list prior to the end of Q121.

DOC’s competitors in the UK private healthcare market are shown in Exhibit 12 below. All four of DOC’s competitors are private companies with limited disclosures:

DOC’s financial results are accompanied by three main key performance indicators (KPIs):

The company provides a further breakdown by utilisation or subscription, for each of the three KPIs as the revenue model for the two are different:

DOC’s maiden full year results (refer Exhibit 13 below) published in late February showed the company grew rapidly in 2020 with revenue and headline KPIs up by over triple digits versus 2019. H220 results comfortably outperformed the guidance the company provided to investors in its IPO prospectus.

Group revenue increased 102% y-o-y to £11.6m in 2020; 6% ahead of the prospectus forecast of £10.9m, benefiting from higher-than-expected utilisation consultations. Utilisation revenue increased 359% y-o-y to £9m and accounted for 78% of group revenue (versus 34% in 2019). Consultations increased by 306% y-o-y to 214.7k, activated lives grew 199% y-o-y to 432.5k and eligible lives increased 186% to 2.2m at the end of 2020. Subscription eligible lives increased by 82% y-o-y to 181k at year end 2020. The reported EBITDA loss of £8.7m7 came in 15% lower than the prospectus forecast of £10.2m due to higher-than-expected revenue, lower than expected IPO costs and the loss from the JV with AXA.

In 2021 we forecast DOC’s revenue to increase by 85% y-o-y to £21.4m resulting from 101% growth in consultations (107% growth in utilisation consultations) and a 34% growth in subscription eligible lives to 241.9k. For 2022 we forecast revenue to grow 75% y-o-y to £37.4m, with consultations increasing 75% and subscription eligible lives growing 15% y-o-y, benefiting from further onboarding of customers by Allianz as well as DOC winning and onboarding new partners. Our revenue growth forecasts for DOC imply an 80% CAGR over the two-year period from 2020 to 2022e. DOC’s cost of sales includes the amount it pays GPs per consultation. Our forecasts assume an increase in cost of sales per consultation to outstrip revenue per consultation, as DOC competes mainly with the NHS in the UK for GPs. As a result our gross margin in 2021e of 42.9% declines to 41.6% in 2022e, with gross profit to grow at a 40% CAGR over the next two years.

Our forecasts imply a robust increase in admin expenses as DOC uses the proceeds from its IPO fundraise to invest in sales and marketing, R&D, and to increase functionality and volume on its platform. We forecast admin expenses to increase 34% in 2021e to £27.3m and a further 3% in 2022e to £28.2m. This results in an operating loss (on a reported basis) of £18.1m in 2021e, which narrows to £12.6m in 2022e as a result of revenue growth outstripping admin expense growth. On an EBITDA basis the loss equates to £17.1m in 2021e (£16.7m loss including £0.32m JV gains) and £11.4m in 2022e (£7.7m loss with JV gain of £3.4m).

In addition to the admin expenses detailed above, our forecast includes £1.60m related to capitalisation of R&D in 2021e (£1.46m in 2020) and £1.64m in 2022e. Our forecast for DOC implies a net cash burn of £19m in 2021e and £13.1m during 2022e.

DOC ended 2020 with a net cash position of £38.4m and zero debt, benefiting from £31.2m net proceeds (after IPO expenses and fees) from its December 2020 IPO. Based on our conservative cost forecasts, DOC is fully funded until at least the end of 2022. In 2023 DOC would need to raise growth capital to fund its ambitious expansion plans. Our forecast implies a net cash position of £19.4m at the end of 2021e and £6.3m by the end of 2022e.

Our forecasts and the share price will be sensitive to the following factors:

As none of DOC’s UK competitors are currently publicly listed, we value it using a peer group of global telehealth companies. EV/sales forms the basis of our valuation as the peer group companies are fast growing and pre-profitability. DOC currently trades at 6.9x our 2021e revenue forecast, which is a 60% discount to its global telehealth peer group at 17.2x.

We apply a 20% discount to the peer multiple to account for (1) a smaller company valuation discount and (2) a lack of track record on the market compared to the peer group. This equates to a 13.8x EV/sales multiple and an EV of £277m/A$499m.8 On a per share basis this implies a valuation of A$1.73 (£0.96), which is 65% above the current share price of A$1.05. We note that DOC’s 2-year forecast revenue CAGR of 80% is 34% of the peer group average 60% growth rate for the next 2 years.

We believe DOC will reduce the valuation discount to its telehealth peer over the next 12–18 months, as it increases its activated customer base and consultations, expands into new international markets, signs up partners for its mental healthcare service and meets or beats market expectations on revenue and KPIs.