Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

Established fourteen years ago, <a href="https://www.smartkarma.com/entities/phreesia-inc" target="_blank" data-smartkarma-citation="entities:28197:1" rel="noopener">Phreesia Inc (PHR US)</a> is a leading solutions provider that caters to the health market in the US. The IPO price range is between USD15 and USD17 per share, while the IPO deal size is expected to be around USD111.2m, assuming a price of USD16 (the mid-point of the proposed offer price range). We have analysed Phreesia’s background and its business model, comparing it with similar platforms. We have also analysed the financial performance and position of the company and its valuation based on the offer price range. Based on our analysis, we think the company could see strong short-to-medium-term growth, although long term growth appears questionable. Our key points are:<ul>
<li>Phreesia has been in the market for a relatively long time but still looks immature as a business. The company, which operates a subscription-based model, does not seem to offer a unique value proposition to its clients. The Phreesia Platform lags in terms of features offered compared to recently emerged platforms.</li>
<li>The current growth momentum in Average Revenue per Provider (ARPP) is likely to continue over the short term. However, long term growth requires Phreesia to develop the features of its platform to outperform competitors, and in turn, secure a growing number of provider clients. This is crucial in sustaining its ARPP growth.</li>
<li>We feel that payment processing revenue is a long-term growth driver.</li>
<li>Phreesia is still a loss-making firm and does not seem likely to turn profitable over the short term.</li>
<li>The company is likely to trade at an FY1 EV/sales of 3.8x looking quite expensive when compared to certain other established peers.</li>
</ul><div class="content-caption">Deal Specifics of Phreesia’s Global Offering</div><table class="table table-striped"><tbody>
<tr><td colspan="2">Details:</td></tr>
<tr>
<td>Price Determination Date</td>
<td>July 17th, 2019</td>
</tr>
<tr>
<td>Expected IPO price per share:  </td>
<td>USD 15 and USD 17</td>
</tr>
<tr>
<td>Number of Shares for IPO:</td>
<td>7,812,500 shares of common stock</td>
</tr>
<tr>
<td>Underwriters: </td>
<td>J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and William Blair &amp; Company, L.L.C.</td>
</tr>
<tr>
<td>IPO base deal size: </td>
<td>Approx.USD111.2m (based on Median)</td>
</tr>
<tr>
<td>Use of Proceeds</td>
<td>
* USD18.1m (16%)- to pay a cash dividend to the holders of 22,871,507 shares of our Senior Convertible preferred stock;
* USD17.7m (16%)- repay all of our revolving line of credit with Silicon Valley Bank;
* Other particular uses not detailed with certainty. Hopes to invest some of the net proceeds of this offering in interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government
</td>
</tr>
</tbody></table><div class="content-remarks">Source: Company Disclosures</div>We go through the details below.

Established fourteen years ago, Phreesia Inc (PHR US) is a leading solutions provider that caters to the health market in the US. The IPO price range is between USD15 and USD17 per share, while the IPO deal size is expected to be around USD111.2m, assuming a price of USD16 (the mid-point of the proposed offer price range). We have analysed Phreesia’s background and its business model, comparing it with similar platforms. We have also analysed the financial performance and position of the company and its valuation based on the offer price range. Based on our analysis, we think the company could see strong short-to-medium-term growth, although long term growth appears questionable. Our key points are:
Phreesia has been in the market for a relatively long time but still looks immature as a business. The company, which operates a subscription-based model, does not seem to offer a unique value proposition to its clients. The Phreesia Platform lags in terms of features offered compared to recently emerged platforms.
The current growth momentum in Average Revenue per Provider (ARPP) is likely to continue over the short term. However, long term growth requires Phreesia to develop the features of its platform to outperform competitors, and in turn, secure a growing number of provider clients. This is crucial in sustaining its ARPP growth.
We feel that payment processing revenue is a long-term growth driver.
Phreesia is still a loss-making firm and does not seem likely to turn profitable over the short term.
The company is likely to trade at an FY1 EV/sales of 3.8x looking quite expensive when compared to certain other established peers.
Deal Specifics of Phreesia’s Global Offering
Details:

Price Determination Date
July 17th, 2019


Expected IPO price per share:  
USD 15 and USD 17


Number of Shares for IPO:
7,812,500 shares of common stock


Underwriters: 
J.P. Morgan Securities LLC, Wells Fargo Securities, LLC and William Blair &amp; Company, L.L.C.


IPO base deal size: 
Approx.USD111.2m (based on Median)


Use of Proceeds

* USD18.1m (16%)- to pay a cash dividend to the holders of 22,871,507 shares of our Senior Convertible preferred stock;
* USD17.7m (16%)- repay all of our revolving line of credit with Silicon Valley Bank;
* Other particular uses not detailed with certainty. Hopes to invest some of the net proceeds of this offering in interest-bearing obligations, investment-grade instruments, certificates of deposit or direct or guaranteed obligations of the U.S. government


Source: Company DisclosuresWe go through the details below.

Phreesia IPO: Market Growth Prospects Look Attractive Not Phreesia

Japan TMT Analyst

Pelham Smithers

Market Intel on Asian Tech with a Japan focus

Pelham Smithers Associates

Founded in 2009, Pelham Smithers Associates (PSA) provides market intelligence on Asian technology, focusing in particular on Japan. The industries covered by our team of specialists are: consumer electronics, telecomms, pharmaceuticals, internet, electronic parts and materials, automotive technology, retail and capital goods. 

Research is provided by the following:
Pelham Smithers: Macro, consumer electronics, telecoms & pharma
Joel Scheiman: Electronics materials / components
Julie Boote: Autos
Will Nestuk: Capital goods, machinery & transportation equipment parts
Thao Nguyen: eCommerce, internet content, marketing & advertising

Thematic (Sector/Industry)

The suggestion of government orchestration against <a href="https://www.smartkarma.com/entities/8979" target="_blank" data-smartkarma-citation="entities:8979:1">Ono</a>’s immunotherapy treatment Opdivo (nivolumab) has moved a stage further with a report in the Nikkei that the Japanese Health Ministry is considering setting rules on new drug usage during this fiscal year, starting with <a href="https://www.smartkarma.com/entities/8979" target="_blank" data-smartkarma-citation="entities:8979:1">Ono</a>’s Opdivo and <a href="https://www.smartkarma.com/entities/6091" target="_blank" data-smartkarma-citation="entities:6091">Astellas</a>’s Repatha. Patients may be limited to those who can see certain impact from the treatment, which in turn would mean the drug could only be prescribed at those institutions with the facilities to check…

The suggestion of government orchestration against Ono’s immunotherapy treatment Opdivo (nivolumab) has moved a stage further with a report in the Nikkei that the Japanese Health Ministry is considering setting rules on new drug usage during this fiscal year, starting with Ono’s Opdivo and Astellas’s Repatha. Patients may be limited to those who can see certain impact from the treatment, which in turn would mean the drug could only be prescribed at those institutions with the facilities to check…

Opdivo Singled Out in Government Rule Change

Japan

Findex Inc plans, develops and maintains software products specialized in healthcare.  The Company also builds and provides medical net-work system for medical industry.

Medical Data Vision Co.,Ltd. was founded in 2003. The company's line of business includes developing integrated medical information systems, analysis of medical information, and business consulting for medical institutions.

CE Holdings Co Ltd develops and sells packaged medical information software for hospital uses.  The Company also develops software upon clients' request.  CSI sells system equipment and provides consulting services.

DATA HORIZON CO., LTD. provides billing data services for welfare and medical organizations. The Company also provides consultation services on public health.

Softmax Co., Ltd. provides medical information services including electronic medical record system and associated support.

VITAL KSK HOLDINGS Inc. is a holding company and provides pharmaceutical sales. The Company manufactures and wholesales pharmaceuticals to hospitals and drugstores.  VITAL KSK HOLDINGS also provides property & casualty insurance services and elderly care services through its subsidiaries.

EIKEN CHEMICAL CO., LTD. manufactures clinical reagents, contrast media used for X-rays, and medical and testing equipment.  The Company also wholesales and manufactures office automation equipment and operates insurance agency.

NAGAILEBEN CO., LTD. manufactures and sells clothing for the medical industry including antibacterial and antistatic type medical clothing.  The Company also sells shoes, caps, and related goods for doctors, nurses, and patients.

NIKKISO CO., LTD. operates industrial and medical business.  Industrial business includes manufacturing industrial pumps such as non-seal, metering, and cryogenic pumps while medical, manufacturing water conditioning systems for power plant and aerospace composite components.  Medical business includes manufacturing Hemodialysis machine and related devices.

Japan Lifeline Co., Ltd. is a wholesaler of cardiovascular-related medical supplies and equipment.  The Company mainly trades and sells pace makers, artificial organs including artificial heart valves, and disposable catheters.

RaySearch Laboratories AB develops methods and software for cancer radiation therapy.  The Company's main product is ORBIT, a software framework for solving optimization problems in radiotherapy, and its modular structure can be adapted to many different types of environments.  RaySearch works with corporations and institutions worldwide, and sells to suppliers of treatment planning systems.

Health Catalyst, Inc. provides software solutions. The Company designs, develops, and delivers healthcare software solutons for hospitals to manage operational, financial, clinical, and research data. Health Catalyst serves customers in the State of Utah.

NNIT A/S offers consulting services in IT development, implementation and operations. The Company' services include advising, building, implementing, managing and supporting IT solutions and operating IT systems for customers.

Tabula Rasa HealthCare, Inc. designs and develops cloud-based healthcare software solutions. The Company offers data-driven technology and solutions that enable healthcare organizations to optimize medication regimens. Tabula Rasa HealthCare operates in the United States.

Agfa Gevaert NV manufactures imaging and information technology (IT) systems. The Company develops, manufactures, and markets analog and digital prepress, proofing and industrial inkjet systems for the graphics industry, diagnostic imaging and healthcare IT systems for the healthcare industry, and industrial applications including identification and security and motion pictures.

Volpara Health Technologies Limited develops and markets solutions for breast cancer detection and diagnosis. The Company offers a platform technology to convert digital breast mammogram into quantitative numbers in which the actual breast tissue properties are characterized and differentiated. Volpara Health Technologies serves the healthcare sector globally.

UBCare Co., Ltd. develops and provides medical-related solutions, such as electronic medical record systems and pharmaceutical E-commerce solutions. The Company, through its website, also offers medical and healthcare information and consultations.

Computer Programs and Systems, Inc., is a healthcare information technology company that designs, develops, markets, installs and supports computerized information technology systems to hospitals.  The Company also provides software and hardware products.

CogState Limited manufactures and distributes diagnostic and therapeutic products associated with neurological disorders and the measurement of cognitive functions.

Oneview Healthcare Public Limited Company provides healthcare information, analysis, and management services. The Company offers patient engagement and clinical workflow technology solutions to healthcare facilities. Oneview Healthcare conducts its business globally.

Software Service, Inc. develops and sells medical information software for hospital uses.  The products include electronic medical carte and order entry system.  The Company also provides training and maintenance services.

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Software Service (3733 JP)

Phreesia IPO: Market Growth Prospects Look Attractive Not Phreesia

Established fourteen years ago, Phreesia Inc (PHR US) is a leading solutions provider that caters to the health market in the US. The IPO price...

Aqila Ali

Opdivo Singled Out in Government Rule Change

The suggestion of government orchestration against Ono’s immunotherapy treatment Opdivo (nivolumab) has moved a stage further with a report in the...

Pelham Smithers Associates

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