Why Athena Bought Epocrates

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As we reported yesterday when the news was announced, athenaHealth is acquiring Epocrates for close to $300 million, a 22 percent premium over the Epocrates share value. That’s a pretty big deal for mobile health and healthcare IT. Epocrates is the poster child of success in mobile health, having gone public a couple of years ago after being launched in 1998.

The company has a few claims to fame:

  • Apple has had a favorable view of Epocrates and showcased it when the iPhone launched.
  • Its first product was launched on Palm devices, a relic from the pre-“design to succeed and change the world” era. As I’m writing, this I’m wondering what other mobile apps — in healthcare or any industry — launched on Palm and remain category leaders today on iOS and Android devices.
  • It’s the only mobile health company I can think of that went public.
  • It was able to acquire physician users for a mobile health app faster and with more success than any company I can think of. What other mobile health app company has 300,000+ physician users? UpToDate maybe, but that’s more than mobile.
  • Both founders of Epocrates have gone on to found new, well-funded and well-publicized startups (Doximity and One Medical Group).
  • It may be the only company to announce the failure of an EMR coinciding with a HIMSS conference. Epocrates spent lots of time and money building an EMR over several years, only to shut it down in March 2012 when it should have been launching it.

The Epocrates core product, which remains its flagship and really its sole known and used product, is a mobile drug reference. It’s a great tool that does what it is intended to do. Doctors rely on it every day. It is also a tool that physicians overwhelmingly learn to use while in med school and training. The company’s main source of revenue is pharma revenue from premium listings. It’s a smart model.

Enough about Epocrates and its trailblazing history. Why did athena buy it for $300 million in cash?

I take athena and CEO Bush to be pretty smart guys, so I imagine there is a clear path to ROI for this purchase. There’s a lot you could speculate about as to why athena would want Epocrates and why it is worth $300 million to them.

If you look at athena,its offerings, and the network of companies it is trying to integrate into its platform, you see it is focused on being the platform and suite of apps/tools to make physicians more efficient (Epion, HealthFortis, healthfinch, MModal, and Entrada), better marketed (One Medical and iTriage), more connected to each other (Doximity and lifeIMAGE), and higher revenue generating (athenafinancials). I don’t think athena is concerned with patient engagement for patients (tracking apps), but, something like iTriage that engages patients as an access point to health services and providers does fit with its strategy.

Athena definitely did not buy Epocrates for these reasons:

  • Revenue growth. Epocrates’ revenue has been relatively stagnant of late.
  • Broad range of products. Epocrates is and has always been a one-trick pony, albeit a very valuable pony.
  • Disruptive offering. Mobile drug reference was disruptive in 1998, not 2013, and it does not exactly fit with athena’s "More Disruption Please" program.
  • Mobile EMR design talent. Epocrates fell flat on its face with its own EMR attempt, which doesn’t bode well for its technical or design talent in this area.
  • Expertise in provider-patient connectivity and patient engagement tools. If these are areas that athena wants to get into — and I don’t really think they are — Epocrates would do nothing to help.
  • Talented and connected founders and early team. Both founders and most of the early team at Epocrates are no  longer there.

Excluding that list of possible reasons for the acquisition, we’re left with several possibilities. Obviously athena will integrate Epocrates into athenaclinicals to provide a familiar drug reference within the EMR, but that’s not worth $300 million. I think athena will, in time, extend the Epocrates offering. Initially this will include additional reference information about labs and procedures, though I think this is of lower value to clinicians.

Over the longer term, I think athena will also use Epocrates as a launching point for additional mobile services and maybe even a mobile version of athenaclinicals. I’ve written before that I don’t think mobile and web/desktop are equivalent and that a full-featured, Meaningful Use EMR does not make sense on a mobile device, especially a smartphone.

Epocrates, since it’s in use by such a large number of physicians, would be great place to start layering additional value-add mobile functions such as EMR access, image viewing, messaging, referrals, prescribing, and maybe transcribing for basic documentation. If this broader extension of the Epocrates mobile offering does happen, it will definitely be over the longer term, likely leveraging athena partners.

Here’s why I think athena bought Epocrates and how it will justify that investment.

As Jonathan Bush stated, Epocrates is the Angry Birds for healthcare. It’s in the pockets of several hundred thousand physicians, many of whom have never heard of athena, its products, or its CEO. Athena grows with in two ways — more physicians and more revenue per physician.

Epocrates immediately helps athena get into the pockets of physicians, advertising to them and boosting athena’s brand awareness with a hard-to-target group in the process. That helps athena acquire more physician users. That’s the real reason athena bought Epocrates, not to build a mobile health empire.

Epocrates may help athena increase the revenue it gets per physician through some of the strategies I listed above, but this is definitely not a certain path. Most users of Epocrates are not paying customers – they use the free version.

We can take lessons from this. Engaged physician users, even those who aren’t paying customers, are valuable (that was clear when Epocrates went public and is even more clear now.) Doing one thing very well is a great way to grow a company. Physicians are generally loyal customers once they find something they like or depend on, as most I know stick with Epocrates as the one consistent app on their phones.

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Travis Good is an MD/MBA involved with health IT startups. More about me.

  • Sally Buta

    Appreciate your analysis, Dr. Good.

    To answer your question, another mHealth app provider that traces its roots back to 1998 – and was first deployed on Palm – is PatientKeeper (physician workflow automation), which today is thriving on iOS and Android. (PatientKeeper recently was ranked #6 on Modern Healthcare’s list of “Most Important Mobile Apps of 2012” and was the only “EHR access” app to make the top 10.)

    The Epocrates “brand” in mHealth is an asset in and of itself, which should not be underestimated. There is tremendous value in an app that invites physician adoption, both for the physicians using it and the company that provides it. With physicians flocking to smartphones and tablets in droves, it’s reasonable to expect more EHR vendors to seek out partnerships or acquisitions that bolster their mHealth capabilities and market presence.

    -Sally Buta, co-founder, PatientKeeper Inc.

  • techguy14

    Nice analysis, Dr. Good.

    IMO–Given epocrates had $80m in cash, shouldn’t the real question be why did the Epocrates BOD sell out below their IPO price ($14) when they JUST brought in a new hotshot CEO who was supposedly going to energize the brand and revenue? Or was he hired to just sell the company at a low ball price? Looks like the latter. Bravo, well done Epocrates BOD!

    ATHN got a great deal for $220m.

  • http://twitter.com/DrMarcieSC Marcie StoshakChavez

    Loved the analysis. I do think Athena will play the mHealth card but getting into all those Providers pockets is the way to go!

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