Epocrates Attracted Athenahealth Buyout by Getting Back to Basics in Mobile

1/10/13Follow @wroush

When I sat down with Epocrates CEO Andrew Hurd on December 19, I wanted to know why the company had decided to abandon its ambitious project to build an electronic health record (EHR) system, which previous executives had portrayed as a cornerstone of the company’s expansion. I also wanted to hear what opportunities for growth Hurd saw for the company, now that it had fallen back on its original mobile medical reference technology, which dates to the Palm Pilot era.

I didn’t know at the time that Epocrates (NASDAQ: EPOC) would soon be entertaining a $293 million acquisition offer from Massachusetts-based suitor Athenahealth (NASDAQ: ATHN). But my questions ended up revealing a lot about Hurd’s focus for the company—and helped to explain why an acquirer would see the 13-year-old San Mateo outfit as a worthwhile purchase.

In particular, Hurd made it clear that he sees Epocrates’ intimate relationship with doctors—more than 330,000 of whom use its smartphone and tablet apps to look up information about drug interactions, diagnosis codes, and the like—as its unique strength. It seems that this is exactly what made the company attractive to Athenahealth, which says it plans to use the Epocrates platform to help raise the visibility of its own cloud-based EHR, billing, practice management, and care coordination services.

“Someday, hopefully, in the not too distant future, we can start to offer the Epocrates users little tastes” of Athenahealth’s services, said Jonathan Bush, Athenahealth’s CEO, in a video explaining the acquisition. Given that nearly half of all U.S. physicians, and more than a million clinicians overall, use Epocrates regularly, that could be a powerful marketing strategy.

Andrew Hurd, CEO of Epocrates

Andrew Hurd, CEO of Epocrates

I talked briefly again with Hurd today, just before publication of this article, and the CEO called Athenahealth the “best landing place” for Epocrates. “From an Epocrates perspective, what was really important for us was [finding] the right home for our employees and for our users,” Hurd says. “Anybody who has ever interacted with Athenahealth [will see] there is an alignment of vision and a passion around providing tools that allow physicians to be more efficient and deliver higher-quality care.”

According to Hurd, the acquisition offer evolved out of a “partnership discussion” that began several months ago between Epocrates and Athenahealth. The latter company was initially looking for help publicizing and distributing its own mobile apps, but it gradually became clear that the relationship could go much deeper.

“We have grown successfully, but we really only have 38,000 active physician users on our network, and we have about 30 percent awareness across our target audience,” says Rob Cosinuke, Athenahealth’s chief marketing officer. “The biggest single change we need, to continue to grow, is to get people to learn our name. So for us, this was an opportunity to really own our own destiny, from the standpoint of getting access to the physician base.”

Clearly, however, there was another big factor opening the way for the acquisition: Epocrates’ affordability. After the company went public at $16 per share in February 2011, its stock reached a brief high around $30, but it took a plunge in August 2011 and hasn’t traded above $12 since then.

Athenahealth’s cash offer, which must be approved by shareholders before the deal can take effect, came in at $11.75 per share, or 22 percent above the stock’s January 4 closing price. Some analysts think that’s too rich, given that Epocrates didn’t show much earnings growth in 2012. But, this being the world of finance, a bevy of securities litigation firms is saying just the opposite—they think that Epocrates didn’t shop the company around adequately and that Athenahealth is underpaying.

But Epocrates has much else to recommend it, aside from the price. New mobile health startups are springing up left and right to exploit the possibilities of smartphones and tablets in the clinic and on the hospital floor. And healthcare companies like Athenahealth that have so far lacked a convincing mobile strategy are scrambling to find one. That’s been Epocrates’ business for more than a decade.

“Basically every company in the world is trying to figure out how to go from online to mobile, but we have cracked the code,” Hurd told me in December. “We are in the enviable position of having almost 100 percent of our revenue come from mobile.” (The lion’s share comes from pharmaceutical companies that pay Epocrates to promote white papers and other drug information from within the apps.)

Epocrates’ product roadmap, the way Hurd laid it out to me before the Athenahealth news, involved adding new types of information for doctors (including long-form content such as journal articles) and new features such as secure text messaging and private communities for doctors. Hurd also said he wants to move beyond the pharmaceutical emphasis to work with new types of sponsors.

As part of Athenahealth, Epocrates’ plans wouldn’t change drastically.  “We will probably be able to focus on fewer things and do them even better,” Hurd says. “We are in general alignment on the roadmap.”

The key thing to recognize about these plans is that … Next Page »

Wade Roush is a contributing editor at Xconomy. Follow @wroush

Single Page Currently on Page: 1 2 3 4

By posting a comment, you agree to our terms and conditions.