John Kao in 2013 envisioned what a customized health plan for seniors could look like, so he founded Alignment Healthcare Inc., an Orange-based provider of Medicare Advantage plans.
That vision has proven itself as Wall Street has valued the healthcare company at $2 billion after he took it public last March (Nasdaq: ALHC).
It raised some $360 million in proceeds in the IPO, second-most of the 11 traditional IPOs in OC last year.
The company now stands among the top 20 most valuable public companies in Orange County. It’s the most valuable public company in the city of Orange.
“It’s humbling,” Kao told the Business Journal last week, speaking of the company’s rapid ascent.
“I think the vision of the company is sincere and pure. The mission of improving healthcare of seniors one person at a time is still the objective.”
Kao’s firm, which generates more than $1 billion in annual sales and employs more than 900, has developed technology to help seniors get customized health insurance plans that can include coverage for things like vision, dental and hearing exams for elderly or disabled beneficiaries.
Kao is one of four local execs that took their companies public last year via IPO that the Business Journal has featured in this edition as Businesspeople of the Year.
“Have the persistence and conviction to do it and you realize your dreams,” Kao said.
“That’s what happened.”
Tough 3-Year Start
Kao has an extensive background in the healthcare industry. He and other investors in 2006 acquired Downey-based CareMore Medical Enterprises Inc., where he became president. It was sold for about $800 million in 2011 to Indianapolis-based WellPoint Inc.
When he started Alignment in 2013, it was a “tough first three years,” he recalled. It acquired Honored Citizens Choice Health Plan, a Medicare Advantage Prescription Drug plan serving nearly 20,000 seniors in California.
“We bought a company that we knew we needed to make investments in—it took us an extra couple of years to get it properly fixed,” Kao recalled.
“We were a startup company doing a turnaround.”
Alignment had to start from scratch in everything from systems to clinical models.
“It gave us the opportunity to build something that had not been built before,” he said. “People just broke through a lot of the early stage challenges.”
Command Center
Among the new creations Alignment built, the company developed the Alignment Virtual Application, or AVA, an artificial intelligence-driven “command center.” The platform, which is designed to scale, has more than 100,000 unique data signals per member that identify changing care needs in real time to provide care when and where seniors need it most.
Alignment patients are monitored wirelessly at their home for items like weight, heart rate, blood sugar and blood pressure information. The platform then uses this data to triage each member every 30 minutes, 24 hours a day—identifying any signs for needed immediate intervention or changes in care—from oxygen deficiencies to lapses in medication pickups.
“Once it was built, then it really created the momentum,” Kao recalled.
Billion Dollars
By 2019, Alignment reported $703.5 million in sales, almost double from two years prior, making it the fastest-growing OC-based private company on the Business Journal’s  list that year in the large company category.
Kao subsequently won a Business Journal Innovator of the Year award in 2019.
At that time, Kao accurately predicted to the Business Journal that his firm would soon top $1 billion in annual sales.
“It started clicking in 2019, which gave us the confidence to go public in 2021,” Kao recalled.
The company soared as high as $28.59 and since settled around $14 at press time.
“I’ve learned not to watch the stock price,” Kao said. “It’s gone way up and then gone down.”
Overall, he’s proud to top quarterly expectations and is happy with the IPO and his investor base.
“These are long-only healthcare investors. As one of the investors told me, `You’ll make the industry better for people.’”
The Hoag Validation
In October, Alignment announced the addition of Hoag Memorial Hospital Presbyterian to its PPO provider network.
“As organizations that are both proudly based in Orange County, we are pleased to collaborate with Alignment to continue to ensure that seniors in our own community have the best access to care and services,” Hoag CEO Robert Braithwaite said in a statement at that time.
To convince the shareholders that the stock can appreciate, Kao said he wants profitable growth.
“A lot of our peers have taken a growth at all-costs approach,” Kao said. “We’ve taken long term profit growth. We’ve focused on proving out the model.”
Investors want to see the company replicate its model in states outside its core markets of California, Nevada and North Carolina, he said. Thus, Alignment, which has $500 million in cash on its books, is planning to make more acquisitions in new states.
20% Growth
Sales climbed 27% in 2020 and analysts are expecting a 19% jump to $1.14 billion in 2021. Analysts are predicting revenue will increase another 20% to $1.37 billion in 2022.
Kao has told investors that he’s aiming for 20% annual growth, which he said is about twice the sector’s growth rate.
He has a long runway. Kao estimated there are 60 million seniors in the U.S., including about 25 million using Medicare Advantage plans. The company has 89,000 customers as of Sept. 30.
The company has engaged large advertising agencies to launch a marketing campaign once it gets to 100,000 customers and enters new markets.
“Once this platform starts showing it can produce results, that’s when this thing will take off. We’ve made a lot of progress and we’re ready to scale.”Â
