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Wednesday, Aug 10, 2022

Alignment Healthcare IPO Raises $490M

Wall Street wasn’t initially sure it liked Alignment Healthcare Inc. when it went public on March 26. It does now.

While the Orange-based provider of Medicare Advantage insurance plans (Nasdaq: ALHC) was able to raise $489.6 million to help it expand beyond the three states it currently covers, the company’s shares fell 3.8% to $17.31 on its first day as a publicly traded company.

In the following week, however, it rebounded by more than 30% to $23 and a $4.3 billion market cap, placing it the among the 20 most valuable publicly traded companies headquartered in Orange County, and the largest based in the city of Orange.

“We do not believe that the stock price of any company at any one moment is highly indicative,” founder and Chief Executive John Kao told the Business Journal last week. “Alignment Healthcare’s track record to date has shown us that we have done well as a business by doing good as an organization, and that is our sole focus.”

Tech Savvy

The IPO is the culmination of decades in the healthcare industry for the 59-year-old Kao.

“Becoming a publicly traded company marks a milestone in Alignment Healthcare’s journey to reinvent health care as we know it,” he said.

“It allows us to reach a much larger audience, with the trust, support and backing of our new shareholders and investors. Together, we will reimagine, recreate and restore health care delivery to one of the most important populations in America—our seniors.”

Since beginning Alignment, he’s raised $375 million from private equity investors like General Atlantic, Warburg Pincus and Fidelity Investments.

General Atlantic is now the largest shareholder, holding around 41% of the shares while Warburg owns 13% and Fidelity has 5%.

Kao is the company’s largest individual investor, holding 1.5%; as of late last week his 2.8 million shares were worth more than $60 million.

Interestingly, one of its early partners in 2014 was the University of North Carolina Health System, which owns 1.7% of the company. Besides California and Nevada, the only other state where Alignment currently operates is North Carolina.  

“By partnering with Alignment, community physicians, and insurance providers, we are creating a new model for care that will improve health care for Wake County seniors and provide peace of mind to families knowing their loved ones are receiving high quality care,” Dr. Allen Daugird, who at that time was president of UNC Physicians Network and chief value officer at UNC Health Care, wrote in a 2014 blog post.

Kao didn’t reveal how much UNC invested, merely calling the deal a “partnership.”

“We have successful partnerships across a range of provider types, from health system-employed physicians to independent, community-based providers,” Kao said. “Our partnership with UNC Health offers the Medicare beneficiaries we serve in-network access to more than 300 board-certified primary and specialty care physicians in the UNC network.”

UNC Health’s savvy partnership is now worth more than $70 million.

The Advantage

Medicare Advantage plans, like the ones Alignment offers, are required to cover traditional Medicare expenses such as doctor visits and hospital costs. They are increasingly popular because they offer extra coverage for needs like vision, dental and hearing exams, and prescription drugs.

Alignment said the legacy healthcare system relies on payment models that compensate healthcare providers based on the volume of services delivered rather than the quality of the care they provide.

By contrast, Alignment said it has developed a proprietary technology platform called Alignment Virtual Application that is specifically for “end-to-end” coordination of senior care.

The company’s edge is to provide constant monitoring of elderly, particularly high-risk patients who have complex medical problems so that they spend less time in hospitals.

Alignment has about 81,500 health plan members across 22 markets, almost double the number it had in 2019.

Last October, Fountain Valley’s MemorialCare Health System, Orange County’s largest nonprofit healthcare system, said it would join Alignment’s provider network at the start of 2021.

The partnership means that Medicare beneficiaries who enroll in select plans from Alignment will have access to MemorialCare’s 200 hospitals, health centers and urgent care locations and may seek “in-network” care from physicians associated with MemorialCare Medical Foundation.

Growth Plans

The Alignment IPO prospectus said it plans to expand nationally, focusing on markets with significant senior populations where it can replicate its model.

The national market promises to be huge with the ongoing retirement of Baby Boomers. Net Medicare spending was about $630 billion in 2019 and expected to double to more than $1.3 trillion by 2029, representing an 8% compound annual growth rate, the prospectus said.  

“We’re confident in the predictability and replicability of our model, and in our ability to create value for our shareholders while improving the lives of the seniors we serve,” Kao said.

Peter J. Brennan
Peter J. Brennan
Peter J. Brennan has been a journalist for 40 years. He spent a decade in Latin America covering wars, narcotic traffickers, earthquakes, and business. His resume includes 15 years at Bloomberg News where his headlines and articles sometimes moved the market caps of companies he covered by hundreds of millions of dollars. His articles have been published worldwide, including the New York Times and the Washington Post; he's appeared on CNN, CBC, BBC, and Bloomberg TV. He was awarded a Kiplinger Fellowship at The Ohio State University.

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