Bright Health IPO Tests Market’s Desire for New Insurers

(Bloomberg) -- Bright Health Group Inc. shares fell in their trading debut Thursday, the latest issue to test investors’ appetite for new health-care companies that have yet to show profit but are aiming for high growth.

The Minneapolis-based health insurer raised about $925 million on Wednesday, selling 51.4 million shares for $18 each after marketing 60 million of them for $20 to $23. The shares dropped 7.6% to $16.64 Thursday in New York trading, giving the company a market value of $10.4 billion.

Bright’s market debut caps a string of public listings of new health-care businesses, including insurers and primary-care companies. At least seven have gone public through IPOs or mergers with blank-check firms -- often called special purpose acquisition companies, or SPACs -- in the first half of 2021. Their combined market value: more than $46 billion.

Most aren’t yet profitable, and few are even projecting positive adjusted earnings before interest, taxes, depreciation and amortization for 2021, according to data compiled by Bloomberg News. The central question facing these companies is whether they can grow and eventually turn profits that justify their valuations. They also face execution risks in the complex, highly regulated health-care industry.

“We’re relentlessly focused on the consumer, and we want a high-performing care-delivery model,” Bright Chief Executive Officer G. Mike Mikan said in an interview Thursday.

Bright is addressing a broader market than some other companies, the CEO said.

“Our focus is really on serving all consumers,” he said. “It’s very different than a lot of our other competitors who are focused on one part of the health care system.”

Bright initially sought to market shares at a price range that would value the company at as much as $14 billion. That would have made it worth about about as much as Molina Healthcare Inc., a 41-year-old insurer focused on the lower-margin Medicaid business. Molina has more than seven times as many members as Bright, and reported $228 million in profits in the first quarter, compared to Bright’s $25 million net loss.

Bright made several acquisitions in the months before it filed to go public, collecting medical groups, health plans and a telehealth company. It will be up to the management team to stitch them together while steering Bright through its first quarters as a public company.

Some signs of growing pains are evident in Bright’s Securities and Exchange Commission filings. It disclosed two instances of “material weakness” in internal control over financial reporting -- a signal of possible accounting trouble -- including one that led to a restatement of some accounting metrics.

Home to Giants

Investors’ willingness to back this crop of companies is a bet that they can grow and eventually profit in the $4 trillion American health-care market. The industry includes some of the largest and most sophisticated companies in the U.S., giants like Anthem Inc. and UnitedHealth Group Inc.

Bright’s chairman and co-founder, Robert Sheehy, is a veteran of UnitedHealth who led the insurance business there. He co-founded Bright in 2015, shortly after the Affordable Care Act created new state markets for individual health plans. Bright’s strategy is to partner with select health systems in each market, rather than offer broad networks, and use technology to help patients navigate care.

Sheehy led the company for five years, until Mikan, another UnitedHealth veteran, took over as CEO last year. Bright had about 2,000 employees as of April. Its venture capital backers, including New Enterprise Associates and Bessemer Venture Partners, invested more than $1.5 billion since 2016, and stand to gain in the IPO.

The company first offered its plans in Colorado in 2017, at a time when some larger rivals were exiting the ACA markets amid higher-than-expected costs. Bright has since expanded to 14 states. Bright has about 623,000 members in commercial and Medicare health plans.

Quality Levels

The filing to sell shares to the public shows a business that has evolved significantly since 2020 and a strategy to grow through acquisitions. Bright has purchased two California health plans focused on the Medicare Advantage market, a lucrative area for insurers. Still, Bright’s plans haven’t reached the quality levels needed to earn bonuses under the program.

Like larger rivals including UnitedHealth and Humana Inc., Bright is also expanding directly into care delivery. The company has acquired or taken controlling stakes in physician clinics in Florida, a physician-led New Mexico health plan and a telehealth company called Zipnosis.

Through such acquisitions, it created a unit last year called NeueHealth that Bright’s prospectus says “will become increasingly important to our business and prospects” going forward. NeueHealth provided just 2% of revenue last year and about 6% in the first quarter.

Bright’s offering was led by JPMorgan Chase & Co., Goldman Sachs Group Inc., Morgan Stanley and Barclays Plc. The company’s shares are trading on the New York Stock Exchange under the symbol BHG.

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