Orion Health still in growth mode

UPDATED: Orion Health Group [NZX: OHE] says it's performing in line with management’s expectations, and the market for healthcare IT globally is the biggest opportunity any New Zealand technology company has ever had.

Company founder and chief executive Ian McCrae made the comments on a conference call where he said the global healthcare IT spend was expected to grow to US$70 billion by 2020, driven mainly by the burgeoning costs of healthcare. “That is revolutionising healthcare. And Orion Health has the strategy, technology and now the resources to pursue those opportunities.”

The Auckland-based healthcare software company held cash and short-term deposits of $96 million as at June 30, having generated $200,000 of operating cashflow in the three-month period. On top of the $800,000 operating cashflow in the March quarter, that meant Orion Health was $1 million cash positive in the past six months and ahead of internal forecasts, it said. Customer receipts were up to $63.6 million for the quarter.

But the company warned it remains in growth mode, particularly in research and development and in building its software as a service business, and expects to have negative cashfow in the short to medium term as it grows capability.

Chief operating officer Graeme Wilson said it was expecting to consume cash for the rest of the fiscal year and it does have some seasonality in its results during the Northern Hemisphere summer.   

Orion has about 1,200 staff and in the first quarter added 26 of 100 extra staff it plans to hire this financial year in research and development. Staff costs for the quarter were $29 million while costs for research and development staff were an additional $14.7 million.

The company’s shares rose 2.3 percent to $3.98, having plunged well below their $5.70 initial public offering price after investors were spooked by lower-than-expected revenue last year. The company, whose technology facilitates the sharing of information between hospital departments, healthcare providers and health professionals, floated on the NZX last November.

Orion Health said it had a number of opportunities in the pipeline globally and has a positive outlook for the rest of the 2016 financial year.

“The size of our opportunities continues to increase. In some instances we are working with customers that are bigger than our entire New Zealand health system,” Wilson said.

In its main market in North America, Orion Health secured a number of notable contracts in the past quarter, including forming a strategic partnership with eHealth Technologies to enable North Dakota Health Information Network to give healthcare providers access to medical images as part of a statewide health information exchange.

It also gained a contract to support a large care coordination project in Cambridgeshire focused on the care of the elderly and said based on the company’s continuing growth in the UK it could become its second largest market within a few years.

In Spain, Orion Health won a procurement contract to deploy its Open Platform for a public healthcare provider to more than 2.5 million people over the next year. It is the first such deployment in Europe of this new technology solution.  It was under a perpetual licence that the company plans to shift away from selling in Europe in favour of subscription services, which it has already moved to in North America.  

“Often with government customers they have capital allocations for funding and look for perpetual licences. This is one of those instances,” Wilson said.  Orion wants to shift to having recurring revenue comprise half of its business within the next few years.

It was also chosen in Vietnam to provide a complete in-hospital solution to the Vinmec International group of hospitals, a premium healthcare provider based in Hanoi. The Orion Health solution will initially be deployed in five Vinmec sites, and then expand to a further six.

Wilson said one of the things the business hasn’t highlighted before is the growth in ancillary sales to big pharmaceutical companies, retail pharmacists and medical device companies, who are all looking to aggregate patient data as they move towards value-based care.

“They’re having to take responsibility for delivering health outcomes for their products and drugs and this is an exciting pipeline for our business,” he said.

(BusinessDesk)

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