Stars of Orion

Orion Health’s first office in the US was a nondescript house in Santa Monica.

The health sector software company office was shared by 15, with couches pressed into service as beds, before country manager Paul Viskovich called Orion CEO Ian McCrae, back in Auckland, and complained “I’ve just done a job interview in my bedroom. It’s just not appropriate.”

Fast forward 10 years, and Orion has just under 200 staff in the US spread across proper offices in multiple cities.

It’s one of the companies riding the “Obamacare” boom that has seen hospitals and other healthcare providers scrambling to share records electronically, and otherwise modernise their systems (a process kicked along by billions in federal government stimuls spending being sent the sector's way).

Orion has won Obamacare contracts in several states, including Alaska, New Hampshire, Maine, Louisiana, North Carolina, part of Texas and Massachusetts - the home state of a key rival. "That's like selling rugby balls to New Zealand," Mr McCrae quips.

On March 27, Orion announced its biggest win yet as one-time rivals GE and Microsoft, effectively exited the market, handing 17 sites served by their Caradigm joint-venture to Orion (a site can range from a single hospital to a city to a region).

"It's an admission that we have clearly the best product in the market," Mr McCrae says. "It pretty much makes us absolutely the number one vendor in the United States. It was pretty big."

Indeed - and more so because the US accounts for fully half of the world's total health spending, according to Orion estimates - and around half the company's revenue.

Throw in the fact that Orion is also part of the consortium's that won all-of-Singapore and all-of-Australia government contracts, and Mr McCrae says Orion is now the number one vendor in the regional health information exchange space too.

In the case of the Australian government's $A466 million, two-year electronic records contract, the win was a foregone conclusion. "When the four bids went in, one from Fujitsu, one from Accenture one from CSE and one from IBM, all four parties bidded our software," McCrae says. (Accenture won. As well as Orion, its partners include Oracle and a host of smaller IT companies.)

McCrae personally authors the creative on the billboard outside Orion's headquarters (click to zoom). It's usually quirky, front-foot stuff that often becomes a talking point for Auckland drivers jammed at the intersection outside.

The Kiwi company (it’s 62% owned by co-founder Mr McCrae) also won significant contracts in Singapore, Canada, the UK and Australia as their respective governments start to commit serious money to modernising their health information exchange systems.

Unlike those countries, New Zealand has no specific budgets for moving healthcare records from isolated paperwork to shared electronic systems, but money is eeked out from other areas, and Orion recently won the tender to supply a single patient administration system to the Southern Alliance (aka all hospitals and the five district health boards in the South Island – a win that has seen Orion immediately add around 30 more staff.

Things are proceeding apace all around the planet. An Orion office is just opening in Turkey; two more US offices are planned.

ABOVE: The Prime Minister officially opened Orion's new Auckland office in October last year. The company took the space formerly occupied by Southern Cross and tore down the walls, creating a large, airy space with a lot of greenery dotted around. The company also owns the cafe on the ground level (which is also open to the public) - although the easy access is of limited value to healthy-living McCrae, who recently swore off coffee. The building is home to around 350 of its 750-and-counting staff, with most of the balance working in 17 offices spread around the world. Like the smaller Xero, it has admin and development development centred in NZ, with overseas staff more sales-focused.

20th anniversary, $100m milestone
Orion has just celebrated its 20^th anniversary, and passing the $100 million revenue mark for the first time with its financial year just closed March 31 (Mr McCrae says revenue was $99 million last year, and will be well over the ton this year; the books are still being finalised - and "well over" looked like an understatement, going by numbers on a whiteboard in McCrae's office when NBR dropped by for a follow-up interview).

All-up, things are looking pretty rosy. Mr McCrae's days of drawing straws for the roll-out bed in three-to-a-room hotel accommodation are over - the only wrinkle being twin High Court cases with another NZ company Healthlink, in which Orion holds a 53% stake (the action is being led by Healthlink CEO Tom Bowden, who owns the balance of shares. Neither side will comment on the cases, which involve royalty and share disputes. Orion recently enjoyed partial success in a bid go get the royalty spat sent to arbitration. Read NBR's latest report here).

Speaking to NBR at Orion’s Auckland headquarters – where around 350 of the company’s 750 worldwide staff are located, Mr McCrae recalled that the first 10 years was a matter of finding the company’s feet.

Mr McCrae co-founded the company in 1993 after leaving his job at Ernst & Young and landing a Ministry of Health contract to create a patient index system.

Early on, Orion followed a wide-ranging brief. Health systems were a focus, but so were travel agency software, accounting software and airport baggage systems.

By 2001, it had a modest $1 million revenue.

Things changed as it refocused exclusively on heath, and a board was formed, setting the stage for a decade of surging growth in revenue and staff numbers.

Orion Health as we know it today was formed at good time. While competitors were adding to creaky systems, Orion has been building new software to Web 2.0 standards, and has been well positioned to embrace to move to software-as-service (most North American sales are now for cloud product, and Orion runs its own servers in the US. Other markets are slower to go online. The CEO says it has been a tricky-at-times two-year process to get software-as-a-service up-and-running, but maintains it's now a slick setup).

It has also benefited as rivals have exited the market, been snapped up by larger companies, only to lose focus or disappear altogether (in the case of Healthvision executives, to jail). Orion bought Microsoft's health software business last year and, as noted above, has now taken over the sites served by GE-Microsoft joint venture Caradigm.

McCrae also touts the fact Orion is now positioned to offer heathcare software across the board from integration to hospital information systems (HIS) to health information exchange (HIE) systems for tying together records on a regional level.

As such its one of only four "full-line" health software vendors in the world, he says (the others are Epic, Cerner and Meditech; in various spheres Orion also comes up against elements of the McKesson conglomerate, and Medicity, which was bought by Aetna in 2011).

"Hospitals want to buy a complete motor car, and our car is more modern than the other guys'," Mr McCrae says.

What of the next 10 years?
Beyond the continuing effort to share more records between providers, Mr McCrae sees several factors driving growth over the next decade.

They include patients demanding access to their own medical records, and the proliferation of mobile devices. Then there’s the rise of genomics - that is, with the price of a personal DNA map falling toward the $1000 mark, it will become an everyday practice for your genome to be included with your medical records (with each genome running to around 4 gigabytes).

More, Mr McCrae believes that mathematical analysis of data, advances in genomics, the ability to practice proactive medicine based on predictive modeling and the ongoing analysis of historical information, will all fuel growth.

He says it’s hard to put a number on the health information exchange and hospital software market, but says it is likely around the $US50 billion mark.

Orion is already New Zealand’s largest independent software company, by some distance.

Asked to take a punt on its revenue in 10 years’ time, Mr McCrae says around the $1 billion mark.

Long term, he sees no reason Orion won’t be a multi-billion company.

Ex-Fonterra CEO Andrew Ferrier at Orion's 20th anniversary event. The Canadian joined the company's board after his family investment company bought a 1% stake last year.

Will Orion list?
For the past year or so, there’s been a background buzz that Orion might list.

Mr McCrae told NBR “that’s a matter for the board.” (of which he is a member).

So ex-Fonterra CEO and current NZTE chairman Andrew Ferrier, whom also spoke to NBR at the 10^th anniversary bash. Mr Ferrier’s investment company, CANZ Capital, recently took a 1% stake in Orion.

Broadly, Four things could be ascertained.

One, Orion can fund its growth from cash flow, so is in no rush to list. More, "Software doesn't scream out for capital," Mr Ferrier adds. There are no new milk processing plants that have to be built as business expands. 

Two, the company is profitable. “It’s always made money,” Mr McCrae said (and certainly whiteboard figures spied by NBR during a later visit to the CEO's office indicated that was the case for FY2013). Mr Ferrier separately told NBR “It makes money most of the time.”

Three, Mr McCrae indicated he would prefer a mechanism that would allow him to retain majority control after a listing (a partial float or A class/B class shares would be examples, although he didn’t specify either.)

And four – and this was the only point where the Orion CEO was emphatic – any listing will be local.

Given that Xero can attract a $1.4 billion market cap while profitless on $48 million sales, some investors will dribble at the potential for Orion, which shares Xero’s high growth and rush to fill a new global niche, but is twice the size and – by all appearances – making a lot of money.

NBR asked Mr McCrae if Orion Health attracted takeover offers. He said it did practically every week. Good money was being offered, but nothing that matched his multi-billion dollar ambitions for future growth.

On a piece of paper, he lists the escalating prices rivals have sold for over the past few years - one for $90 million, one for $200 million, one for $900 million, one unknown - and says Orion's revenue eclipses them all. 

Was it a signature moment for Orion when Obama got re-elected?

"I think the funding was locked in anyhow," Mr McCrae says.

"But it certainly helps. It means his healthcare reforms - which make a lot of sense - aren't going to be rolled back."

By the end of the Democratic President's second term, "the HIEs will have been in place for six years, the primary care practices will be automated; a lot of stuff will be in place and no one in their right mind would ever roll it back."

NBR reminds the CEO that politicians are not always in their right mind.

"Good point, good point," says Mr McCrae. But he sees the health software field at the beginning of a giant growth curve, with providers becoming more and more interconnected all the time. And as doctors and patients get easier access to data, it's indeed hard to see any going back.

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