Oscar Health Inc., the digital health-insurance company well known to New Yorkers thanks to a subway advertising campaign, has gone public in a deal that priced above the proposed price range, but initial trading was soft.
The company /zigman2/quotes/225116571/composite OSCR -3.39% offered an upsized 37 million shares, priced at $39 each. The expected pricing of the initial public offering was increased early Tuesday to between $34 and $38 a share, from $32 to $34. The company raised $1.4 billion. Underwriters can purchase an additional roughly 4.65 million shares.
The stock was last down 8% at $35.75.
The original price range implied a market cap of $7.05 billion to $8 billion, according to MKM Partners analyst Rohit Kulkarni, assuming it would have about 234 million shares outstanding. The final pricing has given it a market cap of $9.126 billion.
Oscar was valued at $3.2 billion in a funding round in early 2019, and Google parent Alphabet Inc. /zigman2/quotes/205453964/composite GOOG -1.36% /zigman2/quotes/202490156/composite GOOGL -1.15% is its biggest shareholder with about an 18% pre-IPO ownership stake, the MKM analyst wrote in a note.
MKM did not participate in the offering and is not making a recommendation or initiating coverage, said Kulkarni.
However, “we watched Oscar’s roadshow presentation as well as accompanying product demo, and were impressed by a fairly comprehensive set of tech-enabled user experiences and Oscar’s ongoing focus on rethinking every building block of [the] healthcare insurance supply chain,” he wrote in the note.
Oscar was founded in 2012 by Joshua Kushner, Kevin Nazemi and Mario Schlosser, who is currently chief executive. Kushner is a brother of former White House adviser Jared Kushner, son-in-law of the previous U.S. president, and is married to supermodel Karlie Kloss.
Kushner is also managing director of the New York venture-capital firm Thrive Capital Management.
Today, Oscar has more than 500,000 people signed up to its platform in 18 states, offering individual and family, small group, and Medicare Advantage plans, with benefits that include telehealth visits at no extra cost and a network of doctors and hospitals to choose from.
There are 10 banks underwriting the deal, led by Goldman Sachs, Morgan Stanley, Allen & Co. and Wells Fargo Securities. Proceeds will be used to repay debt and for general corporate purposes, including growing the business and for technology development, according to filing documents.
The company has applied to list on the New York Stock Exchange under the ticker symbol “OSCR.”
“We created Oscar because of our own frustrations with U.S. healthcare,” says the prospectus. “The U.S. healthcare system is the world’s largest and most expensive — estimated to have cost over $4 trillion in 2020 — yet health outcomes are worse than in other advanced economies.”
Costs are so excessive that medical bills contribute to roughly 66% of all personal bankruptcies in the U.S.
“It doesn’t have to be this way,” according to the Oscar prospectus. “According to a report published in the Journal of the American Medical Association in 2019, nearly 25% of healthcare spending in the U.S. is wasted, the result of a system plagued by misaligned incentives, lack of coordination, and administrative complexities.”
Health insurers play a key role in this set-up, because they disburse 75 cents of each healthcare dollar spent. But after decades of effort, the incumbent insurers have failed to rein in costs or incentivize key stakeholders to improve the system.
“We founded Oscar to solve these problems and to provide consumers with access to the affordable, high-quality healthcare they deserve,” it continues.
In a letter from the founders included in the prospectus, they explain the name Oscar is that of Kushner’s great-grandfather, an immigrant who is said to have acquired the name at Ellis Island. The name was also inspired by the doctor who took care of Schlosser during his youth in a small German town, a doctor who made home visits to patients most weekday afternoons. On arriving in the U.S., Schlosser was surprised to learn that “family doctor” model was not available.
“He saw that the reason wasn’t any lack of dedication among American caregivers,” said the letter. “It was because of the fee-for-service system — a system that produces worse outcomes than in other countries, and at a higher cost.”