Epocrates: A Mobile App Case Study In Healthcare

Epocrates (NASDAQ:EPOC) was founded in 1998 by two Stanford students as a means to ease doctors’ burden of carrying around books to look up drug information, drug interactions, and dosing information. Since then, the company has transformed itself into a leading provider of clinical information and solutions to healthcare providers. It boasts of a network of over 1 million healthcare professionals, spanning over 300,000, or 45%, of U.S. physicians. Ranked tenth in the top 50 list of most innovative companies for 2011 by Fast Company, Epocrates also launched its well-received IPO in February of this year.

Epocrates’ Financials
Epocrates earns its revenues primarily through subscriptions for premium drug and clinical reference tools. Fourth-quarter revenues grew 11% over the year to $30.3 million. For the full year, revenues also grew 11% over the year to $104.0 million. Quarterly EPS of $0.09, however, fell from $0.13 earned last year. The decline in income was attributed to increased research and development and marketing expenses during the year. For the entire year, EPS of $0.01 was also significantly less than the previous year’s $0.20.

For the current year, Epocrates projects revenues of $122 million–$125 million with EPS of $0.12–$0.15.

Epocrates’ Mobile Leadership
Market reports estimate that the mobile health market will be worth $1.7 billion by 2014. According to Pyramid Research, the number of mobile devices being used by doctors and patients is expected to increase to more than 600 million by 2012 from current estimates of more than 200 million. Epocrates is well poised to address that market. It already has mobile apps for iPhone, iPod, BlackBerry, Palm, and Android-based devices. Pyramid Research’s report also said the Epocrates health app was the most popular health app in the market. The app is the only one available that provides an integrated set of features including pill identifier, formulary data, and dosing calculator.

Epocrates Acquires Modality
Earlier last quarter, Epocrates acquired Modality, a premier developer of digital learning, assessment, training and reference applications for Apple mobile devices for $13.8 million. To date, Modality has introduced more than 140 applications for Apple mobile devices. Through the acquisition, Epocrates is looking to diversify and expand the information that it provides at the point of care to its network and to be able to leverage Modality’s expertise in the iOS development to offer new products and services for mobile devices. Epocrates, as yet, does not have an iPad app and will be using Modality’s resources to create an offering for the device.

Epocrates’ Network Expansion
To continue to expand this leadership in the segment, Epocrates has also tied up with several clinical resources providers. Last year, it tied up with RealCME and Pfizer. RealCME is a provider of online applications that allow medical education providers to create unique, collaborative, virtual patient-based CME programs and curricula. Through this relationship, Epocrates is able to deliver continuing medical education (CME) curricula on the iPhone device and other online platforms. The Pfizer tie-up enables health care providers to access Pfizer’s medical information through the drug reference app. Epocrates also recently tied up with Walgreens, which grants health care providers on Epocrates network access to the Walgreens Prescription Savings Club, which has information on lower-cost medication options for Walgreens patients’ prescriptions.

Epocrates’ Upcoming EHR Offering
Epocrates is working on launching an electronic health records (EHR) solution designed to address the needs of small medical practices. The mobile and Web-based solution has been under development since March of last year and last month went into the beta testing stage. The company also tied up with Nuance Communications to integrate Nuance’s cloud-based medical speech recognition technology with the EHR offering. The speech recognition solution will enable healthcare professionals to create medical reports anytime, anywhere, and on any device using their voice.

The stock is trading at $19.80 with a market capitalization of $441.2 million. Last month, it touched a high of $30.24, significantly ahead of its IPO price of $16. I believe the organization is well poised for growth. You can read my interview with former CEO Kirk Loevner here.