Wardell, Future of Digital Health, Leerink Research 2014-10

October 27, 2014
Reason for report:
PROPRIETARY INSIGHTS
Steven Wardell
(617) 918-4097
Steven.Wardell@Leerink.com
DIGITAL HEALTH
Future of Digital Health
• Bottom Line: We are initiating coverage of the Digital Health sector. The
same digital revolution that re-ordered the media sector has now arrived at
the healthcare sector, creating winners and losers. We believe healthcare
is entering the same digital productivity curve as the technology sector.
We have identified 6 important Digital Health investment themes and
the many social, industry, policy, and technological drivers behind them.
We initiate coverage of CSLT, EVDY, IMPR, WAGE, and WBMD at
Outperform, with a Market Perform rating on VEEV. Investment in the
Digital Health sector has grown meaningfully over the past two years. But
at the same time, while the S&P 500 Healthcare Index returned about
23% over the last 12 months and the NASDAQ Biotechnology Index
returned over 36%, the Leerink Digital Health EW39 Index has returned
only about 1%. Channel checks within our MEDACorp network point to
increased physician adoption of digital content, while cost-shifting from
employers to employees increases consumer demand for online media
and Consumer Directed Benefits management.
• Healthcare is undergoing a digital transformation, and we highlight
six key themes powering investment opportunities in the emerging
Digital Health Sector: Consumer Empowerment, Automation,
Connected Health, Population Health, Big Data, and Healthcare IT.
We define Digital Health as the convergence of the healthcare system with
digital technology. We see a vast opportunity for Digital Health in the near
term, as consumers take charge of their healthcare, technological shocks
present opportunities for IT improvement, healthcare reform (the ACA)
challenges the status quo, aging Baby Boomers and the hyper-connected
Millennials demand increased involvement in their own care, and rising
healthcare costs shift to consumers. We have already seen growing
interest in the sector, with private and public investments totaling $2.3b
in 1H14, up from $2b in 2013 and $1.4b in 2012, and 7 IPOs this year.
However, the Leerink Digital Health EW39 Index of 39 public pure-play
Digital Health stocks had a return of only 1% over the past 12 months,
while the S&P 500 Healthcare returned ~23% and the NASDAQ Biotech
index returned over 36% – suggesting to us there is room for valuation
upside in the Digital Health sector, with compelling societal, technological,
sector, and policy drivers fueling this growth.
• Now is different: the post-2010 healthcare industry is poised for
adoption of new technologies to enhance productivity, control
spending, and improve outcomes. Despite technological improvements
propelling US business productivity and collaboration through enhanced
IT systems in the late 20th and early 21st centuries, healthcare lagged
well behind. The Affordable Care Act of 2010 opened up the healthcare
system to adoption of technological improvements due to a convergence
of factors - namely, an estimated ~10m newly insured individuals
entering the system in 2014, and a shift from volume- to value-based
payment, placing importance on outcomes and cost management. On the
manufacturing side, increasingly stringent FDA regulation and legislation
S&P 500 Health Care Index: 775.27
Companies Highlighted:
CSLT, EVDY, IMPR, VEEV, WAGE, WBMD
Please refer to Pages 102 - 104 for Analyst Certification and important disclosures. Price charts and disclosures specific to
covered companies and statements of valuation and risk are available at
https://leerink2.bluematrix.com/bluematrix/Disclosure2 or by contacting Leerink Partners Editorial Department, One
Federal Street, 37th Floor, Boston, MA 02110.

DIGITAL HEALTH October 27, 2014
requiring tracking of physician compensation is creating a need for data
management and process automation in the pharmaceutical industry.
• Our MEDACorp survey of 50 physicians across the U.S. points
to growing demand for digital content, which in turn presents
an opportunity for content providers to profit from increased
pharmaceutical advertising. While older generations of physicians
may prove “sticky” to old habits, we found that, overall, physicians are
increasing their use of web and mobile (online) sources, single sign-on
systems (SSOs), and HIPAA-compliant texting in their daily practice. This
increasing interest in online sources presents the biggest opportunity
for WBMD and EVDY, which stand to benefit from increased advertising
spend as physician demand increases and pharma ad spend continues to
grow.
• We initiate coverage of 6 companies, with Outperform ratings on
CSLT, EVDY, IMPR, WAGE, and WBMD and a Market Perform rating
on VEEV. Our coverage companies range in primary function from Online
Health Media (WBMD, EVDY) to Consumer Digital Tools (CSLT, WAGE)
and Healthcare Automation (VEEV, IMPR).
• In online media, we see a $5b market growing at 10% per year,
with physicians increasingly transitioning to digital platforms as
well. Pharmaceutical advertising spend increased 17% in 2013, and we
forecast this trend continuing with spend growing at 12% over the next
few years. We see WBMD as best positioned to take advantage of trends
shifting consumption by both patients and physicians to online, followed by
EVDY, an up-and-comer in mobile.
• As benefit costs are shifted from employers to employees,
consumers are empowered to take control of their healthcare to
minimize spend while maximizing quality of care. We see 2015 as
a big year for employer risk shifting, with WAGE and CSLT poised to
capitalize on increased demand for transparency and management of
High Deductible Health Plans and Consumer Directed Benefit accounts.
• Healthcare has lagged in purchasing and adopting automation
technologies, but we see opportunity for providers and
manufacturers to invest in IT. In automation, VEEV and IMPR stand
to benefit from trends toward IT upgrades that take advantage of cloud
systems and mobile technology.
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TABLE OF CONTENTS
CHAPTER 1: OVERVIEW OF THE DIGITAL HEALTH SECTOR, ITS DRIVERS, AND COMPANIES ...........................................4
DIGITAL HEALTH INVESTMENT THEMES.......................................................................................................................4
PERFORMANCE OF PUBLIC PURE-PLAYS IN DIGITAL HEALTH ......................................................................................5
SECTOR LANDSCAPE.....................................................................................................................................................7
SUB-SECTOR LIFECYCLES...............................................................................................................................................9
DISCUSSION OF DRIVERS BEHIND OUR 6 INVESTMENT THEMES.................................................................................9
KEY COMPONENTS OF THE AFFORDABLE CARE ACT (ACA) FOR HEALTHCARE TECHNOLOGY INVESTORS ...............16
MEDACORP SURVEY REVEALS CHANGE IN PHYSICIAN BEHAVIOR.............................................................................19
CHAPTER 2: INITIATING COVERAGE ON 6 DIGITAL HEALTH STOCKS .............................................................................35
FOCUS ON ONLINE HEALTH MEDIA (WBMD, EVDY) ..................................................................................................38
FOCUS ON CONSUMER DIGITAL TOOLS FOR HEALTHCARE (WAGE, CSLT) ................................................................47
FOCUS ON HEALTHCARE AUTOMATION (IMPR, VEEV) ..............................................................................................50
ACKNOWLEDGEMENTS: .................................................................................................................................................56
APPENDIX A: DIGITAL HEALTH DEFINITIONS.................................................................................................................57
APPENDIX B: THE LEERINK DIGITAL HEALTH EW39 INDEX AND LEERINK RATINGS ......................................................59
APPENDIX C: THE LEERINK DIGITAL HEALTH LANDSCAPE (TABULAR FORMAT) …………………………………………………………61
APPENDIX D: MEDACORP SURVEY …………………………………………………………………………………………………………………………..79
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CHAPTER 1: OVERVIEW OF THE DIGITAL HEALTH SECTOR, ITS DRIVERS,
AND COMPANIES
Healthcare, the largest sector of the US economy, is going through arguably its greatest transformation. Led by the
digital revolution that has “blown to bits” other sectors -- like the media sector over the past two decades -- powerful
external forces are now restructuring the healthcare sector, creating winners and losers.
We studied the societal, technological, sector, and policy drivers affecting the healthcare system, and discerned six
themes that are powering investment opportunities in digital healthcare today. Below we provide a discussion of the
six Digital Health Investment Themes and the Drivers behind them.
DIGITAL HEALTH INVESTMENT THEMES
1. Consumer Empowerment. Consumers are taking control of healthcare spending, and market participants like
payers and providers must follow them or become irrelevant.
2. Automation. Technologists are digitizing the components of healthcare and automating workflows, creating
new opportunities for the adaptive, and de-valuing old skills and legacy systems.
3. Connected Health. Patients are tearing down the walls of the healthcare system, demanding to receive care
and information when and where they need it.
4. Population Health. Providers are beginning to manage the wellness of a population proactively, instead of
reactively treating the sick.
5. Big Data. Data scientists are optimizing care with next-generation analytics applied to a growing mountain of
healthcare data.
6. Healthcare IT. IT systems are now at the center of providers’ plans to improve care outcomes, cut costs, and
get paid.
We define Digital Health as the convergence of the healthcare system with digital technology, a convergence that
enables the six Digital Health Investment Themes. Once digital technology pervades the healthcare system, the
convergence term “Digital Health” will fade into “healthcare.” Several terms have evolved over time to describe the
digitally-powered changes revolutionizing healthcare: Health 2.0, digital medicine, connected health, and e-health
among others; see Appendix A for a discussion of these terms.
In the 2010s, Digital Health has rapidly become a large public and private investment sector in the US. Market
research firm Rock Health found that there was $1.4b of investment in Digital Health in 2012, $2.0b in 2013, and
$2.3b in just the first half of 2014.
In addition to many private companies, a number of public companies are strongly affected by the Digital Health
Investment Themes. In the table below, we summarize the investment themes in Digital Health, the pure-play stocks
whose value is being driven by those themes, and the major public companies that are also affected by these
investment themes.
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#
Investment
Theme Drivers Public Pure Plays Public Majors
1 Consumer
Empowerment
 Consumers take charge
 Payers shifting costs
onto consumers
 Healthcare Reform –
drives health insurance
exchanges
 Demographics – shift to
web and mobile
 Technology shock –
pharma shift to targeted
therapeutics
Benefitfocus, Care.com,
Castlight, eHealth, Everyday
Health, HealthEquity, Health
Insurance Innovations,
WageWorks, WebMD
ADP, Bank of
America, CVS,
Towers Watson,
Yahoo,
InteractiveCorp
2 Automation  Technology shock –
Moore’s Law
 Healthcare Reform – IT
at the center
 Pharma cost cutting and
restructuring
HealthStream, Imprivata,
Intuitive Surgical, Mazor
Robotics, Medidata, MTBC,
Nuance, Omnicell, Veeva
Quintiles, PDI,
Inc., iRobot
3 Connected
Health
 Technology shock –
Moore’s Law
web and mobile
BioTelemetry, DexCom,
Insulet (OmniPod), LifeWatch,
SHL Telemedicine, Spok,
Tandem Diabetes, Vocera
Alere, Apple,
Boston Scientific,
Google, Intel,
Medtronic, Philips,
Qualcomm, St.
Jude, Stryker,
Verizon
4 Population
Health
 Healthcare Reform –
change to fee for value
web and mobile
Healthways, Streamline
Health, Weight Watchers
J&J, Lilly, Merck,
Novartis, Pfizer,
Cognizant
5 Big Data  Technology shock –
Moore’s Law
 Healthcare Reform – IT
at the center
Advisory Board, IMS Health Aetna, IBM,
Premier Inc.,
UnitedHealth,
Verisk, Samsung,
Apple, Google,
Philips,
Salesforce.com
6 Healthcare IT  Healthcare Reform – IT
at the center
Accretive Health, Allscripts,
athenahealth, Cerner, CPSI,
Craneware, HMS Holdings,
MedAssets, Merge Healthcare,
Quality Systems
ADP,
AdvancedMD, GE,
McKesson, Oracle,
Quest
Source: Leerink Research
PERFORMANCE OF PUBLIC PURE-PLAYS IN DIGITAL HEALTH
We combined the 39 public pure-play stocks of the Digital Health sector at equal weight (“EW”) into a composite
index, and compared their performance to the S&P 500 Healthcare Index and the NASDAQ Biotechnology Index.
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The resulting chart of the Leerink Digital Health EW39 Index (below) shows that over the last 12 months, while the
S&P 500 Healthcare Index returned about 23% and the NASDAQ Biotechnology Index returned over 36%, the Digital
Health EW39 Index had returns of only about 1%. Digital Health stocks were strongly negatively-affected by the 2014
Spring Growth Stock Correction, as was the NASDAQ Biotechnology Index. In the wake of that correction, Digital
Health stocks have picked back up – however, not as much as the NASDAQ Biotechnology Index. This lag suggests
that, at the present time and with continued lift from societal and technological megatrends, we believe the stocks in
our Digital Health Index have room to rise, and new buyers can buy below historical highs.
Source: Latest twelve month performance per FactSet 10/23/14 close. The Leerink Digital Health EW39 Index is comprised of 39 pure-play Digital
Health stocks with equal weighting. IPOs added during the year are treated in the Digital Health Index through rebalancing (includes Benefitfocus,
Care.com, Castlight, Everyday Health, HealthEquity, Imprivata, IMS Health, MTBC, Tandem Diabetes, and Veeva).
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The Leerink Digital Health EW39 Index is comprised of 39 stocks that we believe trade as pure-plays benefiting from
the investment themes of Digital Health. A list and description of these stocks is attached to this document as
Appendix B.
The stocks in the Leerink Digital Health EW39 Index are volatile. Some recent standout results of stocks in the index
include:
Company Ticker
Return
LTM*
DexCom DXCM 46.30
Intuitive Surgical ISRG 29.48
LifeWatch LIFE-CH 29.08
HealthEquity HQY* 17.44 Since IPO on 7/31/14
Omnicell OMCL 14.85
Vocera VCRA (51.52)
Streamline Health STRM (51.57)
Care.com CRCM* (66.17) Since IPO on 1/24/14
Castlight CSLT* (71.78) Since IPO on 3/14/14
Note: Stock price returns as of 10/23/14 close per FactSet for last 12 months except where IPO was less than 12 months ago.
We believe that this high potential for gain and loss indicates that judicious research and stock selection are
warranted as this new sector evolves.
SECTOR LANDSCAPE
The Digital Health landscape is rapidly evolving. We are currently tracking developments at over 250 Digital Health
companies. Many startups are formed each year. Some private companies are growing rapidly and raising
substantial venture and growth equity rounds. There have been 10 Digital Health IPOs in the last 12 months. M&A
activity is hot, and leading Digital Health companies and major technology companies are seeking to become
consolidators, such as GE, Intel, WageWorks, Medtronic, Weight Watchers, WebMD, Everyday Health, Google,
Facebook, Care.com, and others. In the figure below we have created a sector landscape that places companies
within their primary Digital Health product categories and into six investment themes, recognizing that this simplifies
the sector’s overlaps.
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The Leerink Digital Health Sector Landscape
Source: Leerink Research. The Leerink Digital Health Landscape is also presented in tabular format in Appendix C.
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SUB-SECTOR LIFECYCLES
Digital Health is a convergence term to describe the converging sectors of healthcare and digital technology. Existing
sectors are colliding and new sectors are being birthed. Different sub-sectors of the Digital Health convergence
sector are in different stages of development, and many are in early stages of development. The figure below shows
the stages of the lifecycle that industries typically go through. We also interpret where on the lifecycle the different
sub-sectors of Digital Health are located. This interpretation may be helpful in understanding what to expect of a
company and a sub-sector. Early in the lifecycle, companies may have low or negative profitability, as they still have
start-up costs and may not have reached economies of scale. Late in the growth stage, there is typically a shake-out
characterized by M&A and exit.
Stages in the Digital Health Sector Lifecycle.
Source: Leerink Research.
DISCUSSION OF DRIVERS BEHIND OUR 6 INVESTMENT THEMES
A. Consumers take charge. The 2010s are the Era of the Consumer in healthcare. Whereas 20 years ago, a
healthcare business organizing around the patient-as-buyer in healthcare would not have been successful, today the
consumer market in healthcare is growing rapidly, and even traditional payer and provider organizations are learning
how to sell to consumers and how to adapt to their needs.
As healthcare spending in the US rises at a rate greater than inflation, healthcare payers such as employers are
continuing to shift healthcare risk, cost, and power onto consumers through less generous benefit designs. These
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benefit design changes include covering fewer employees, increasing deductibles in health plans, increasing co-pays
and co-insurance portions, and, ultimately, reducing and capping the amount of the health insurance benefit premium
that employers will pay. In this way, employers are moving from what has traditionally been a defined-benefit type of
employee benefit toward a defined-contribution benefit, following the path of employee retirement benefits in the late
20
th
century.
As payers shift healthcare costs onto consumers, they also shift responsibilities and decision-making onto the
consumers. Consumers can now direct healthcare spending as never before, and they are also spending more out-
of-pocket dollars on healthcare than ever before. We have identified 5 growing categories of consumer-empowered
spending in healthcare.
Categories of consumer-empowered healthcare spending:
1. Health plan selection. Consumers have a growing number of health plan options to choose from. Whereas
in the past, a participant in a health benefit might have been able to choose between an HMO and a PPO
from the same carrier, today benefit sponsors may provide to participants several in-house options from
multiple carriers. In addition, still more health plan options are available from private and public exchanges.
Growing consumer choice in health-plan options drives health plans to focus on the consumer as the
customer, instead of the benefit sponsor (such as the employer) as the customer. Carriers must therefore
design plan benefits and costs around the consumer in order to be competitive. All health insurance carriers
are designing plan options to compete in this environment. In addition, employee benefit consulting
companies like Towers Watson (TW) are setting up private insurance exchanges, such as Towers Watson’s
OneExchange, to assist their employer-clients in this transition, while offering multiple plan options to the
employee-participant.
2. Pre-deductible spending. Increasingly, benefit sponsors are shifting healthcare costs onto consumers by
sponsoring low premium / high-deductible health plans (HDHP), including IRS-qualified high-deductible health
plans that are paired with tax-advantaged spending accounts (such as Health Savings Accounts and Flexible
Spending Accounts) that allow employees to spend pre-tax earnings on healthcare. In 2014, the deductible of
a typical single employee in an HDHP was between $1,250 and $6,350 for the year. Consumers control this
healthcare spending (instead of employers) and it hits their wallets on a dollar-for-dollar basis, instead of
being subsidized by their employer. Healthcare providers and vendors who wish to earn the business of
these consumers must sell directly to the consumers. Consumer-directed benefit vendors such as
WageWorks (WAGE) and HealthEquity (HQY) are strongly affected by the shift to high-deductible health
plans. As employers shift health costs onto employees through these high-deductible health plans paired with
tax-advantaged spending accounts, the employers need to set up more consumer-directed benefit accounts
and process more funds through the accounts. Health-transparency data vendors like Castlight (CSLT) also
benefit from this cost shifting by employers, as employers pair the cost-shifting with consumer digital tools that
empower employees to optimize their care decisions.
3. Post-deductible spending. The effect of consumer control of pre-deductible spending in the healthcare
marketplace is multiplied because the spending patterns that consumers develop during the pre-deductible
phase of their health spending (such as using a health-transparency tool to choose one vendor over another
on account of its cost effectiveness) are typically carried over into the post-deductible spending covered by
the health benefit. Potentially all of a consumer’s healthcare spending can be set and directed by the
consumer on the basis of the decisions they made when they were directly spending their own money during
the pre-deductible phase.
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4. Consumer-influenced spending. Traditionally, the healthcare marketplace de-emphasized the consumer
because the physician/provider was the decision-maker and the health plan was the payer. Another way that
this traditional structure is now changing is that consumers are gaining additional influence even in areas of
healthcare where that traditional structure still exists. Increasingly, consumers arrive in the doctor’s office with
their own sources of information and opinions about their needs, and treat the physician as a gate-keeper to
the healthcare system rather than as the authoritative decision-maker. Patients may learn about new
pharmaceuticals through pharma direct-to-consumer “ask your doctor” ads for prescription drugs when
seeking information on websites such as Everyday Health (EVDY) and WebMD (WBMD), and go to their
physician requesting the drug (or procedure or device).
5. Direct consumer spending. Consumers are also increasingly willing to spend their post-tax consumer
dollars on healthcare products. A diabetic consumer may receive paper testing strips at no cost through her
health benefit, but may purchase a continuous blood glucose monitor on her own -- with her consumer dollars
-- for the benefits that it offers. A patient with chronic pain may self-manage with OTC drugs bought out of
pocket for the benefits of increased control and convenience and the potential for cost savings. Millions of
Americans have bought activity trackers from companies such as FitBit, Jawbone, and Misfit, or turned on
their smartphone’s activity-tracking settings, using the data from these devices to track their fitness, diet, and
sleep, or to help them self-manage their chronic conditions. Increasingly, health-conscious Americans are
willing to spend their own consumer dollars on health products, and vendors are responding with a wide
variety of consumer-oriented options. Websites such as WebMD (WBMD) and Everyday Health (EVDY) are
popular media channels that health brands turn to for an audience.
Beyond the structural changes described above, a secular social and demographic trend is changing healthcare. The
current generations driving the US economy, from Boomers to Millennials, are taking charge of their healthcare as
prior generations never did. Current generations are likely to question authority, whereas prior generations deferred
to authority. Current generations are likely to develop their own expertise, and they find the tools to accomplish this
readily available, whereas prior generations primarily sought out experts to hand their case over to. Current
generations proactively demand to be involved in their own healthcare, whereas prior generations wanted institutions
to be responsible.
B. Technology shocks. Belatedly, technology is one of the primary drivers of the digital revolution in healthcare.
Over the past 30 years, whereas high-tech sectors of the economy seemed to ride a “digital productivity curve”(driven
by Moore’s Law) of dramatic increases in cost-effectiveness, other sectors of the economy -- especially healthcare,
government, and education -- seemed stuck with slow improvements in productivity, or even negative productivity
trends (sometimes called Eroom’s Law, or Moore’s Law spelled backwards).
However, the last few years have seen breakthroughs in the application of digital technology to healthcare. The
digital revolution that has restructured other industries is finally shaking up healthcare. Health records that used to be
trapped on paper in manila folders in physician practices, or on film at hospitals, are now commonly born digital and
readily shared with members of the care team wherever they are and whenever they need access.
Healthcare products that were once unimaginable, that seemed too expensive for common use, and that were
necessarily controlled by specialty physicians, are now becoming accessible to all. If a component of a healthcare
product can be digitized, then it can follow the same curve of rapid productivity improvement as the rest of the digital
economy.
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Technology forces driving improvement in Digital Health include the following:
1.) Moore’s Law. The original Moore’s Law, which applied to the cost effectiveness of microprocessors, is now
joined by a cloud-computing variation of Moore’s Law. Both are now delivering technology shocks to the US
healthcare sector. The cost-effectiveness of cloud computing is growing, both on an absolute basis to users
and also in comparison to traditional enterprise-software infrastructure costs, as economies of scale play out
around cloud storage, transport, processing, and maintenance costs. Cloud-based companies in healthcare
like Benefitfocus (BNFT), Castlight Health (CSLT), athenahealth (ATHN), CareCloud, WageWorks (WAGE),
Veeva (VEEV), Medidata (MDSO), HealthEquity (HQY), and others are riding this curve, as do automation
companies like Omnicell (OMCL), Intuitive Surgical (ISRG, maker of the Da Vinci surgical robotics system),
and Imprivata (IMPR, which automates sign-on and authentication management across complex hospital
systems).
2.) Smartphones. The innovation curve of Digital Health is also being driven by the cost-effectiveness curve of
the smartphones in our pockets, as mass-market demand for these devices drives ever-lower per-unit costs
and ever more pervasive infrastructure support for components like video cameras, cellular radios, GPS
receivers, mobile processors, and body sensors. Companies propelled by these technology shocks include
companies with important mobile apps like WebMD (WBMD) and Everyday Health (EVDY) in the online
health publishing sub-sector; consumer digital tools companies like WageWorks (WAGE) and Castlight
(CSLT); and population health management companies like MDRevolution. In addition, activity tracker
companies like FitBit and Jawbone benefit, as do wearable medical device companies like DexCom (DXCM)
and Insulet (PODD), both of which make advanced diabetes medical devices.
3.) Targeted Therapeutics. A third technology shock to hit the healthcare system is the progress of drug
development from primary-care blockbuster drugs -- such as ibuprofen-class drugs for pain relief and statin
drugs for high cholesterol -- to targeted therapeutics, which have the potential to stop the progression of major
diseases that have hitherto eluded successful treatment. Building on advances in the study of disease and in
the capabilities to manipulate biology, targeted therapeutics allow us to more effectively treat Crohn’s disease,
infertility, hepatitis C, cancer, growth-hormone deficiency, and other conditions. Over the past 10 years,
pharmaceutical companies have seen their primary-care blockbuster drugs go off-patent, as part of the
ongoing Patent Cliff, which peaked in the early 2010s. Pharma companies have adapted strategically by
shifting drug development to targeted therapeutics and restructuring the way that they sell and market the
drugs.
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Note: AP – Approved Product
Whereas in the past, pharma companies targeted the mass consumer and the primary care physician with
their sales and marketing efforts, today pharma companies are targeting patients with specific conditions,
such as diabetes and Hepatitis C, and the specialist physicians who care for them. Instead of targeting with a
large force of sales professionals aimed at big groups of physicians and mass media ads aimed at every
consumer, pharma companies are now building much smaller and more specialized sales forces, and
advertising to patients and physicians on a much more specialized basis. Online publishers like WebMD
(WBMD) and Everyday Health (EVDY) allow pharma companies to target messages to specific physicians
and specific patient communities, something that traditional publishers can’t do as well. And cloud-based
client-relationship management (CRM) systems -- like Veeva (VEEV) -- enable pharma companies to
automate sales processes better than before. Pharma companies can cut the size of their sales forces, while
integrating the sales reps more effectively into the pharma company’s workflows, and manage this new team
more cost-effectively.
4.) Agile Startups. Another kind of technology shock has played out before America’s eyes in Silicon Valley
over the past decade and with accelerating speed since 2008. It’s the combination of the following: the
emergence of an agile startup culture centered around a falling cost of IT infrastructure and product
development, the utilization of agile-software-development-management techniques leading to rapid
innovation, plus a spirit of rapid experimentation among startup talent and capital. The result has been an
unparalleled cycle of innovation in the B2C and B2B markets. This cycle of innovation is now extending to
healthcare, as evidenced by the large and fast growing pool of investment in Digital Health companies that
has been tracked by Rock Health. This technology shock ensures that some of America’s most talented
entrepreneurs will be ready to serve up innovative technology solutions to the healthcare sector as Healthcare
Reform is opening the sector up to the forces of change for the first time in two generations.
C. Healthcare Reform. The Affordable Care Act of 2010 and related reforms represent the biggest change to
the US healthcare system in the post-WWII era and one of the largest business opportunities of the 2010s. Prior to
WWII, few Americans had health insurance and most health insurance policies covered only hospital expenses.
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However, during WWII the War Labor Board ruled that the ongoing wage freeze didn’t apply to fringe benefits, and
employers responded by using health benefits to compete for workers during a time of labor shortages. This change
kicked off the modern American healthcare payment system – with employers providing health insurance as a tax-
advantaged fringe benefit. Government reinforced this system both as a conventional employer and also as the
insurer of the old (Medicare) and the poor (Medicaid).
Many of the modern healthcare system’s much-observed ailments have been attributed over time to its fundamental
fee-for-service payment structure. Healthcare’s expensive procedures and suspected overutilization of care is
attributed to the system’s bias to pay for procedures but not to pay for quality, or thinking about options, or prevention,
or waiting to take action, or maintaining wellness. The system’s lack of a true marketplace is attributed to
misalignment of incentives among the user (the patient), the decision maker (the provider / physician), and the payer
(the insurance carrier). Due to the healthcare system’s decentralized nature, it has proven difficult to improve any one
part without reforming all of the healthcare system (and the healthcare payment system too). And payment reform
ultimately required changes in healthcare policy and law that the political system couldn’t deliver until recently.
Under the traditional healthcare system, the misalignment among payers, providers, and patients often punished
innovation:
 Prospective innovators found that they had to bear all the cost of innovation, while the benefits were spread
diffusely among other participants, without enough of the benefits accruing to the innovator to justify the cost.
Thus physicians rejected electronic medical records at their practices because they would have to bear the
cost of the system in time and money -- with not enough benefit accruing to their practice, they felt, to justify
the cost.
 Innovations that required different sector participants to adopt their innovation withered because of lack of
agreement on priorities among participants.
 Vendors would find their innovative product rejected by otherwise-receptive physicians because the
innovators needed to get assurance of reimbursement from payers first before physicians would prescribe or
use the innovative products.
 Clinicians weren’t allowed to use basic productivity technology in the practice of medicine because it didn’t
meet HIPAA standards. And lack of critical mass in electronic clinical systems caused sector participants to
default to paper and physical mediums of collaboration, denying the collaborative benefits of electronic
systems to the participants who adopted them early.
 Payers refused to reimburse an innovative product because the costs were too high to cover the innovation
for members who could be changing carriers within a couple of years anyway.
 Wellness products were rejected by the healthcare system because of a traditional agreement to reimburse
for sick care but not for population health.
 Providers who innovated to develop higher-quality procedures found the system didn’t reward high-quality
care and didn’t punish low-quality care.
 Patients over-consumed expensive care because they didn’t have to pay the bills.
The consequences of the healthcare system’s misalignments could fill many pages and have contributed to America’s
having the highest per-capita healthcare expenses in the world with sometimes less-than-the-best outcomes. The
result of these problems in the US healthcare system was that throughout the late 20
th
and early 21
st
centuries, while
US businesses were pioneering world-class productivity, collaboration, and automation systems in offices and
factories, healthcare’s payers and providers seemed stuck in a darkly-humorous parallel universe of old and kludgey
technology, including telephone answering services, color-coded manila folders, large film negatives, paper clips,
monochrome computer screens, multiple computer key-function codes from 1980s DOS manuals, handwritten phone
messages on pink sheets of paper, and deliveries of critical workflow documents through the postal system. Our 21
st
century brain surgeons are still wearing beepers and reading faxes.
14

The healthcare reforms of the 2010s have opened up the healthcare system -- the largest single component of the US
economy -- to the adoption of the same wave of productivity, collaboration, and automation systems as the rest of the
economy. Like a third-world country in the 1990s that could skip over the building of a copper-line telephone network
in favor of going straight to the latest mobile phone system, the US healthcare sector now has the opportunity to adopt
the latest cloud-based systems while skipping over the prior generation of enterprise systems built by pioneers in the
business sector. The US healthcare sector can now jet straight to Malibu without having to trek for weeks in
Conestoga wagons through a technological Death Valley.
15

KEY COMPONENTS OF THE AFFORDABLE CARE ACT (ACA) FOR HEALTHCARE
TECHNOLOGY INVESTORS
Individual
Insurance
Mandate
By some estimates, the individual insurance mandate will add 14 million
people to the ranks of the insured in 2014, and ultimately as many as 30m
people, growing significantly the population of people who receive
conventional reimbursed healthcare under the current system.
Accountable
Care
Organizations
(ACOs)
Perhaps the ACA’s largest single reform, the creation of the ACO framework,
changes the nature of healthcare spending from fee-for-service to fee-for-
value, unlocking the potential of modern workplace technology to improve the
cost-effectiveness of the healthcare workplace. We believe that ACOs will
behave very differently from traditional healthcare provider organizations and
will have a large appetite for cost-effective innovations. They will be major
buyers of healthcare automation technologies and will also purchase
population-health management solutions to help reduce the cost of caring for
their populations.
Public
Exchanges
The public health insurance exchanges facilitate the buying of health
insurance by consumers from health plans. The public exchanges make it
easier for the uninsured to take advantage of government subsidies and to
obtain the right health insurance. Over time the exchanges will also make it
easier for employers to outsource their employee benefit functions by
directing employees to public and private exchanges.
Cadillac Tax The ACA includes provisions to begin taxing so-called Cadillac Health
Benefits, health plans with very generous health benefits, starting in 2018.
We believe that the start of the Cadillac Tax will serve as a catalyst for
employers to shift additional risk and cost of health benefits onto employees
through less generous health benefits. This catalyst will increase the use of
high-deductible health plans and associated tax-advantaged spending
accounts, and will benefit consumer-directed benefit companies such as
WageWorks (WAGE) and Health Equity (HQY). Less generous benefits will
also spur employers’ provision to employees of health data transparency
products such as Castlight (CSLT).
Sunshine Act
(and sequelae)
A part of the ACA, the Sunshine Act mandates that pharmaceutical
companies document and report all compensation of physicians. The
Sunshine Act is part of a larger trend of restricting the ability of
pharmaceutical companies and other manufacturers to influence physicians.
The Sunshine Act has forced a software upgrade on the part of
pharmaceutical companies that detail to physicians, benefiting salesforce
automation and CRM companies such as Veeva (VEEV). By limiting the
ways that pharmaceutical companies can reach physicians, the Sunshine Act
and its sequelae (such as provider organization restrictions on affiliated
physicians’ ability to receive compensation from industry) will benefit
companies that own unaffected channels to physicians, such as online
healthcare publishing companies like WebMD (WBMD) and Everyday Health
(EVDY).
Source: Leerink Research.
In addition to the ACA, there are other parts of Healthcare Reform that are changing the healthcare system and
placing healthcare IT at the center of how payers and providers work and get paid. Under HIPAA (the Health
Insurance Portability and Accountability Act of 1996) all covered entities, such as hospitals, must adopt by 2015 the
new ICD-10, a diagnosis and procedure coding system that is substantially more detailed than the prior standard,
ICD-9, and that requires updating enterprise software and workflows in order to successfully comply with it.
16

Also, under the American Recovery and Reinvestment Act of 2009 (ARRA) and its included HITECH Act, healthcare
providers can receive financial rewards for the Meaningful Use of Electronic Health Records. Currently, providers
must meet additional use requirements under Stage 2 of Meaningful Use in the 2014-15 timeframe in order to
continue to receive these rewards. Provider organizations that decline to participate in the Meaningful Use program
initially forgo its financial rewards, and later are subject to reimbursement penalties from CMS for not satisfying its
billing requirements.
The combination of these policies has triggered multiple waves of healthcare IT software upgrades and put healthcare
IT in 2014 at the center of how healthcare payers and providers improve care, cut costs, and get paid. Instead of
necessarily defaulting to the lowest common technological standard of paper documentation and communication,
healthcare participants can now train and organize around advanced electronic systems. A critical mass of
participants in healthcare online has been reached, and participants can now count on doing their work digitally.
Laggard provider organizations must also make deferred investments in IT systems in order to stay current and
interoperate with their peers and payers. The emergence of IT at the center of healthcare is benefiting automation
companies like Imprivata (IMPR), which automates the sign-on and authentication process for healthcare providers
across multiple healthcare IT systems, and Omnicell (OMCL), which automates the hospital pharmacy.
D. Demographics. Major demographic trends are boosting demand for digital solutions to healthcare
challenges. At the older end of the demographic spectrum, Boomers are retiring in vast numbers and becoming major
consumers of healthcare services, triggering a number of changes. Healthcare has long been viewed as a labor-
intensive service sector that has resisted automation. But as the Boomers enter retirement at a time of
unprecedentedly high healthcare spending and a growing gap in the adequate supply of healthcare providers,
Boomers are increasingly demanding healthcare and eldercare services. In addition, unlike prior generations who
saw themselves as recipients of care from institutions and authorities, Boomers are taking charge of their care
through their own spending and demanding that their care be customized to them. In order for their care to be
convenient, personalized and affordable, there’s an increased need for automation.
Earlier along the demographic spectrum are the Millennials, a generation that was “born digital” and that turns first to
internet-connected mobile devices for information, connection, work, and play. Businesses that want to serve
Millennials will need to figure out how to serve them on their mobile devices.
In between the Boomers and the Millennials, the rest of America is responding to the technological shocks of the past
30 years by changing how they spend their time and how they want to receive care. They are consuming information
from online sources such as the web and mobile apps. And they too are changing how they want to interact with their
healthcare vendors and providers, switching from offline activities, such as calling a doctor’s office, to online activities,
such as finding a provider and booking a visit through a mobile app.
These demographic changes are boosting healthcare benefit vendors that engage with their members through web
and mobile: vendors such as WageWorks (WAGE), Health Equity (HQY), and Castlight (CSLT). The trend to online
activities also benefits healthcare publishers with a strong web and mobile presence such as WebMD (WBMD) and
Everyday Health (EVDY), and population health vendors with mobile apps such as Weight Watchers (WTW) and
Healthways (HWAY). This web and mobile trend also helps medical device companies that are building brands in the
hearts of consumers, such as DexCom (DXCM) and Insulet (PODD).
We believe that the convergence of positive technology shocks powered by Moore’s Law with demographic shifts
such as retiring boomers and provider shortages, plus the world’s highest healthcare costs, is spawning an
unprecedented wave of automation in healthcare. Increasingly we’re receiving our healthcare in new ways – such as
at home, through connected devices, and with the assistance of automation.
17

E. Healthcare costs. US healthcare costs are the highest in the world. They have been growing faster than the
general rate of inflation for decades. They are regularly cited by policy makers as a major factor inhibiting US global
competitiveness, by company CEOs and CFOs as a major challenge to profitability, and by consumers as a major
budget concern. High healthcare costs are a major driver of cost-shifting by employers, which boosts the growth of
High-Deductible Health Plans and Consumer-Directed Benefit accounts, which, in turn, drives growth for consumer-
directed benefit companies like WageWorks (WAGE) and HealthEquity (HQY). Soaring healthcare costs and the
need to restrain them also benefit health-transparency tools companies that help consumers optimize care decisions,
such as Castlight Health (CSLT). High healthcare costs were a major driver behind the introduction of Accountable
Care Organizations (ACOs) in the Affordable Care Act. ACOs, in turn, introduced a fee-for-value calculation into the
healthcare system, which was formerly overwhelmingly fee-for-service based. The introduction of fee-for-value into
healthcare will benefit population health companies like Healthways (HWAY) and Weight Watchers (WTW), and
automation companies like Imprivata (IMPR) and Omnicell (OMCL).
Source: Health Affairs as cited in Vox.com 9/4/2014
18

MEDACORP SURVEY REVEALS CHANGE IN PHYSICIAN BEHAVIOR
Digital Health Survey Points to Increase in Online Content Demand
Our recent survey of 50 board-certified physicians reveals fundamental changes in physician behavior in terms of how
new digital technology is used in their everyday practice. The focus of this survey was centered on digital content
distribution, advertisements, and the single sign-on (SSO) system. Among our Digital Health coverage universe, the
companies that will be most impacted by content and advertisement decisions and trends are WebMD (WBMD) and
Everyday Health (EVDY). Data from the survey suggest that within the next ~3-5 years, there will be significant growth
in demand for digital content, especially for the mobile health segment. Advertisers will see opportunities as a result.
And the increasing interest in and adoption of single sign-on will benefit Imprivata (IMPR).
Usefulness of SSO Is Above Average, According to Results
Demand by physicians for single sign-on products will most directly impact Imprivata (IMPR). The general sentiment
of our surveyed physicians is that SSO’s usefulness is above average, and time saved can be up to an hour per shift,
but mostly hovers around 10-15 minutes per day. The market opportunity for Imprivata is presently narrow due to the
SSO product category’s low visibility and limited exposure among physicians. However, there could be significant
market upside to Imprivata given the growing interest in the product category combined with barriers to entry to new
competition, due to the need to integrate with many other software systems in order to sell a viable product.
Demographics: Survey Respondents Skew to a Younger Group
Among MEDACorp’s 50 surveyed physicians, the majority work in private practice, followed by academic medical
centers, community hospitals, and Veterans Administration facilities. By comparing our survey sample with the survey
results from the Center for Studying Health System Change (below), we believe that academic medical centers could
be over-represented in the MEDACorp survey. In terms of experience, almost all MEDACorp respondents have been
practicing for at least 5 years, and all use online or mobile apps at least one hour a week. The average number of
years in practice is ~17, with the lowest being 3 years and highest being 40. The distribution of our MEDACorp survey
leans towards the younger side of the spectrum, however, and therefore could show a skew toward use of technology,
especially mobile technology. In our survey, 62% of respondents have <20 years’ experience, in contrast with ~50% in
the chart from the Journal of Medical Regulation also cited below. MEDACorp respondents were mostly located in the
Northeast, Florida, the Illinois/Chicago area, and the California coast, with a scattering throughout the Midwest.
19

Source: MEDACorp Survey: Digital Health, August 2014 Source: MEDACorp Survey: Digital Health, August 2014
Source: A Census of Actively Licensed Physicians in the United States, 2010, Journal of Medical Regulation
1
11 11
9
13
5
0
2
4
6
8
10
12
14
0-5 6-10 11-15 16-20 21-25 25+
Respondents
Years in Practice
Years in Practice (n=50)
Academic
medical
center, 26%
Community
hospital,
10%
VA, 2%
Private
practice,
62%
Primary Practice Setting (n=50)
1.9%
22.7%
24.7% 24.4%
14.8%
7.6%
3.9%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Less than 30
Years
30-39 40-49 50-59 60-69 70+ Unknown
Age
Age of Physicians in the US (2010)
20

Source: Center for Studying Health System Change: 2008 Health Tracking Physician Survey
Geographic Distribution of Physicians in MEDACorp Digital Health Survey
Symbols represent responding physicians
Source: Google Maps, MEDACorp Survey: Digital Health, August 2014
21

Use of Online and Mobile Slated to Continue Growing
Less than ten years ago, a smartphone in everyone’s pocket was not yet a reality, even accessing the internet
was still a struggle for some. In 2014, not having a smartphone has become uncommon, and not having
internet access is rare. For many of us, a very large part of our lives is spent on our mobile phones or in front
of computer screens, and for physicians, it is no different. We asked our respondents how many hours per
week they spent using online and mobile resources three years ago, today, and what they expect in another
three years. There is a clear trend of increased use of online and mobile resources. The statistical summary
for this question is in the tables below. We found that the CAGR of usage was approximately 20% during the
past three years. In the next three years, physicians expect slower growth, at around 11% CAGR. If we
remove the two outliers -- one physician who almost never uses online/mobile, and another who is heavily
dependent (~40 hours a week currently) -- the results largely remain the same as without the removal of
outliers, with a clear upwards trend in hours spent. We attribute the slowdown in growth rate to the time
constraint of the physicians’ schedules. This suggests an asymptotic growth pattern, with the time spent
quickly approaching the physicians’ upper limit. Based on this growth in physician use of digital sources, we
see a strong future outlook for Digital Health content providers.
Hours Spent per Week Using Online/Mobile Resources: All Data (n=50)
Mean Median Sum CAGR*
3 years ago (August 2011) 4.3 3 217 -
Currently (August 2014) 7.4 6 368 19%
3 years from now (August 2017) 10 8 499 11%
Hours Spent per Week Using Online/Mobile Resources: Without Outliers (n=48)
3 years ago (August 2011) 3.9 3 187 -
3 years from now (August 2017) 9.3 8 446 11%
Note: CAGR is calculated from August 2011, giving 3-year and 6-year annual growth rate estimates
Source: MEDACorp Survey: Digital Health, August 2014
NEJM and Conferences Dominate Offline Knowledge Sources
Traditionally, the most trusted print journals in medicine are the New England Journal of Medicine and the Journal of
the American Medical Association. The overall responses from our physicians are in line with the known trust placed
in these two publications. We posed an open-ended question to the physicians worded as such: “What are your top
three preferred offline sources for new medical information?” Our aim with this question is twofold: 1) we believe that
the top three choices that come to mind do not necessarily have different qualities in the physicians’ opinions, which
means three answers more accurately captures information on what sources are most widely used; and 2) for the
most used sources, we wanted to know why they are so heavily utilized among physicians. Medical Conferences and
NEJM heavily dominate, at 19% and 14% respectively overall, and at 34% and 27% respectively, as the physicians’
first choice. For NEJM, many respondents mention that they use it due to “trust” and because it is “up to date,” while
for conferences, the physicians preferred them for “CME,” “in person meetings,” and “new research.”
22

If we do take into consideration differences between the top three choices, the importance of medical conferences
stands out. We also notice that JAMA was almost never picked as a first choice, but was picked as a second choice
more than any other source. JAMA was described in much the same manner as NEJM, which leads us to believe that
it is generally trusted as a journal, but is not the de facto top source. Despite some heavy contrast of preferences
among age groups, the staple journals are used almost universally, which leads us to conclude that despite the shift
towards digital content, print media will yet hold a place for physicians to obtain new information.
Note: Other Journals include: The Lancet, JCEM, Internal Medicine Journal, etc. Other includes non-journal publications.
Number of Mentions
Top Offline Sources Offline source 1 Offline source 2 Offline source 3
Annals of Internal Medicine 4 2 2
JAMA 1 9 3
NEJM 13 7 2
Conferences 16 4 9
Offline Sources Breakdown by Experience Shows Contrasting Preferences
By breaking down the top sources of offline information, a few interesting trends emerge. The group with the most
diverse use of sources is the group with 11-15 years of experience. The two groups with the lowest source diversity
are the oldest doctors: 21-25 and 25+ years in practice. Between the older and younger physicians, the most glaring
difference is the “Conferences” category. Age and/or experience are likely factors that can explain the unwillingness to
travel in the oldest physicians. Here we see heavy trust placed in traditional journals: over 50% of the responses for
the 25+ group were in NEJM, JAMA, or Annals of Internal Medicine, while for the next oldest cohort (16-20), the
responses only tallied 30%. With this data, it is fair to conclude that the older generation are somewhat stuck in their
ways, which is problematic when Digital Health content providers try to penetrate this market segment. This will be
explored further when we discuss the survey results for online use.
Conferences,
19%
NEJM, 14%
JAMA, 9%
Annals of
Internal
Medicine, 5%Textbooks, 4%JASN, 3%
Colleagues,
3%
Mayo Clinic
Journal, 2%
Cleveland
Clinic Journal,
2%
Other
Journals,
29%
Other,
10%
Offline Sources Overall
23

Switching over to the relatively inexperienced doctors (6-10 years in practice), we also notice a narrower range of
sources versus the middle groups (11-15 and 16-20). The likely explanation here is a shift of younger doctors to
online sources, while they only prefer the most known of print media for offline sources, namely the NEJM. The
NEJM is as important to younger physicians as it is for older physicians; however, from oldest to youngest, the Annals
of Internal Medicine vanished from 19% to 0%, and JAMA steadily shrank from 13% to 6%.
Note: Categories with no responses in age groups not included
Offline Sources By Experience Years of Experience
Source 0-5 6-10 11-15 16-20 21-25 25+
Conferences 7 4 5 13
NEJM 5 4 5 5 3
JAMA 1 2 3 2 3 2
Annals of Internal Medicine 2 1 2 3
Textbooks 3 2 1
Jnl Am Soc Nephrology 2 1 1
Colleagues 2 1 1
Mayo Clinic Journal 1 1 1
Cleveland Clinic Journal 2 0 1
Other Journals 10 10 9 10 4
Other offline sources 2 2 2 2 5 2
6% 6% 7%
13% 13%
30% 31%
33% 26% 25%
6% 6%
3%
4%
6%
6%
3%
4%6%
3%
3%
9%
6%
4%
6%
4%
5%
19%6%
9%
7%
8%
13%
15%
13%
19%
13%
19%21%
13%
19%
33%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
0-5 6-10 11-15 16-20 21-25 25+
Offline Sources by Experience (3 per Physician, n=50,
3n=150)
Conferences
NEJM
JAMA
Annals of Internal Medicine
Textbooks
JASN
Colleagues
Mayo Clinic Journal
Cleveland Clinic Journal
Other Journals
Other
Notsignificant,onlyonerespondent
24

Online Sources Fragmented, but Dominated by Handful of Brands
For the online sources question of the survey, we posed a similar question: “What are your top three preferred online
sources for new medical information?” Again, we believe that the top three results are not significantly different in
terms of quality, but only ranked in a particular order based on doctors’ varying taste. Results for online sources were
highly mixed, with a much wider range of responses. This is not surprising considering the ease of publishing and
reaching audiences online. There are two clearly dominant brands: UpToDate and WebMD (including Medscape),
each consisting of over 20% of the total responses; with UpToDate being an overwhelming 44% of respondents’ first
choices, and WebMD (WBMD) a close second at 34%. Emedicine, which was 3% of the responses, was acquired by
WBMD in 2007. Incorporating Emedicine into the WebMD tally as a whole, we see WebMD as a clear market leader
in the online side of the business (23%). UptoDate and Medscape/WBMD dominate physicians’ first two choice slots,
while the third choice slot is mostly Epocrates and PubMed.
Note: Other includes: Yahoo Search, NEJM/JAMA Digital, CDC.gov, etc.
Top Websites Website 1 Website 2 Website 3
UptoDate 18 10 3
Medscape 12 8 2
Epocrates 2 2 5
PubMed 2 1 8
WebMD 2 3 4
One of the most notable findings of our survey of offline versus online content preferences of physicians is the
discontinuity of brand choices between offline and online. Incumbent brands from the offline segment such as NEJM
and JAMA had every possible advantage in winning the preference of physicians as the physicians spend more and
more time online. However, our survey shows that those brands did not successfully transfer their leadership position
online. This suggests that there is an important discontinuity between offerings in those areas. This further indicates
UpToDate, 20%
WebMD, 6%
Medscape, 15%
Medpage Today, 1%
PubMed, 7%
Epocrates, 6%
Sermo, 5%
QuantiaMD, 3%
Wikipedia, 3%
Google, 3%
Emedicine, 3%
MDLinx, 2%
Doximity, 1%
Other, 25%
Online Overall Choice
25

that online-based challengers in the health information sector may have advantages competing in that sector that the
incumbent (offline) health information vendors can’t easily duplicate.
Medscape vs. MedPage Today Favors Medscape (WBMD)
In terms of our coverage universe, WebMD (WBMD) and its web property Medscape are much more recognized and
used than Everyday Health (EVDY) and Everyday Health’s web property MedPage Today. Medscape’s competitor,
MedPage Today, received only two mentions in the survey, totaling just 1% of the responses. In our view, these
current numbers are not a major concern for EVDY as long as EVDY is able to sustain growth in consumer views.
Everyday Health’s core business is in the consumer segment, which means any forays into the physician space can
be only incrementally positive. WBMD’s advantage here is significant: Medscape was founded in 1995; MedPage
Today was founded nine years later in 2004, quite a while after Medscape had already gained large viewership.
Online Sources Breakdown by Age / Experience
Conducting a similar analysis to our offline analysis, we notice that the story is again centered on the oldest
physicians. The 25+ years-of-experience group uses WBMD products the most out of any other group, at 26% of
responses (the sum of results for the WebMD website and the Medscape website, which is owned by WebMD). In
addition, UpToDate is completely missing from the 25+ years-of-experience group’s responses, even though it
dominates every other age group and the survey as a whole. Of the five doctors in the 25+ category, four listed
Medscape or WebMD as their first or second choice.
26

Online Sources by Experience Years of Experience
Source 0-5 6-10 11-15 16-20 21-25 25+
UpToDate 7 9 8 7
WebMD 3 2 2 2
Medscape 5 5 4 6 2
MedPage Today 1 1
PubMed 3 4 1 3
Epocrates 3 5 1
Sermo 1 4 1 2
QuantiaMD 1 3 1
Wikipedia 1 1 1 1
Google 2 1 1
Emedicine 1 1 1 1
MDLinx 1 1 1
Doximity 1
Other 3 7 4 7 13 4
Focus on Mobile: Epocrates and WebMD’s Medscape are Winners in Mobile Digital Health
For the mobile segment, athenahealth’s recently acquired Epocrates and Medscape’s mobile version dominate the
market, at 25% and 14% of our responses. Wolters Kluwer’s UpToDate comes next with 8% and Everyday Health’s
MedPage Today is at 1%. Some physicians mentioned that software provided by their EHR vendor is a top choice,
while others chose to put “none” for one of their choices. Since mobile digital health is relatively new, it is not
surprising that some doctors only use one or two apps or apps that are conveniently provided by their EHR vendor.
Interestingly, “none” is predominantly found to be a response in the relatively young 6-10 years-of-experience group,
and in the 25+ years-of-experience group. Most in the younger group cited some of the following reasons for using
apps: “Check drug doses,” “Drug info at point of care,” and “Medical calculations.” With older physicians some cited
the same reasons, but others were clearly indifferent towards apps: “It is there” and “Easy to use.”
Convenience and communication are key for mobile, unlike online and print media. Of course, there are still some
degrees of trust required. However, we did not observe as many physicians listing “trust” or “best” for mobile. Another
topic that arose was the community aspect of mobile digital health. One physician mentioned that “social media is
fun,” while others spoke of “networking,” “exchanging ideas,” and “3 minute videos I can look at any time.” For many
doctors, questions of how to treat a difficult case can be answered quickly and on the go with mobile content. The
days of researching topics in a medical library are disappearing. Today, with mobile digital health, solutions or ideas
can be found and shared at any time, in almost any place.
27

Mobile Apps Mobile app 1 Mobile app 2 Mobile app 3
Epocrates 24 10 3
Medscape 10 7 4
UpToDate 4 4 4
Sermo 2 5 5
QuantiaMD 2 4 6
No Significant Growth in Usage of Specific Applications Expected
We asked physicians which of the top web and mobile sources they use now versus what they expect to use in three
years. UpToDate, AMA-Assn.org, and Doximity showed very slight increases in expected use; however, other sources
either were expected to be used less or just about the same. Although it is important to try to anticipate which
direction physicians’ tastes or trust will move in, there does not seem to be an indication of any major market share
movements upcoming. It is worth mentioning, though, that the use of Everyday Health’s MedPage Today is not
expected to increase or decrease, while use of WebMD’s Medscape is expected to decline. The data may be
illustrative of a trend, but we cannot come to any concrete conclusions based on this data alone.
28

Expectation of Web and Mobile Source Usage in Three Years
Currently (August
2014)
In 3 years (August
2017)
Medscape 74% 68%
MedPage Today 22% 22%
Epocrates 76% 76%
Quantia 40% 32%
Sermo 48% 46%
UpToDate 72% 74%
AMA-Assn.org 4% 6%
Doximity 16% 18%
Others: Cleveland Clinic (2x); Quantia (1x);
Epic (1x); The Heart.org (1x); annals.org (1x)
10% 8%
Quality of Select Mobile / Online Apps Drives Usage
Quality is paramount for doctors in deciding which apps to use for mobile and online. We surveyed our physicians
about the quality of a number of mobile apps and online resources, using a scale of 1-5, where 1 is worst and 5 is
best. Physicians only responded if they have used a listed product. A summary of the results is below. Not
surprisingly, the top three spots are taken by UpToDate, Epocrates, and Medscape, corroborating their other
preference choices. These three are the only ones with an average score above 3.5; all other products polled,
including MedPage Today, did not break 3. The overall average quality score is 3.19, which, technically speaking,
puts all surveyed products below average in quality except the top three. Also representative of higher quality is the
higher number of responses for the top three. The top three all had over 45 physicians respond and rate the apps.
29

Ad Preferences
We asked the respondents which medium they preferred for advertisements to reach them. Our questions asked for
the top three most preferred types of ads and one least favorite, for both offline and online (web and mobile). For the
most part, the physicians were indifferent between offline and online, with 62% answering “no preference.” There was
a slight leaning towards offline media at 22% vs. 16% for online. When asked about specific types of marketing
materials, traditional direct mail turned out to be the least preferred, making only 28% of physician’s top three
preferred list, and 24% of physicians’ least preferred type of ad. For the other offline ad categories, physicians as a
whole seemed more or less indifferent, with each category appearing on 50% or more of respondents’ top three list.
For online and mobile advertisements, the one category that stands out is the sponsored education material. While
appearing only in 42% of the top three lists, this category has the distinction of not being named as any physician’s
least preferred ad source.
Offline Ad Preferences
For offline print ads, physicians most often described their preference as related to the ease of reading or ignoring.
One physician specifically mentioned the fact that there is no need to click through as with the online ads. Overall, it
seems print ads are liked for their information when relevant, and for their unobtrusiveness when not relevant.
Ironically, this helps explain both the like and dislike for direct mail; many highlighted that they can easily discard
these ads. One physician’s reason for preferring print and mail ads are “[can] ignore them” and “[can go] to recycle
bin.” In terms of sponsored events and pharma rep visits, physicians highlighted that interactions are the most
important part. For sponsored events, education and interaction are the most chosen descriptors. For pharma rep
visits, similar language is used: “I like the personal contact,” “can ask questions in real time,” “quick, up to date info on
new meds,” etc. We see this as evidence that physicians really like custom tailored information when they need it,
while retaining the freedom to ignore information they do not find relevant.
30

Type of Ad
Top 3 Preferred
Types of Ads.
Least Preferred
Type of Ad
Online
Display ads on web pages (such as banner ads) 20% 16%
Search engine ads (paid ads mixed in search engine results) 22% 14%
Sponsored educational material 42% 0%
Display ads in mobile apps 12% 24%
Direct email advertising 16% 10%
Offline
Display ads in medical journals (print edition) 50% 2%
Sponsored events (such as CME events that have sponsors) 56% 4%
Visits from pharmaceutical representatives 54% 6%
Direct mail (postal variety) 28% 24%
The Importance of Sponsored Educational Material
Sponsored educational material is by far the most preferred category of online advertisement among polled
physicians. This category is important to note because none of the other online categories reached more than 25% of
the top three list.
Single Sign-On Survey
In addition to sources of medical information, we also surveyed physicians’ use of Digital Health products in the form
of single sign-on (SSO) systems. As hospitals increase the amount of data and systems in place, care providers have
found it increasingly difficult and time-consuming to log into different workstations and systems. Our survey asked
physicians their experiences with SSO systems like that offered by Imprivata. The response data showed that more
31

than half the respondents have not used an SSO. In addition, 69% of those at an academic medical center have used
an SSO before, while only 40% of those at a community hospital have done so, and 32% at a private practice. We feel
this is a good representation of the general market because many small community hospitals and private practices do
not have the scale to meaningfully leverage an SSO system. When we asked the physicians specifically about
Imprivata’s OneSign product, only 3 physicians, or 6%, said they have used this product. Overall, most respondents
that have used single password commented positively on their experience, citing higher efficiency and ease of use.
Detractors’ main issues include sluggishness in starting up or the program’s not working all the time.
When we asked the doctors how much time SSO systems saved them per day, the majority responded with “15
minutes,” at 31.8% of responses. At the lower end of the spectrum, 27% responded with 5 minutes or less. At the
higher end, 9% said about 30 minutes, and another 9% said 50 minutes or more. We estimate that this averages out
to be about 16 to 17 minutes per physician per day, which over the course of a week adds up to more than one extra
hour of downtime per physician that can instead be allocated towards patient care.
Have you used any Single
Sign-On (SSO) System?
Yes 44%
No 56%
Have you used Imprivata’s
Single Sign-On Product?
Yes 6%
No 94%
32

Single Sign-On Breakdown
Among all respondents, the average score of usefulness was a 3.46 on a scale of 1 to 5, with 1 being least useful and
5 being most useful. The average score among those that have used an SSO system was 3.73, while the average
among those who have not was 3.25. Along those same lines, if we look at the individual breakdown of responses,
there is a skew towards the high end of usefulness, especially for those who have used SSO. The only outlier for this
group gave a rating of 1, citing as his reason that he uses only 1-2 programs normally, which significantly diminishes
the value of having an SSO system in place. His rationale for not viewing SSO as particularly useful is in line with our
view that smaller practices with fewer applications do not have the scale for such a system to be financially beneficial.
Overall, more than half of physicians rated SSOs above average (a 4 or 5 rating), while only 26% rated SSOs below
average (a 1 or 2 rating).
Average usefulness scores by practice setting also trended strongly in line with our view. The average score given by
academic medical center physicians who have used SSO was 3.56, above our sample average of 3.46. Physicians
from private practices and community hospitals who have used SSO gave above-average scores of 3.90 and 3.50,
respectively. For many of the private practices and community hospital physicians, exposure was an issue, and those
who had not used SSO in these settings found SSO less useful than our sample average. Some of the comments
among these doctors include “never used before” or “I don’t know about that.” The results here suggest that it will be
much easier to sell SSOs to larger healthcare providers, not only due to the matter of scalability, but also as a matter
of user opinion. Since SSOs benefit larger institutions more significantly and visibly, decision-makers will most likely
not be as difficult to persuade at these locations versus at smaller private practices, where more effort and time will be
needed to sell a new product. In addition, our survey revealed that academic physicians who have not used an SSO
may have a slightly more positive opinion of SSO than those who have used SSOs in the past, pointing to potential
demand. But doctors in community hospitals and private practices have the opposite reaction: non-users have a lower
opinion, indicating less demand and/or a need to educate the marketplace.
33

HIPAA-Compliant Text Messaging an Important Tool
In our survey, we posed a similar question regarding the HIPAA-Compliant messaging systems. This is another
aspect of Imprivata’s product offerings (Cortex). From our results, the overall physician sentiment toward the product
category of secure, HIPAA-compliant text messaging is positive in terms of usefulness, with an overall score of 3.78. If
the responses are broken down by practice setting, physicians from academic medical centers are again the ones
most positive, giving an average score of 4 out of 5. Private practice and community hospital physician responses
were more mixed, giving average ratings of 3.74 and 3.60 respectively, once again below the overall average.
Negative comments were more prevalent from private practice physicians, many of whom question the necessity of
text messaging. In contrast, community hospital and academic medical center physicians gave no directly negative
comments; most of the lower scores in these two practice settings were from non-users who were simply indifferent.
In general, positive comments centered around ease of use, legal considerations, and the security of communications.
In conclusion, once again, academic medical centers look to be the easier and better targets for future opportunities.
Source: MEDACorp Survey: Digital Health 2014
Imprivata’s Opportunities and Risks
As mentioned earlier, our surveyed physicians have had limited exposure to Imprivata (IMPR). With this limited data, it
is hard to draw concrete conclusion regarding OneSign specifically. With that said, three physicians were generally
positive. The responses were as follows: “I like it,” “helpful and [easy to] use,” and “good system.” In addition, our
survey found that doctors on average are willing to use SSO systems for about 66% of their hospital visits, a sign that
this technology is gaining traction. Given the overall positive opinion of most physicians about SSO and the happy
experiences of previous OneSign users, Imprivata has a good opportunity in the coming years for growth. In terms of
Imprivata’s Cortex, we see there are opportunities to convince doctors to adopt HIPAA-compliant text messaging
systems. The general sentiment is positive, as many physicians already believe in the importance of such system.
3.60
3.74
4.00
Veterans Administration facility
Community hospital
Private practice
Academic medical center
HIPAA-Compliant Texting Usefulness by Practice Setting
(n=50)
Low HighUsefulness
Not Significant, Only One Respondent
34

CHAPTER 2: INITIATING COVERAGE ON 6 DIGITAL HEALTH STOCKS
We are initiating coverage on 6 companies in 3 Digital Health sub-sectors that have strong exposure to the Digital
Health investment themes.
 WebMD (WBMD) and Everyday Health (EVDY) are leading companies in the Online Health Media sub-sector.
 Castlight (CSLT) and WageWorks (WAGE) are leading companies in Consumer Digital Tools in healthcare.
 Veeva (VEEV) and Imprivata (IMPR) and leading companies in Healthcare Automation.
An overview follows of the Online Health Media, Consumer Digital Tools in healthcare, and Healthcare Automation
sub-sectors. Online health media are on the “pull” side – consumers are pulling in content through digital tools such
as websites and mobile apps. Employer-provisioned consumer digital tools such as Consumer Directed Benefit
accounts and Health Transparency Tools are on the “push” side: employers are pushing these tools at employees
along with increased responsibility for healthcare costs (discussed more in the next sections).
For a number of these companies, our research has uncovered latent market imbalances that in our opinion are not
yet reflected in the stock price, indicating that the stock is mispriced and creating opportunities for investors. We have
also identified future catalysts that we think will resolve the imbalance and make the stock’s value more obvious to the
stock market.
The Digital Health sector is full of rapid change and lacks the clarity of more mature areas of the stock market, making
it an ideal area for equity research to uncover value.
35

Summary of Coverage InsightsSub-
Sector
Stock
Leerink
Rating
Recent
Close
(a)
%
Beat /
(Miss)
(b)
% ∆
Latest
Guid.
(c)
Stock
Last
90D Key Drivers Future Stock Catalysts
Stock
Controversies Leerink's View
OnlineHealthMedia
WebMD
(WBMD)
Outperform
(OP), Price
Target $60
$38.71 0% 1% (23%) • Demographics - shift to
web and mobile
• Technology shock -
pharma shift to specialty
drugs
• Pharma brands re-index
ad spending to online
channels
• Future growth rate
of pharma spend on
online channels (6%
v. 12% growth)
Pharma online ad
spend growth rate
increases to 12%
Everyday
Health
(EVDY)
Outperform
(OP), Price
Target $20
12.11 2% 1% (28%) • Demographics - shift to
web and mobile
• Technology shock -
pharma shift to specialty
drugs
• Pharma brands re-index
ad spending to online
channels
• Future growth rate
of pharma spend on
online channels (6%
v. 12%)
Pharma online ad
spend growth rate
increases to 12%
ConsumerDigitalTools
Castlight
Health
(CSLT)
Outperform
(OP), Price
Target $17
11.23 11% 6% (23%) • Employer risk and cost
shifting
• Consumer
empowerment
• Employer major shift to
CDHP-only at start of
2015
• Wal-Mart contract
expires end of 2015
• High multiple
• Future employer
willingness to pay ($1
v. $7 PPPM)
• ROI (adoption, price
opportunities)
• Await future data
about price points,
sales volumes, and
renewals end of '15
• Will be a
challenge to get
employers to pay
more than $4
PPPM
WageWorks
(WAGE)
Outperform
(OP), Price
Target $60
51.52 (0%) 10% 21% • Employer risk and cost
shifting
• Consumer
empowerment
• Employer major shift to
CDHP-only at start of
2015
• Cadillac Tax 2018
• Impact of end of Use It or
Lose It in 2015 benefits
season
• Impact of public and
private exchanges on
new accounts
• Rate of employer
cost shifting (drives
new CDB accounts)
• Growth of health
premiums and
growth of exchange
memberships in
2015 will drive
Consumer Directed
Benefit account
growth and
revenue
HealthcareAutomation
Veeva
(VEEV)
Market
Perform
(MP), Price
Target $29
27.99 9% 8% 18% • Pharma restructuring of
sales
• Pharma shift to
distributed business
model
• Company press releases
and earnings releases
show Vault traction
through sales to pharma
• Running out of TAM
- $1b or $5b?
• Traction in move
into R&D budget
• Size of TAM an
important area of
future research
Imprivata
(IMPR)
Outperform
(OP), Price
Target $18
12.90 5% NA NA • Healthcare reform – IT
at the center
• Meaningful Use, HIPAA
• Lockup expires 12/22/14
• MU1 and MU2 deadlines
2013-20
• Single sign-on now
a need-to-have?
• Single sign-on
now become need-
to-have for CIO
Note: Source: Leerink Research and FactSet as of 10/23/14 close; NM - not meaningful; NA - not available; TAM - total addressable market
(a) Recent close as of 10/23/14.
(b) % Beat / (Miss) is revenue beat / miss of latest quarter actual versus Street consensus.
(c) % ∆ Latest Guid. is change in latest management revenue guidance for year compared with prior guidance.
36

Comparable Companies Valuation
Hist. % Street % EBIT
Latest Mkt 5-Yr Avg LT EPS Margin
($ in MM per share) Ticker Rating Close Cap. '14E '15E '16E '14E '15E '16E '14E '15E '16E NTM P/E Growth '13A
HEALTHCARE CLOUD AND EMERGING GROWTH COMPANIES
athenahealth ATHN OP 116.04$ 4,420$ NM 89.3x 70.3x 6.0x 4.9x 3.9x 32.4x 26.8x 21.4x 70.0x 20% 12%
Benefitfocus BNFT - 25.97 662 NM NM NM 4.6 3.6 2.8 NM NM NM NM 20% (26%)
Castlight Health CSLT OP 11.23 1,007 NM NM NM 19.7 10.6 6.3 NM NM NM NM NA NM
HealthStream HSTM - 29.26 807 83.6 71.4 59.7 4.1 3.4 3.1 24.5 20.7 17.4 56.6 19% 12%
Imprivata IMPR OP 12.90 306 NM NM 57.3 2.4 1.9 1.6 NM NM 25.6 NM 25% (8%)
Streamline Health STRM - 3.86 71 NM NM NM 2.7 2.3 2.1 33.8 14.4 8.2 NM 29% (20%)
Medidata Solutions MDSO - 42.52 2,297 56.3 43.2 32.8 6.2 5.1 4.2 26.3 20.0 15.0 33.0 21% 9%
Veeva Systems VEEV MP 27.99 3,634 87.2 72.5 58.1 10.9 8.7 7.0 44.0 35.9 27.9 NM 32% 24%
WageWorks WAGE OP 51.52 1,813 56.2 44.9 35.1 5.6 4.4 3.6 20.9 16.0 12.7 44.8 15% 20%
Median - - - 1,007 70.0 71.4 57.7 5.6 4.4 3.6 29.3 20.3 17.4 50.7 21% 10%
ONLINE ADVERTISING
AOL AOL - 41.86$ 3,293$ 20.6x 16.5x 14.4x 1.3x 1.2x 1.1x 6.7x 6.1x 5.5x 17.5x 13% 8%
Demand Media DMD - 7.22 133 NM 149.5 18.5 0.4 0.5 0.5 2.0 2.3 2.1 23.5 NM (5%)
Everyday Health EVDY OP 12.11 368 26.9 14.6 9.4 1.9 1.6 1.4 10.6 7.9 5.8 25.4 43% (2%)
Facebook FB - 80.04 208,108 49.1 38.9 28.9 15.8 11.8 8.8 24.0 18.0 13.8 43.3 36% 48%
Google GOOG - 543.98 367,682 21.0 17.8 15.0 5.9 5.0 4.2 11.9 10.0 8.4 19.1 16% 37%
LinkedIn LNKD - 202.62 24,904 107.2 73.9 51.4 10.4 7.8 6.0 40.3 28.4 20.7 NM 38% 3%
WebMD WBMD OP 38.71 1,515 42.1 29.0 24.7 2.9 2.6 2.3 10.9 8.8 7.9 38.9 13% 11%
Yahoo! YHOO - 42.60 42,370 27.4 37.7 34.4 9.3 9.1 9.0 31.3 31.1 30.8 21.0 (0%) 21%
Yelp YELP - 57.17 4,121 476.4 139.0 62.1 10.0 7.0 5.2 53.6 30.9 19.4 NM 64% (4%)
Median - - - - 34.7 37.7 24.7 5.9 5.0 4.2 11.9 10.0 8.4 23.5 26% 8%
INDICES
S&P 500 SP50 - 1,951 - 16.7x - - - - - - - - 13.3 - 15.5
S&P 600 Healthcare (sm cap) SP568 - 1,329 - 37.4 - - - - - - - - 19.6 - 8.2
S&P 500 Healthcare (lg cap) SP565 - 744 - 21.4 - - - - - - - - 13.2 - 13.8
NASDAQ Biotechnology 63109R10 - 2,966 - 54.8 - - - - - - - - 22.8 - 26.4
Sources: FactSet market data and consensus estimates as of close on 10/23/14; Leerink estimates for CSLT, IMPR, VEEV, WAGE, EVDY, WBMD
Fiscal years calendarized where applicable; EBITDA and EPS are non-GAAP where available
NM - not meaningful; Enterprise Value based on a market cap that includes basic shares outstanding only.
P/E (a) EV / Revenue EV / EBITDA
37

FOCUS ON ONLINE HEALTH MEDIA (WBMD, EVDY)
Consumers have a growing desire to take control of their healthcare, and increasingly they have the information, the
budget, and the tools to do so. Online health media stand on the “pull” side of consumer empowerment tools:
consumers want healthcare information to inform their healthcare decision-making and are pulling in the content
through digital tools such as websites and mobile apps. Employer-provisioned consumer digital tools such as
Consumer Directed Benefit accounts and Health Transparency Tools are on the “push” side of consumer
empowerment tools: employers and payers are pushing consumers to use the tools as they withdraw their guarantee
of unlimited “free” healthcare; those tools will be discussed in the next section, while we focus here on the former,
health media tools and companies.
In this report, we will use the term “online” to mean the combination of web and mobile.
Everyday Health and WebMD Are Leading Online Health Media Companies
Online health media companies, such as WebMD and Everyday Health, are primarily supported by advertising and
sponsorship spending by pharma and healthcare companies, and secondarily by the spending of consumer packaged
goods (CPG) brands from CPG companies like Procter & Gamble. The market for online consumer healthcare ad
spending today is about $5b and growing at over 10% per year, according to eMarketer.
Online Ad Spending by US Healthcare, Pharma, and Consumer Packaged Goods (CPG) Companies ($b)
Growing ~10% Annually
Source: eMarketer, March 2014
The above figure depicts online ad spending by US healthcare, pharma, and consumer packaged goods (CPG)
companies from 2011 to 2017E. The healthcare and pharma segment of this advertising spend is expected to grow
from $1.4b in 2014 to $2.0b in 2017 at a CAGR of 12%. The CPG segment is expected to grow from $4.0b in 2014 to
$5.3b in 2017 at a CAGR of 10%.
1.0 1.1 1.3 1.4 1.6 1.8 2.0
2.5 3.5 3.5 4.0 4.5 4.9
5.3
$3.5
$4.6 $4.8
$5.4
$6.1
$6.7
$7.3
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
2011 2012 2013 2014E 2015E 2016E 2017E
CPG
Healthcare &
Pharma
$
38

Pharma Industry Revenue Growth Is Back on Track…
After suffering several negative shocks that squeezed marketing budgets from 2007 through the early 2010s, the pharma
industry is back on track with strong New Molecular Entities (NME) launches over the next four years and resulting pharma
industry health.
US Biopharma New Molecular Entities Launches 2010-2017E Shows Recovery
Source: IMS Institute for Healthcare Informatics, November 2013
…and Pharma Ad Spending Is Rebounding
We believe that a robust pipeline of biopharma NMEs will translate into strong ad spending in the consumer and
physician online health media markets. Pharma and healthcare online ad spending rebounded in 2013 by 17%,
according to eMarketer, after experiencing a setback in 2011-2012 as a result of turmoil surrounding the pharma
Patent Cliff.
Healthcare Marketers Will Follow Consumers Online
Consumers continue a secular behavior shift from spending their time offline to being online (web and mobile
sources). However, brand managers who advertise have often continued to spend in traditional offline media
channels even as consumers spend less time in those channels, creating a structural imbalance in the market. The
result is an “underindexing” by brand managers with respect to online channels. Eventually, however, we believe that
advertisers will have to follow consumers online and close the underindexing gap.
24
30
32
35
0
5
10
15
20
25
30
35
40
2010 2011 2012 Avg. '13E-17E
39

Time Spent in Media vs. Advertising Spending (US 2013) Demonstrates a Need to Shift to Online
Source: eMarketer and Interactive Advertising Bureau as cited by Kleiner Perkins Internet Trends Report 5/28/14
The above figure depicts the percent of time spent by consumers in offline media (such as print, radio, and TV) and
the time spent in online media (such as internet and mobile) versus the percent of all advertising spending that they
receive in the US. Internet and mobile are underindexed in ad spend by advertisers by 19 percentage points:
advertising spend has not yet indexed and caught up with consumer time online, but we expect that the trend in ad
spending will continue to shift in the online direction.
For reasons discussed below, we believe that pharma brand managers tend to lag other brand managers, and that
they underindex spending to online channels by the same percent as other brand managers or more. We expect
future internet and mobile ad levels to grow as pharma, healthcare, CPG, and other advertisers increase their
allocations to those categories. The growth rate of online health media companies has suffered in the past due to this
underindexing issue, but we believe that online health media companies will benefit over the next few years from a
“catch up” period for online advertising, as the underlying imbalance is resolved.
Savvy Pharma Buyers Want Access to Mobile and Multiple Screens
Consumers are spending a growing amount of their time on mobile devices (as distinct from traditional websites). In
the crowded online health media marketspace, this represents a discontinuity in usage – publishers who succeeded
on the traditional web may not successfully migrate to mobile devices, creating market openings for new entrants.
WebMD and Everyday Health have entered the mobile market successfully with mobile apps and, in our view, are well
positioned to maintain their existing online position in mobile. But these are still the early days in the mobile health
marketspace and it is too soon to declare winners.
The Landscape for Online Healthcare Marketing Is Still Evolving
There are several complex factors at play in online advertising and sponsorship for pharmaceutical companies. While
we believe that the outlook for increased pharma online advertising and sponsorship is positive and will grow at 12%
for the next few years, based on market research that we have seen and confirmed with industry leaders who see
5%
12%
38%
25%
20%19%
10%
45%
22%
4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Print Radio TV Internet Mobile
Time Spent
Ad Spend
40

pharma spend having picked up recently, overall there are both positive and negative contributing factors. These
factors are summarized as follows:
 Biopharma portfolios today have a heavier mix of targeted therapeutics and a lighter mix of primary-care
blockbuster drugs due to patent expirations. We believe that online channels are frequently better suited to
reaching specialty patient populations. For example, a pharma brand that wants to reach diabetes patients
would find an online diabetes patient community more effective than most offline channels, such as
magazines.
 Online ads can be more targeted and interactive, in a way that television and print media can’t -- which
advertisers view as a positive. Another benefit of online ads is that their effectiveness can be measured more
easily than can print advertisements’. Increasingly, brand managers prefer online ads because their
effectiveness can be proven, whereas it is harder to measure and prove the effectiveness of offline ads.
The pharma industry does, however, face regulatory and legal restrictions and challenges with all of its promotions.
For this reason, pharma brand managers tend to react conservatively to marketing innovations like web and mobile ad
opportunities. This conservatism likely explains some of the underindexing problem that we highlighted above. Any
clarification or relaxation of FDA regulations on pharma online advertising and sponsorships would be a positive
catalyst for the stock of online health media, but is not expected near term.
ONLINE HEALTH INFORMATION
Consumers Are Becoming Increasingly Reliant on Online Health Information…
Consumers are increasingly turning to the internet, including websites and mobile apps, for engaging content and
answers to questions about their health. In 2012, 59% of US adults searched for health information online. These
individuals are using the internet as way to identify symptoms before meeting with a physician. A Pew Research
study from 2012 found that only 41% of these online diagnosers had their condition confirmed by a clinician. Based
on this data, we think the mounting use of online health platforms, such as WebMD’s Consumer Network Websites,
by “online diagnosers” can be viewed as a positive to payers, by preventing costly and unnecessary trips to primary
care physicians.
Internet Health Information Search Habits of US Adults
Source: Pew Research, January 2013
41

The Consumer Online Health Information Marketspace Is Becoming More Competitive
The online consumer healthcare information marketplace is large, growing, and competitive. While WebMD and
Everyday Health compete with each other and other media companies such as MayoClinic.org and Health.com, they
also compete against mass media and search engines. Consumers’ interest in searching for health content has led
many online search engines, such as AOL.com and Yahoo.com, to launch their own health channels. America’s
obsession with social media platforms, such as Facebook and Twitter, has led some health information content
providers to gravitate toward providing their content through these sites.
Relative Size of Everyday Health, WebMD, and Competitors in the Online Consumer Health Information
Market Over Time (unique visitors in millions) Shows WebMD Continuing to Lead
Source: Compete.com estimates, May 2014
This above figure depicts the relative size of competitors in the online consumer health information market over time,
as measured by unique visitors. Based on this data from Compete.com, WebMD and Everyday Health are two of the
leading consumer health information websites among the comparators we looked at.
The Emergence of Consumer-Empowered Healthcare (CEHC)
Consumers are increasingly directing spending in healthcare. The combination of high-deductible, low-premium
health plans, tax-advantaged health spending accounts, health plan choice offered by employers, consumer digital
tools, and a growing willingness of consumers to spend their own money on their healthcare is creating a powerful
new consumer-directed healthcare market. The combination of these consumer empowerment trends represents
growing market power in the hands of the healthcare consumer. Healthcare participants -- such as manufacturers,
payers, and providers that want to reach the healthcare consumer -- will have to do so through channels in the health
0.0
5.0
10.0
15.0
20.0
25.0
Apr-12
May-12
Jun-12
Jul-12
Aug-12
Sep-12
Oct-12
Nov-12
Dec-12
Jan-13
Feb-13
Mar-13
Apr-13
May-13
Jun-13
Jul-13
Aug-13
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
Mar-14
Apr-14 WebMD.com
NIH.gov
EverydayHealth.com
MayoClinic.org
Healthline.com
Vitals.com
Health.Yahoo.net
Health.com
42

information marketspace, and we believe WebMD is well positioned to benefit from the growing market power of
healthcare consumers.
Physicians Embracing Digital Platforms for Decision Support
Like consumers, physicians are increasingly turning online, to website and mobile sources of content, for their
professional information. Among the reasons that physicians go online, learning from healthcare professional (HCP)
content sites, such as WebMD’s Medscape and Everyday Health’s MedPage Today, is the most common. Healthcare
professional information sites reach 81% of US physicians who go online. Those physicians visited HCP sites 14.6
times during the quarter. And the average visit lasted about 5 minutes.
Percent Reach of Health Categories among Physicians 1Q2012
Health Category % Reach of
Physicians
Online
Average
Visit per
Physician
Average
Minutes per
Physician
HCP content (a) 81% 14.6 5.1
General health content 72% 6.5 2.9
Association 61% 4.8 6.9
Government 51% 4.7 6.3
Health social media 50% 9.7 8.0
Pharma support 47% 8.6 10.2
Pharmaceuticals 44% 3.3 3.6
Health & wellness 39% 4.9 5.1
Insurance 34% 7.0 8.9
Physician locator 33% 2.7 2.3
Medical journal 30% 3.5 4.8
Clinic 25% 7.4 9.4
Pharmacy services 18% 8.0 10.1
EMRs 4% 18.4 18.0
Source: comScore / Symphony press release, December 2012
(a) HCP – Healthcare provider
Physicians are trending toward online information sources for numerous reasons. Physicians prefer online
information thanks to its ease-of-use and immediacy. Also, Healthcare Reform and the ACA have pushed physicians
toward online information sources to ensure that decisions are complying with guidelines about treatment. Moreover,
the adoption of Electronic Health Records (EHRs) has led physicians to spend more of their workday in front of
computer screens, where online health information is easily accessible. Finally, the Physician Payments Sunshine
Act of 2010 reduced the amount of time that physicians spend with pharmaceutical company representatives. This
has, in turn, given physicians more time in their day, but has also left them with unanswered questions about
pharmaceuticals. To answer these questions, physicians are turning to online information sources, such as WebMD’s
Medscape platform.
Our MEDACorp survey confirms this trend (see below). We asked our respondents for their online and mobile habits
three years ago, today, and what they expect in another three years. There is a clear trend of increased use in online
and mobile. We found that the CAGR of usage was approximately 20% during the past three years. In the next three
years, physicians expect slower growth, at around 11% CAGR. We attribute the slowdown in growth rate to the time
constraint of the physicians’ schedules. This suggests an asymptotic growth pattern, with the time spent quickly
43

approaching the physicians’ upper limit. Despite the slowdown in growth, the importance of the online/mobile
marketplace is undeniable, and we see a strong future outlook for digital health content providers.
All Data (n=50):
3 years ago (August 2011) 4.3 3 217 -
3 years from now (August 2017) 10 8 499 11%
Without Outliers (n=48):
3 years ago (August 2011) 3.9 3 187 -
3 years from now (August 2017) 9.3 8 446 11%
Note: CAGR is calculated from August 2011, giving 3-year and 6-year annual growth rate estimates
Medscape (WebMD) Is the Leading Source of Online Information Among Physicians and Healthcare
Professionals
Medscape is the brand name of WebMD’s Public Portal targeted at physicians and healthcare professionals. WebMD
counts 625,000 active US physician users of Medscape in 2013, a substantial majority of all the physicians in the US.
The online physician health information marketspace is competitive and crowded. Medscape is the clear leader in the
market at over 2.5m unique visitors per month. Leading competitors include UpToDate.com, JAMANetwork.com (the
website for The Journal of the American Medical Association), NEJM.org (the website for The New England Journal of
Medicine), AMA-ASSN.org (the website for the American Medical Association), Doximity.com, and Sermo.com.
Medscape.com had over 2.5m unique visitors in April 2014, substantially more than its leading for-profit and non-profit
competitors.
44

Wardell, Future of Digital Health, Leerink Research 2014-10

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