LifeStance Health Group Hits $7.5 Billion Valuation In IPO Debut

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Woman using laptop and having video call with her doctor while sitting at home.

LifeStance operates 370 clinics in 27 states offering both in-person and virtual mental health services.

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Lifestance Health Group, one of the nation’s largest outpatient mental health providers, saw its share price climb in its first day of trading on Wednesday, as the Covid-19 pandemic has fueled rising rates of anxiety and depression. The Scottsdale, Arizona-based company started trading at $20 per share, up from the $18 offering price announced the night before, valuing the company at $7.5 billion in its Nasdaq debut. It closed at $21.90 per share.

LifeStance operates 370 clinics in 27 states offering both in-person and virtual mental health services for a range of conditions, including anxiety, depression, eating disorders, bipolar disorder and PTSD. The company has gone from around 1.4 million patient visits at the end of 2019 to 2.3 million visits in 2020.

LifeStance was on an upward growth trajectory before the Covid-19 pandemic, says CEO Michael Lester, who founded the company in 2017. “Pre-Covid we had a waiting list of patients, and we have 3,300 clinicians today that have a waiting list of patients,” he says. “The thing that Covid did for LifeStance was it forced us to build this hybrid model of having virtual capabilities in addition to our in-person capabilities.”

Affiliates of global private equity firm TPG Capital acquired a majority interest in LifeStance in May 2020, and remain the biggest shareholders following the IPO, with a 48.2% stake. Affiliates of Summit Partners and Silversmith Capital Partners own a combined 18%. The three investment firms will hold a majority of the voting power.

Well before the pandemic, the U.S. has had a shortage of mental health providers, even as 51 million adults had a mental health condition. There have also been longstanding issues with reimbursement despite federal laws requiring payment parity between mental and physical medical services. LifeStance derives more than 90% of its revenue from in-network contracts with more than 200 health insurers. The company reported $377.2 million in revenue and a net loss of $270.9 million in 2020. In the first three months of 2021, revenue was $143.1 million, which was around double the same period last year. 

A combined 37% of revenue comes from two of the country’s largest insurers: UnitedHealthcare and Anthem, according to financial filings. The large employer customers of insurers have been clamoring for better mental health benefits for their employees, says Lester. That’s where his company comes in. Around 95% of mental health providers are solo practitioners, he adds, which is what makes contracting with LifeStance attractive. The company has been opening up a new office every 4.5 days. “We're expanding rapidly to try to meet this access issue and provide more trusted mental health care across the country,” says Lester.

The long-term goal, “is to build a fully integrated care model,” he says, adding, “nobody's really done that in the for-profit world.” To that end, LifeStance has embedded mental health clinicians within existing primary care practices. They operate as separate entities, but the primary care doctors can make a referral to a psychiatrist or psychologist down the hall. 

LifeStance is also eyeing the government-funded healthcare markets and is working with an unnamed payor on a Medicare Advantage pilot project. “We think in 12 months, we're going to be able to demonstrate a significant overall savings and medical care costs,” Lester says. 

The LifeStance IPO is the first among what is sure to be a wave of mental health-related companies going public, as venture capital investors poured more than $1.5 billion into related startups in 2020. In January, Talkspace announced plans to go public in a SPAC deal valuing the company at $1.4 billion, and the deal is expected to close later this year. There are five other mental health unicorns in the market that have yet to announce exit plans. 

As for the future, Lester is betting on a 50/50 split for in-person and virtual care at LifeStance. “If you think about mental healthcare, it lends itself to virtual more than any other clinical specialty,” he says. “But I do not believe in a 100% virtual model. I think clinicians and patients want to have that in-person connection.” 

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