If you’re a young software engineer today, you’ve got to be in mobile. That’s why San Francisco and Silicon Valley are crawling with twenty-something developers building games and other diversions for the iTunes App Store and the Android Marketplace.
But there’s one local company that started building mobile apps before most of these people even hit puberty. It’s Epocrates, the San Mateo, CA-based company that began distributing drug reference data on Palm devices in 1998. Today, nearly half of the nation’s doctors have Epocrates on their smartphones and PDAs, often firing up the app in the exam room with patients to look up dosages and check drug interactions before writing prescriptions. The freemium service—which became one of the first third-party apps ever announced for the Apple iPhone in 2008—is also used by more than 150,000 nurses, not to mention pharmacists and medical students.
And now Epocrates wants to leverage its name recognition in this high-end market in two big ways. First, it’s attempting to go public: the company said in paperwork filed last July that it planned to raise $75 million in an initial public offering on the Nasdaq exchange. Just last week it raised its offering to an even more bullish $92.5 million (though the company hasn’t yet said when it will pull the trigger, price the deal, and start trading).
Second, it plans to push beyond its traditional reference market into the booming business of electronic health records (EHRs). That’s a stretch, from a technological and administrative point of view. The company hasn’t previously had to deal with actual patient data, which is governed by strict federal privacy regulations. But CEO Rosemary Crane says building EHR tools is a natural outgrowth of the company’s drug reference business. “We have a brand identity with physicians—they believe Epocrates is accurate, up-to-date, and timely,” Crane says. “They trust it. That allows us to move into this new space.”
I interviewed Crane about Epocrates’ growth plans back in October. Out of the nation’s 700,000 practicing physicians, she says, about 490,000 have smartphones, and 300,000 of those, or 61 percent, use Epocrates. But unlike most app makers, the company doesn’t depend on app sales or in-app advertising to make money (at least, not advertising the way you usually think about it). Rather, the company’s revenue—$94 million in 2009—comes from an interesting mix of sources.
About one-fifth of the company’s revenue comes from subscriptions to the premium versions of Epocrates, which cost $99 to $199 per year and come with extra information like treatment and lab-test guides and disease classification codes. Another 60 percent comes from drug manufacturers, who pay Epocrates to supplement its monographs on each drug with patient literature and contact information, so that doctors can contact manufacturers to request samples or ask questions. Crane, a Johnson & Johnson veteran who joined Epocrates in 2009, calls this the company’s “virtual representative service” and says it’s a good way for pharmaceutical companies to stay in touch with doctors even as they reduce headcount among their field sales reps.
Drug companies also sponsor in-app content such as daily updates and alerts on medical research. Big insurers pay the company to include their own formularies in the reference data (a formulary is the list of drugs an insurer has approved for reimbursement). Finally,
