SPECIAL SITUATIONS ANALYST
/ / / FAX ALERT #3, Vol. 1999 / / /
MOBILE P.E.T. SYSTEMS, INC. (OTC BB: MBPT)
HI-TECH P.E.T. IMAGING SYSTEMS GO MOBILE:
NEW COMPANY REVOLUTIONIZES DELIVERY
OF ADVANCED MEDICAL DIAGNOSTIC SYSTEMS
WITH COACH-MOUNTED HOSPITAL ROUTE SERVICES
Portability of Expensive P.E.T. Units Solves
Major Problems for Hospitals Needing P.E.T. Scan Services;
Company Projects Extremely Rapid Revenue Growth
By Meeting Unfilled Demand for P.E.T. Systems
FAX HOTLINE FOR MARKET HOURS 2/ 19 / 99
Positron emission tomography is a highly advanced diagnostic imaging technology that is well recognized among medical specialists. Unlike Magnetic Resonance Imaging (MRI), which provides anatomical images of the body, P.E.T. imaging can help specialists diagnose many of the body's metabolic and chemical processes and pinpoint soft-tissue disorders. Its wonders in improving diagnosis for many types of cancers, heart disorders and brain disorders have been known to medical specialists for over ten years. The number of procedures using full body P.E.T. as the primary imaging modality is increasing steadily.
The problem has been that the machinery is too expensive for most hospitals to justify financially. Hospitals cannot procure equipment because they may not have adequate patient volume to support a dedicated unit. So, like MRI and CT technologies before it -- where hardware and software costs well above $1.5 million per unit -- P.E.T. lends itself to development by private enterprise by eliminating large capital requirements to the hospitals.
Enter Mobile P.E.T. Systems, Inc. (OTC BB: MBPT). The company was formed in 1998 by medical technology experts to provide a breakthrough in availability of positron emission tomography scanners. These are mounted in Calumet mobile coaches and travel on a scheduled basis each week to major hospitals. In a word, P.E.T. units have gone mobile!
This revolution in diagnostic delivery will make advanced metabolic imaging more readily available to many hospitals and medical specialists who cannot justify the cost of operating their own dedicated units. And the greater accessibility to advanced diagnostics for patients can play a humane role with earlier detection and more effective patient treatment.
With the company's first five P.E.T. vehicles being delivered between March and November this year, and first hospital route contracts being signed now, Mobile P.E.T.'s revenue stream is expected to start shortly. The potential for both strong revenue growth and strong earnings-per-share growth is very high, management says.
Management projects the following growth:
1999 2000 2001
Revenues $2.7M $15.2M $42.0M
Earnings after tax ($0.3M) $4.8M $15.3M
Earnings/sales -11.75% 26.55% 36.56%
EPS ($0.02/sh) $0.307/sh $1.17/sh
With 13 million shares outstanding fully diluted, Mobile PET should be watched closely. Because of the industry's recognition of the capabilities of management to execute on their plan, the company anticipates no significant dilution for capital to attain its goals. All medical devices and mobile equipment planned for acquisition by the company, valued at $45 million over five years, are on a lease basis, and the economics of the company factor this in handily.
Illustration of Growth Potentials
An interesting comparison to Mobile P.E.T. Systems' was the growth of Alliance Imaging Inc. (OTC BB: SCAN). Alliance is presently the largest provider of mobile CT and MRI scanning systems. Trading in 1995 at below $1/share, today Alliance is (+/-) $15/share on 9 month revenues ended 9/30/98 of $138.7 million and $2 million profit for the 9 months, 11cents/share earnings. In 1997-98, Alliance expanded its growth rate by buying out other providers. Alliance's revenues soared as a result: 9/30/97
(9 months); $62 MM: going to 9/30/98 (9 months): $138.7 MM.
The Technology
P.E.T. provides information about body chemistry by assessing chemical and biological changes related to metabolism. P.E.T. accomplishes this by the use of radioactive agents similar to those used in other nuclear medical techniques. The patient is injected with glucose compounds that are labeled with signal-emitting tracers. A scanner identifies the tracers in areas of the body where they accumulate. A computer reassembles the signals of the tracers into actual images.
Cancer cells exhibit a higher metabolic rate than normal cells, thereby using more glucose than normal cells. A higher use of glucose by the cancer cells also means a greater concentration of the tracer, thus allowing the cancer to be easily seen on the P.E.T. scan.
Thus, P.E.T. directly lends itself to the measure of kinetic processes, such as the rate of tracer uptake by cells, substrata metabolic rates, receptor density, regional blood flow and related functions. This is a very powerful tool because, beyond the standard information of radioactivity distribution, there is the added possibility of quantifying biochemical and biological processes.
The derived image is three-dimensional and can include imaging of the whole body. Unlike MRI and CT scans, precise dimensions of tumors, for example, and the exact location of abnormalities are provided. This information is invaluable in recognizing an exact diagnosis and regimen of care. The procedure streamlines patient care and reduces overall costs for third-party payers. For this reason, in January 1998, formal reimbursement for cancer staging P.E.T. procedures was approved by the Healthcare Finance
Administration for Medicare beneficiaries, and other third-party payers have been reimbursing for some time.
Market
The number of oncology evaluations, coronary flow studies and neurological functional tests in 1997 totaled 3.1 million. Experts believe that 30 percent, or approximately 900,000, of these patients could have been effectively diagnosed with P.E.T., according to management.
Based on surveys of oncologists and hospital administrators, management anticipates significant growth potential for routes by mobile P.E.T. units. In 1999 management recognizes 40 potential routes, far more than can be serviced. And growth of potential routes of 33% per year, up to 124 by the year 2003, more than Mobile P.E.T. Systems will be able to reach itself.
With the headquarters near Scripps Medical Center in the medical technology corridor in San Diego, the company is implementing its business operations in California with its first two units, and will expand route development to the Northeast, Southeast and Midwest by year-end 1999. The market trends are reminiscent of the demand previously experienced for mobile CT and MRI services in the 1970's, 1980's and 1990's. Instead of having to purchase or lease capital equipment, hospitals are able to contract mobile or "shared
services" for P.E.T. technology, as they have done with CT and MRI. Mid-size and some small hospitals can serve their communities by offering this new diagnostic imaging, without the financial liability or risks of technological obsolescence.
The company is contracting with key hospitals for a period of five years. A minimum of four patients per day is required by the company. Platform locations for the coach are already in place based on mobile MRI schedules established earlier. Mobile P.E.T. Systems, Inc. provides trained P.E.T. technicians to operate the system. An imaging procedure for one patient costs the hospital $800 and can be provided by the company for $172 each.
The flexibility of a mobile P.E.T. service route and the size of the potential markets enable several back-up plans of action if a planned route does not perform as expected.
Management Team
Paul J. Crowe, President, CEO, Chairman of the Board -- Mr. Crowe has over 30 years of business experience in development, sales, finance and management of high-tech medical instrumentation, diagnostic and therapeutic patient services in the health care industry. He has worked with Ritter/Sybron Corporation, Philips Medical Systems, Rohe Ultrasound and Diasonics MRI. He is founder of Paul J. Crowe & Associates, Inc. which, from 1989 to 1991, provided diagnostic imaging services. In 1991, the company was sold for a total consideration of $14 million to LINC Medical
Imaging. Mr. Crowe is President and CEO of NeuroTechnologies International, Inc., and president of Radiosurgical Centers Corporation.
John J. Fleming, Ph.D., Secretary, CFO, Director - Mr. Fleming has over 27 years of experience as an accountant, having worked from staff accountant to CFO/Controller for many companies. He is the manager of Fleming & Associates, providing business start-up planning and tax representation.
Jim Corlett, Vice President-Sales - Mr. Corlett has over 16 years of experience in the application of mobile services to high-technology health diagnostics. He was one of the pioneers in the development of mobile Magnetic Resonance Imaging (MRI) in the U.S. market for American Shared Hospital Services in the 1980's.
Outlook
Currently, the only mobile P.E.T. units in the U.S. have been contracted by Mobile P.E.T. Systems. The maker of the systems, CTI/Siemens, in conjunction with Calumet Coach Works, has been contracted to capacity by Mobile P.E.T. for the entirety of 1999 with ten units on order after delivery of the initial five units.
Mobile P.E.T. Systems Inc. believes it can capture a significant locked-in share of the hospital market over the next three years before any potential competition can in principle even develop. If it is successful in its mission, it may well imitate or exceed the initial pattern of growth set by Alliance.
Watch this existing company closely.
The stock closed on 2/18 at $3.50/sh. - SSA
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