Medix Resources, Inc. (OTC BB: MDIX)
Undervalued Play in Online Healthcare Transaction Processing Market; Strong Corporate Partners, Management Team and Board of Directors; Initiating Coverage With BUY Rating
Market Data:
Exchange Symbol................MDIX (OTC BB)
Stock Price at Initiation (11/30/99)...$0.44Price of Common Stock (1/19/00)........$3.47
30-Day Average Trading Volume...1.25 millionCommon Shares Outstanding.........31 million
52-Week High/Low................$4.00/$0.063
MDIX Corporate Information
Address................7100 E. Bellview Ave...............Suite 301, Englewood, CO 80111Telephone.....................(303) 741-2045CEO.............................John PrufetaChairman/President................John YerosChief Operating Officer.......David R. Pfeil
Summary Investment Considerations
--------------------------------------------------------------------------------
Medix Resources, Inc. ("MDIX") is an online healthcare B2B transaction processing company, leveraging the Internet and its proprietary Cymedix.com software product to connect healthcare participants (including physicians, insurance companies, hospitals, laboratories, pharmacy benefit managers (PBMs) and pharmacies), enabling communication, data exchange and transaction processing in an enhanced, cost-efficient manner. The Cymedix.com product, with its patented Universal Interface Software, allows the multitude of disparate electronic medical management systems to be virtually integrated today. Unlike other systems commercially available, Cymedix is very user-friendly and can be easily installed into current physician offices (connects with all legacy physician management systems), without disrupting current work flow and without requiring "re-keying" of patient information and history.
MDIX?s main strategy is to partner with "sponsors," including payers, specialty management companies (PBM and laboratory), hospitals, organized physician groups and healthcare financial/transaction intermediaries, in order to generate revenues through up-front implementation fees and transaction-based fees. As such, the Cymedix.com solution is provided at no cost to the physician. MDIX has signed key sponsor agreements with WellPoint Pharmacy Management, a subsidiary of WellPoint Health Networks, Advanced Paradigm and Advica Health Resources, three leaders in the healthcare industry, to begin implementation of MDIX?s software. These systems should be out of pilot phase and into full implementation by Q1, 2000. MDIX has also signed a sponsor agreement with Loyola Medical Center, and has disclosed publicly that it is currently in discussions with additional potential "sponsors" to build out its network. We believe that the market for online transaction processing software will increase substantially within the next several years, and that MDIX is well positioned to participate actively in the growth and development of the market. In addition, we anticipate that MDIX will be shedding its temporary healthcare staffing division during the first half of the year in order to concentrate on its Internet Software division. We believe MDIX is well positioned to begin to ramp revenues through its current "sponsor" agreements, and we anticipate additional strategic partnership announcements in the near future. We are initiating coverage with a BUY rating, and recommend purchase of MDIX shares for those investors tolerant of the risks associated with small-cap equity investments.
I. Large, High Growth Market Opportunity ? B2B Online Transaction Processing Poised for Significant Growth
Driven by Federal Government Mandates including the recent HIPAA legislation, easily quantifiable financial benefits to both payors and providers, and potential "clinical" benefits of increased doctor and patient satisfaction attributed to improved care, we anticipate significant growth in the online transaction processing market over the next five years.
Cymedix.com software, being easily integrated into current legacy systems, should be attractive to a large number of sponsors, which will drive market penetration and ultimately revenues.
II. Strong Sponsor Partners ? Anticipate Additional Sponsor Partners Announcements Soon
WellPoint Health Networks has signed an agreement and have jointly begun to implement the Cymedix.com system. WLP, serving 7 million managed care lives and 30 million specialty management members, is one of the nation?s largest publicly traded managed care companies. In addition MDIX has signed a definitive agreement with Advanced Paradigm, another PBM currently supporting 27 million covered lives. In addition, MDIX has signed an agreement with Advica Health Resources to implement the Cymedix.com software in their legacy systems.
III. Compelling Valuation at Current Levels ? Trading at a Significant Discount to its Peer Group
With a market capitalization of roughly $100 million, MDIX trades at a significant discount to its peer group such as Healtheon (NASDAQ: HLTH) and Careinsite (NASDAQ: CARI) that have significantly greater valuations.
Company Overview
--------------------------------------------------------------------------------
Founded in 1988 as International Nursing Services, Inc., Medix Resources ("MDIX") principal line of business was supplemental staffing throughout the healthcare industry. In that same year, the company completed a self-underwritten public offering on the Bulletin Board exchange, raising $150,000. The Company had a string of acquisitions in 1994 acquiring National Care Resources, in 1995 acquiring STAT Health Care Services and in 1996 acquiring Ellis Parson Health Services. The Company also acquired certain assets of TherAmerica in 1997. In 1998, the Company chose to refocus its efforts from nurse staffing to Internet based business-to-business "B2B" health care transaction processing and acquired a California-based software company, Cymedix Corporation, which was then merged into the Company?s wholly owned subsidiary, Cymedix Lynx Corporation. MDIX has stated publicly that it intends to dispose of all of its healthcare services and exclusively direct its efforts on the software products of Cymedix. To date, the Company has completely divested itself of Ellis and STAT and has also sold its assets and business of Paxxon Services, one of its New York operations. The Company is currently looking to sell the remainder of its healthcare staffing division, which it expects to complete by the middle of 2000. A new management team and Board of Directors have been recruited to reflect the emphasis on the Company?s healthcare internet software division.
Cymedix.com is a patented B2B online medical management software package that provides physicians, payors and healthcare intermediaries with an Internet based communications and information management product. The Cymedix.com software is designed to link physicians, outpatient service providers, hospitals, insurance companies, labs, pharmacies, and patients through a secure medical communications product, which sends encrypted data over the Internet. The Company has already started to market and distribute its software to medical professionals nationwide. Typically, MDIX distributes its product to physicians for free, and generates revenues by charging its "sponsors" a fee for each Internet transaction executed.
The Company?s strategy differs from other Internet information management firms in that it charges its "sponsors," typically a healthcare provider or payor, a per-transaction fee for each time a "Cymedix enabled" transaction takes place over the Internet. This allows MDIX to distribute its product to doctors, pharmacies, hospitals, and labs at minimal cost. In addition, the Company does not store its information on a central server; instead it sends the required information directly from the data source to the recipient via an encrypted email. This feature helps to cut cost and increase the Company?s profit margin while also allowing a patient?s information to be accessed without a time-consuming "re-keying" of a patient?s data and is conducive to the overwhelming majority of physician practices. The patented Cymedix.com Universal Interface affords the physician?s practice the ability to perform internet healthcare transactions in a non-invasive, efficient manner with limited hardware requirements and low bandwidth Internet connectivity.
iHealth Industry
The iHealth industry is currently undergoing rapid growth. Today, up to 70% of all medical management transactions are conducted on paper in the healthcare industry. By using advanced medical management software healthcare companies and insurance providers can dramatically reduce the high costs associated with paper transactions. In addition, the expansion of the iHealth industry is expected to create real-time accessibility to patient clinical, financial and administrative information. By even the most conservative projections, the iHealth sector will grow exponentially over the next few years.
The iHealth sector is comprised of several different companies all of which cater to slightly different markets. The most obvious application of Internet health technologies is for transaction processing. The current cost of paper transaction processing in the healthcare industry is estimated to be upwards of $10 per transaction. Using new iHealth solutions to transaction processing these costs can be reduced dramatically, to under $0.50 per transaction in some instances. Additionally, the time and collection issues, which are associated with paper transactions, can be virtually eliminated with electronic transaction processing. Doctors utilizing electronic transaction processing can have access to transaction approval while their patients are still in the office. The days when one spent weeks tracking down an insurance claim may soon be a memory.
By 2002 all healthcare payors, due to Federal Government mandates, will be forced to update their data management systems to accommodate the new X12N standard format for accepting health-care transaction sets from providers and clearinghouses. This is expected to speed up adoption of new iHealth solutions as healthcare companies, physicians, and hospitals upgrade their existing systems.
Unlike MDIX, most iHealth companies that are in the transaction-processing segment of the industry are using browser-based thin-client solutions to complete transactions. This approach requires duplicate data entry by the user, which we believe will increase the time necessary to complete conversions from existing paper-based models.
The market potential for iHealth transaction processing solutions is potentially huge; there are over 5 billion healthcare claims filed annually and multiple healthcare transactions (including insurance claims, healthcare authorizations, lab entry and results, and pharmacy orders) are processed for each claim. In addition this market is expected to grow as the population ages and the demands on the healthcare system increase. Using rough estimates of 5 transactions per healthcare claim, at a fee of $0.25 per transaction gives us an annual potential market of $6.25 billion.
The Cymedix.com product
Cymedix.com is a B2B Internet based healthcare transaction solution that is based upon a patented Universal-Interface and encrypted email transaction technology. The Cymedix.com product is actually a collection of software systems, networking technologies and data integration tools. These systems all work together to create an inexpensive, electronic link that can integrate the wide range of incompatible practice management systems throughout the healthcare industry. Data is translated through the Company?s Universal Interface, and then transmitted via an encrypted email. Instead of storing critical patient data on an expensive "central server" or using a central clearinghouse to process every transaction, the Cymedix software suite transmits its data from the provider to the sponsor and back via a private network connection over the public Internet.
Most competing systems are based upon Web-browser technologies. We feel that this is operationally impractical as it requires the "re-keying" of patient data, and it requires doctors to have direct access (i.e., higher bandwidth connectivity) to the Internet from their exam rooms, since patient data changes cannot be printed out without duplicate data entry. Most doctors today do not possess high bandwidth direct Internet connectivity, and we believe will not posses these types of connections for three to five years, relying instead on dial-up modem (i.e., low bandwidth connectivity). The Cymedix.com solution is also very advantageous because it is transparent to users and is capable of being quickly integrated into any practice management system today. While many other practice management software suites are still on the drawing boards, Cymedix.com software has already been beta tested with WellPoint Health Networks with a full launch expected in 2Q 2000. Cymedix.com is Windows 95/98/NT compatible and does not require a costly investment in new hardware, system upgrades, software reprogramming, lengthy installation delays, or disruption in daily practice activities and workflow. MDIX is currently developing a blended browser based (thin client) version of Cymedix.com and plans on launching in those markets where direct access is available and in common usage. However, we believe Cymedix.com has made it financially and technologically possible for physicians to receive the full benefits of having complete access to a medical information network today.
The core of the Cymedix software suite lies in MDIX?s patented Universal Interface. The Universal Interface extracts demographic, clinical, and financial data from a wide range of databases and retrieves all of a patient?s history instantly. Prior to seeing a patient, a physician can retrieve a patient?s history, review medications a patient may be taking, verify drug-to-drug interaction with potential prescribed medications, check plan-specific formulary, and verify patient eligibility. After the examination, the physician or someone from their staff can log on to the Cymedix system to get approval for treatment from the patient?s insurance company. Once approval has been granted, the physician can then use Cymedix to order x-rays or laboratory specimens. Once the necessary lab work is completed and the patient is diagnosed, the physician can send an electronic prescription to the pharmacy, which ensures the pharmacist fills the prescription correctly without having to decipher the notoriously incomprehensible long hand of a physician. Instantly, the software will alert the physician if there are any potentially harmful drug interactions with the patient?s current medication or to see if there are any generic drugs that can be substituted for the patient?s current prescription. Once the prescription is filled and has been picked up by the patient, the physician is notified and an electronic note is made in the patient?s record.
We believe this system is extremely advantageous for everyone in the healthcare sector. Physicians benefit from this system in that they require fewer front office staff and office mangers and can devote their time to providing quality patient care, instead of doing paperwork. Insurance companies and healthcare plans also benefit in that they have patient referrals and claims processing sent directly to their information system instead of having it sent to them and having to "key" the data in themselves. In addition, healthcare organizations will not need to undergo expensive programming changes in order to access this data. Pharmacies and PBM?s will benefit from the ease of use of the Cymedix product as well as the ability to provide their physicians with up to the minute information about patient history, drug interactions, drug formularies, and generic vs. brand name information. Lastly, hospitals will benefit from using the Cymedix software because they will be able to provide radiology and lab results to attending physicians, without physicians being on the premises.
Two additional key components of the Cymedix.com software suite are the Cymedix Host and the Cymedix Remote. The Cymedix Remote is typically installed in a physician?s office at no cost to the physician and is typically managed by the physicians? front office staff. The Cymedix Remote uses the Company?s Universal Interface to scan for a patient?s clinical and financial data, which is usually stored on a separate database. Any additional data such as drug benefits, insurance eligibility, and lab test results that are required is encrypted and sent via email to the Cymedix Host. The Cymedix Host is installed at the front-end of the sponsor?s information system. It works to receive information requests from the Remotes, unencrypts the request, interfaces with the sponsor?s information system and encrypts the response for the return transmission back to the original client.
The Cymedix software suite is especially beneficial to mail order as well as retail pharmacies and PBMs, since it allows them to complete many critical data transactions easily and cost-effectively. Using Cymedix.com software, a PBM can review a patient?s current pharmacy benefits plan, order additional drugs for the patient, and check to see if there are any potentially harmful drug interactions between a patient?s current medication and any new medications. The PBMs can also check drug formularies for generic alternatives and verify pricing and co-pay amounts using the Cymedix.com software.
Since Cymedix.com is modularly designed, options can be added with minimal effort and can be altered as needed. Currently pilots are underway for laboratory ordering and results, similar to the methodology applied to the PBM marketplace. This would provide radiology and laboratory professionals the benefits of paperless transactions, lower turnaround times and greatly reduced costs. In addition, any modular system that will be designed would have the same benefits as the overall Cymedix.com software suite; it would be based upon the Universal Interface and would not require the "rekeying" of patient data.
Due to the rise of Managed healthcare, Cymedix has included a section devoted to the provider of managed care in its software. This section of the software allows professionals to check a patient?s insurance eligibility, request authorizations and process electronic insurance claims. This field can also be customized to accommodate the sponsor?s required data sets. In this field a physician can also print out a results report to show results for each procedure and to verify that each result falls within an accepted range of values.
Transaction-based revenues are the main source of revenue for the Company. The Company sets up its equipment in sponsors? office for a minimal cost (in most cases) and physicians? office at no cost, and in exchange, the Company receives a set rate (typically between $0.15 and $0.75) per transaction. The transaction set includes: patient medication history, prior authorization and form processing, drug interaction, prescription writing, lab orders and results, claims processing. One transaction could be a physician accessing a patient?s records, ordering a prescription, or receiving an authorization from a patient?s insurance company.
Competition
--------------------------------------------------------------------------------
While many competitors? systems are in the process of building similar functionality, none offer as powerful as system of B2Btransaction connectivity as the Cymedix.com software. The Cymedix.com software is the only system available today that combines sending and receiving pharmacy orders, lab results, healthcare insurance claims, and physician?s notes over an easy-to-use, and transparent interface. In addition, while MDIX offers a wide range of healthcare transaction applications, many competitors offer a small portion of MDIX?s functionality, making direct comparisons difficult.
Healtheon Inc. (NASDAQ: HLTH) processes transactions over the Internet using a thin client solution which is cost efficient for the Company and the user. Currently the Company only processes administrative transaction sets, however it also caters to consumers through its WebMD web site. Healtheon is extremely well financed and currently has a market capitalization of $6.81 billion.
Abaton.com (recently acquired by Mckesson/HBOC)) uses a thin-client solution to provide a virtual private transaction network using the Internet. This solution depends on large sponsors for revenue and typically provides its solution to the physician for free. This solution requires very little implementation on the company?s part, however, it does requires a substantial training period.
Claimsnet.com (NASDAQ: CLAI) operates an Internet based transaction processing system that uses a thin-client interface and requires very little implementation. The software is installed on the company?s servers and is operated through its web site by the physicians and the recipients. The company generates revenues through its subscription based pricing system that costs the physician about $20 per month. Although the system is Internet based, online billing is still completed using traditional mail services, with the software playing a supportive role in the process. This may cause delays in the turnaround time for billing transactions. Claimsnet.com has a market capitalization of $70.4 million. Physicians, may be slow to adopt this system due to the subscription based pricing model.
CareInsite (NASDAQ: CARI) has an Internet transaction processing system under development. The Company has generated no revenues from the sale of its e-commerce services. Currently the Company has generated revenue through its setup and implementation fees. The Company also has made a strategic alliance with America Online, Inc. The market capitalization of CARI is approximately $5 billion.
Partnerships
--------------------------------------------------------------------------------
Through aggressive marketing of its Cymedix product, MDIX has formed agreements with several strategic sponsors, who have agreed to implement the Cymedix.com software suite. MDIX?s most comprehensive agreement has been with WellPoint Pharmacy Management. WLP has entered into a definitive agreement with MDIX for an enhanced pilot project which was announced on January 13, 2000, as well as a system wide introduction for Cymedix?s Internet pharmacy products. The Cymedix Internet pharmacy software product will be privately labeled to WellPoint as Rx.net. Wellpoint also has the right to nominate a designee to the Board of Directors and has been issued an incentive warrants to purchase up to 6 million shares of MDIX stock based on its ability to meet certain milestones. WellPoint Pharmacy Management, an indirect subsidiary of Wellpoint Health Networks (NYSE:WLP), is the nation?s leading health-plan owned pharmacy benefit management company, serving approximately 20 million people. Wellpoint Health Networks is one of the nation?s largest publicly traded managed care companies, serving the health-care needs of 7 million people with over 30 million specialty members nationally. This agreement gives MDIX a solid core of doctors that will be using its software.
On January 5th, 2000, MDIX announced that it had entered into a definitive agreement with Advanced Paradigm, Inc. to develop and execute a pilot program which will provide its network physicians with patient specific pharmacy information. Physicians participating in the plan will be able to access drug information on a patient, check for potential drug to drug interactions of drugs they may prescribe and prescribe drugs electronically all through the Cymedix.com system. The evaluation of the pilot program should be completed by 2Q00 and we feel that the Cymedix.com software will be widely available to Advanced Paradigm?s physicians by 3Q00.
MDIX has also signed an agreement with Advica Health Resources to enable its affiliated healthcare providers to implement the Company?s Cymedix.com software to perform iHealth transactions and to link practice management systems to the Advica Web Suite. The agreement calls for a 60 day testing phase after which full implementation of the Cymedix.com system will begin. The system will mainly be used for claims processing, claims status reporting, and electronic remittance notification. Full implementation is expected in 1Q 00.
MDIX has also entered into partnerships with hospitals, pharmacy benefit plans and networks of medical testing facilities. We expect MDIX to enter into additional partnerships during 1Q 00 and (as the first phases of Cymedix.com are launched), we believe the flow of partnership agreements will accelerate.
Management and Board of Directors
--------------------------------------------------------------------------------
John P. Yeros has served as Chairman of the Board since 1988 and also serves as President and Founder of Medix Resources, Inc., the parent company of National Care Resources-Colorado, National Care Resources-Texas, TherAmerica Inc., and Cymedix Lynx Corporation. Prior to founding MDIX, Inc., John Yeros operated and managed the Colorado area for B.C. Christopher Securities, an NYSE member. He also served terms as Vice President at Wallstreet West Securities Company and Hanifen Imhoff, Inc., as well as Merrill Lynch and E.F. Hutton. Mr. Yeros graduated from Wichita State University.
John R. Prufeta has served as the Interim Chief Executive Officer since October 1999 and has served as director since April 1999. In addition, Mr. Prufeta is the Managing General Partner of the Creative Group and Creative Health Concepts. In addition, John Prufeta is the President and Chief Executive Officer of Creative Management Strategies and General Partner of TCG Development. These companies cover a wide spectrum of services within the healthcare industry. Mr. Prufeta has also coordinated the acquisition of David Hertz Health Concepts and integrated D.J. Hertz & Associates of which he has served as the Executive Vice President, Secretary and Founder and Director of Executive Search, into Creative Management Strategies. Mr. Prufeta holds a B.S. in Management from St. John?s University and is a recent graduate of the Owner/President Management Program at Harvard University, Graduate School of Business.
David Pfeil serves as the Chief Operating Officer and has nearly twenty years of senior management experience in healthcare automation and information systems. David founded Dezine Healthcare Solutions, a software company with separate divisions for healthcare and engineering design. Dezine eventually went on to capture almost 40% of the market share in the home medical equipment industry. Mr. Pfeil sold Dezine to Blue Cross Blue Shield of South Carolina and organized Arrow Professional Enterprises, a health care automation consulting company. Mr. Pfeil graduated Valedictorian from Lehigh University with a Bachelor of Science in Mechanical Engineering and a Masters of Science in Mechanical Engineering from the University of Minnesota after receiving a full fellowship through a research grant from IBM.
David B. Skinner MD has recently joined the MDIX Board of Directors and is a leading healthcare administrator in the United States. He has served as the Vice Chairman and CEO of the New York Presbyterian Hospital and New York Presbyterian Healthcare System. He currently presides over a vast integrated delivery system encompassing 32 healthcare facilities, real estate holdings, and physician practices. He is also a professor of surgery at the Weill Medical College of Cornell University and at Columbia University College of Physicians and Surgeons, and an attending surgeon at New York Presbyterian Hospital. Dr. Skinner is a recipient of an Honorary Doctor of Medicine from the Technical University of Munich, Germany and the University of Lund, Sweden, and an Honorary Doctor of Science from the University of Rochester. He was also professor of surgery at Johns Hopkins University School of Medicine, and professor and chairman of surgery at the University of Chicago, Pritzker School of Medicine. He is a senior director for the American Board of Surgery and director of Laboratory Corporation of America and Academic Medicine Development Corp. Other Honors include Austrian Cross of Honor for Science and Art First Class; the Officer (Chevalier), dans l?Ordre National du Merite, France; the Ellis Island Medal of Honor; and the Johns Hopkins Society of Scholars. Dr. Skinner holds a BA degree, with high distinction, from the University of Rochester and an MD degree, cum laude, from Yale University.
Samuel H. Havens joined the MDIX Board of Directors after serving as President of Prudential Healthcare, a national managed care organization with $7 billion in revenues. Mr. Havens worked in various functions at Prudential Healthcare from 1974 until his retirement in 1996. During his time at Prudential Mr. Havens served as Chairman of the Board of Prudential HMO?s (1981-1986), Member and Chairman of the Board of Rush Prudential Health Plan (1990-1996), Member Board of Directors (15 years) and Chairman of the Board (1992-1994) of the American Association of Health Plans and the national managed care trade association. Mr. Haven is currently Chairman of the Board of Advica Health Care Services and is a sits on the Board of Directors of National Imaging Associates, Inc., Cardio Continuum, ALIGNIS Corporation, Pro Behavioral Inc., Benchmark Oncology, Cosmetic Surgery Consultants and Atlantic Medical Capital..
John T. Lane recently joined the MDIX Board of Directors and has over 26 years of experience in international and domestic investment and financial services. He served in various capacities at J.P. Morgan & Co., a financial services organization with over $350 Billion in assets, from 1968 to 1994. In his most recent capacity at J.P. Morgan Mr. Lane served as Managing Director and Head of U.S. Private Client Services. Since his retirement in 1994, he has served as an active corporate director and trustee, an organizational consultant and a private investor. He currently serves as Chairman of five committees and a member of an additional 25 committees.
Thomas Oberle has served as a director of MDIX since its incorporation. From October 1989 to December 1991, Mr. Oberle was Vice President of Equicor, a health maintenance organization in Denver, Colorado. From January 1991 to January 1993, he served as an independent insurance agent in Denver, Colorado. Since 1993, he has served as the director of the Colorado Dental Association since 1993. He graduated from St. Mary?s college in Winoma, Minnesota with a Bachelor of Science degree.
Brian McLean, M.D. has served as director since1998. Dr. McLean is an M.D./MBA anesthesiologist with an investment focus on healthcare venture capital. He is a limited partner in Hudson Partners, an SHIC venture fund and serves on the Board of Directors of Amarillo Biosciences a NASDAQ company, as well as several other private companies. Dr. McLean was a seed investor in Cymedix Lynx Corporation.
Financial Valuation and Discussion
--------------------------------------------------------------------------------
With the guidance of management, and based upon analysis of comparable companies, we have generated five-year financial projections for MDIX. The model is driven by growth in doctor transactions from existing and future partnerships. Based on the quality of MDIX?s product, we believe our assumption of the number of doctors who will use Cymedix.com is conservative. We feel we have been sufficiently conservative in our estimate of the number of electronic transactions each doctor performs per year, and in the average cost per transaction (that range from 25½ to 75½ in our model, but have traditionally cost in excess of $10).
From our assumptions pages, we generated valuation analyses using a discounted cash flow method, a terminal P/E multiple method and a terminal EBITDA multiple method. We believe we have been sufficiently punitive in our discount rate |
