Clearing Agent: Bear Stearns, *WSCC
Member: NASD, SIPC
Buy Recommendation For:
February 17, 2000
Medix Resources, Inc. (OTC BB: MDIX)
OVERVIEW
Recent Price $5.53
52 Week Range $0.19 ?$6.00
Avg. Volume..(3-mos.)??.927,681
Fiscal Year December
EARNINGS PER SHARE
Year EPS
1999..(9ms. Ended 9/27/99)??.$(0.13)
1998 $(0.26)
1997 $(0.15)
CAPITALIZATION
Shares Outstanding 26.9M
Market Capitalization $148M
Current Liabilities?????$5.3M
Equity $(218K)
REVENUE
1999..(9ms. Ended 9/26/99)...$8,692,000
1998 $17,412,000
1997 $24,875,000
?Give instruction to a wise man, and he will be still wiser; teach a just man, and he will increase in learning?
Proverbs 9:9
INVESTMENT THESIS:
ú Medix represents a high growth opportunity in the multi-billion dollar iHealth industry. More than 5 billion healthcare claims are filed annually. Multiple healthcare transactions including, insurance claims, healthcare authorizations, lab entry, lab results, pharmacy orders, etc. are processed with many of the claims. This market is expected to grow as baby boomers age and increase the demand on the healthcare system. Using an estimate of 5 transactions per healthcare claim, at $0.25 per transaction, the annual potential market exceeds $6 billion. Through its suite of patented healthcare communications software, Cymedix.com, the Company is well positioned to take advantage of the ever-increasing need for online transaction processing.
ú Medix has recently restructured its operations in order to better address the iHealth market. The Company has recently restructured its business model and recruited a new management team and Board of Directors to reflect the emphasis on its healthcare Internet software division. This restructuring is moving the Company in a positive direction through recent strategic alliances that help Medix expand its operations, which we expect will result in a dramatic turn-around of its financial situation.
ú Medix?s wholly-owned subsidiary, Cymedix Lynx Corporation and WellPoint Pharmacy Management have entered into a definitive agreement for an enhanced pilot project as well as a system-wide production project that we believe will develop substantial revenues for Medix and establish a foundation for future alliances in the iHealth industry.
ú Highly Undervalued. We believe Medix stock is undervalued considering the growing need in the healthcare industry for its patented suite of healthcare communication software products, the potential revenues from the enhanced Wellpoint agreement and the recent restructuring of the Company to better address the potentially explosive opportunity in the iHeath industry.
We are upgrading our Speculative Buy Recommendation for Medix Resources, Inc. (NASDAQ: MDIX) to a Buy Recommendation. Medix continues to perform well, as evidenced with the recent enhanced pilot project with WellPoint Pharmacy Management, and is poised to grow significantly as its patented line of Business-to-Business Internet healthcare (?iHealth?) management solutions continues to gain industry-wide acclaim
COMPANY OVERVIEW
Founded in 1988, Medix Resources, Inc. is a Denver, Colorado-based company engaged through its wholly owned subsidiary Cymedix Lynx Corporation of Thousand Oaks, California, in providing several fully secure patented Internet medical communications products, using an E-commerce business model. Historically, the Company?s core business has been providing skilled nursing, therapy, rehabilitation and other medical personnel for flexible staffing in home care and in a broad spectrum of healthcare and educational facilities. With the Company?s acquisition of Cymedix Lynx in 1998, however, Medix Resources has restructured its operations in response to the growing demand from the healthcare industry to reduce expenditures on healthcare administration so that more money can be dedicated to providing quality healthcare.
In recognizing this need, the Company is offering the capability to harness the Internet, which will enable healthcare providers to inexpensively automate many necessary but currently inefficiently performed administrative transactions. The firm's Cymedix.com suite of software products creates significant benefits for healthcare payors and providers by helping them reduce costs, improve patient care, and raise the quality of payor/provider communications. This patented software interfaces with existing physician practice management systems to create easy-to-use, secure, Internet access to laboratory and radiology orders and results, pharmacy benefit management, insurance eligibility authorization and claims processing, and hospital information system integration.
This unique software product platform capitalizes on the development of Internet technology by creating Virtual Private Networks (VPNs) that securely transport patient medical, financial and administrative information between healthcare insurers and providers. The Company?s business model calls for large sponsors such as payors and PBMs to pay per-transaction fees, allowing it to offer its solutions at no cost to the healthcare provider. Beyond the high-ROI benefits inherent in Electronic Data Interchange, the advantages to the sponsor include a fast rollout for in-network providers, the ability to create repositories of clinical content for its affiliates, and the elimination of network clearinghouses. Medix?s software-based solution is capable of quickly integrating to any practice management system using the Company?s proprietary data mapping tools through their Universal Interface program. It therefore does involve up-front implementation expense.
The Company?s recent restructuring of both its business model and its management team are expected to result in a dramatic turn-around of the Company?s financial situation. Revenues for the first nine months of 1999 decreased 60 percent to $8,692,000 as compared with $14,515,000 for the first nine months of 1998. The Company reported a loss of $2,368,000 and a net loss applicable to common shareholders of $(0.13) per common share for the first nine months of 1999 compared with a net loss of $2,113,000 and a net loss applicable to common stockholders of $(0.10) per common share for the first nine months of 1998. The first nine months of 1999 net loss applicable to common shareholders includes $602,000 or $0.03 per common share of preferred stock dividends related to the imputed discount on issuance of preferred stock. The decrease in revenue is primarily a result of the 1998 sale of the Company's Stat and Ellis offices in New York. The two New York divisions generated revenues of approximately $1,410,000 in the third quarter of 1998. The sale of these operations comes about as the Company continues to transition from offering medical staff provision to becoming a provider of Internet health (iHealth) solutions. In addition, the Company experienced decreased revenues from its offices in Colorado and California. These decreases were partially offset by increased nurse staffing revenues in Texas, Colorado, and Travel divisions. The increased net loss is primarily due to consulting expenses recorded for the issuance of options, and an increase in expenses from the Company's wholly owned subsidiary Cymedix Lynx Corporation. The Company has reported net losses in the last several years and has a negative net worth, and a working capital deficit at the end of its most recent fiscal quarter. The Company's auditors have included a ?going concern? exception in their report on the Company's financial statements.
The Company has recently recruited a new management team and Board of Directors to reflect the emphasis on the Company?s healthcare Internet software division. Three new board members have been brought to the Company, who together comprise one of the most unique and potent boards for a small company that we have seen.
ú John Lane, was with J.P. Morgan for 26 years. Since retiring from J.P. Morgan in 1994, Lane has served as a consultant for J.P. Morgan, Alex Brown, The Cathedral of St. John the Divine, and First International Investment Bank, Ltd. Prior to his retirement, Lane was chairman of J.P. Morgan, Florida; director of Morgan Shareholder Services, J.P. Morgan of California, and Morgan Futures; and a member of the firm's Credit Policy committee. Earlier, he held the following positions with J.P. Morgan: managing director, head of U.S. Private Clients; managing director, head of U.S. Investor Services Group; senior vice president, head of Eastern U.S. Corporate Finance; vice president, head of New Jersey/Pennsylvania District; vice president, area manager for Southeast Asia; and president and CEO of the firm's Indonesian Securities affiliate. John Lane brings extensive experience with Wall Street, public and private financing, and more recently has provided transactional support for a number of healthcare companies.
ú Samuel Havens spent 27 years at Prudential Insurance Company. Since retiring from The Prudential Insurance Company of America in 1996, Havens is chairman and consultant to ADVICA Corporation. Additionally, he is a consultant to and a member of the boards of directors of National Imaging Associates, Inc.; Cardio Continuum; ALIGNIS Corporation; Pro Behavioral Inc.; Benchmark Oncology; Cosmetic Surgery Consultants and Atlantic Medical Capital. He is also a consultant to the Healthcare Financing Administration (Medicare) and the Robert Wood Johnson Foundation. Prior to his retirement, Havens was president of Prudential Healthcare; president and, earlier, vice president of Group Operations; president of HMO Operations. Havens is a member of the board of advisors of Temple Law School and the editorial board of Managed Care Quarterly. He served as chairman of the board of directors of all Prudential HMOs; chairman and member of the board of directors of Rush Prudential Health Plan; member of the board of directors of the American Association of Health Plans, for which he served as chairman of the Finance committee and chairman of the board.
ú Renowned healthcare executive Dr. David B. Skinner has been appointed to the Company?s board of directors. Dr. Skinner is recognized as one of the most accomplished executives in the healthcare industry. Dr. Skinner successfully led the largest merger of academic medical centers in history (The New York Hospital and Presbyterian Hospital), and presides over a far-reaching integrated delivery system encompassing 32 healthcare facilities, real estate holdings, and physician practices. He is a professor of surgery at the Weill Medical College of Cornell University and at Columbia University College of Physicians and Surgeons, as well as an attending surgeon at New York Presbyterian Hospital. He is senior director for the American Board of Surgery, and director of Laboratory Corporation of America and Academic Medicine Development Corp. Dr. Skinner is actively contributing his very substantial experience to Medix as the Company transitions from its traditional focus on medical personnel staffing to iHealth software products.
While we do feel that Medix has superior potential for growth and a concurrent appreciation of its stock, there are several factors regarding the Company that should be recognized. The Company's lack of working capital and inability to generate positive cash flow from operations may require the raising of additional equity or debt financing in order to fund operations, and the Company may be unable to raise such debt or equity financing.
At November 4, 1999 the Company had substantial delinquent liabilities, which, if the creditors instituted collection proceedings, could cause financial failure of the Company if payment could not be made or extension arrangements could not be negotiated. Also as of November 4, 1999, the Company did not have a source of funds for the funding of the development of its Cymedix software products. The Company is currently pursuing sources of funds, but no assurance can be given that the Company will be successful.
The Company?s long-term solution is to implement a nonproprietary Internet healthcare transaction strategy that creates a systematic approach to providing physicians with a wide array of clinical data through the networks they build for their clients. This will require adequate funding in order to continue their efforts to bring their products to market, however, such funding is not currently secured. If the Company sells its supplemental healthcare staffing business as planned, the proceeds of such a sale will not be sufficient to fund the shortfall in the current budget for Cymedix?s operations for the next twelve months. The Company will attempt to fund Cymedix's development through raising capital in the private debt or equity markets, but may not be successful in raising such capital. In a case such as this, the continued operation of the Company as a going concern would be in question.
In addition, the Company has only recently begun its medical software line of business through the acquisition of a development stage medical software business. The uncertainties and risks accompanying this fact are enhanced by the Company's recent entry into in this business. The Company?s experience in marketing of software products, providing software support services, evaluating demand for products, financing a software business and dealing with government regulation of software products is limited at this time to the Chief Technology Officer, David Pheil.
As a developer of information systems, the Company will be required to anticipate and adapt to evolving industry standards and new technological developments. The market for the Company's software products is characterized by continued and rapid technological advances in both hardware and software development, requiring ongoing expenditures for research and development and the timely introduction of new products and enhancements to existing products. The establishment of standards is largely a function of user acceptance. Therefore, such standards are subject to change.
The Company's future success may depend in part upon its ability to enhance existing products, to respond effectively to technology changes, and to introduce new products and technologies to meet the evolving needs of its clients in the health care information systems market. The Company is currently devoting significant resources toward the development of products, but there can be no assurance that the Company will successfully complete the development of these products in a timely fashion or that the Company's current or future products will satisfy the needs of the health care information systems market. Further, there can be no assurance that products or technologies developed by others will not adversely affect the Company's competitive position or render its products or technologies noncompetitive or obsolete.
We believe management is restructuring the Company in a positive direction through recent strategic alliances that will help the Company expand its operations as well as the Company?s focus on future alliances to enhance revenues. The Company has been issued a patent for its unique Cymedix.com Universal Interface software product, which addresses a huge market. We believe this program and its capabilities along with the recent management additions may provide the foundation for an infusion of capital necessary to meet the Company?s immediate capital requirements.
RECENT DEVELOPMENTS
ú The Company?s Cymedix Lynx subsidiary and WellPoint Pharmacy Management, have entered into a comprehensive agreement for an enhanced pilot project, as well as a system-wide introduction for Cymedix?s Internet pharmacy products. The Cymedix.com Internet pharmacy software product will be privately-labeled for use by WellPoint Pharmacy Management as Rx.net. This product will enable WellPoint?s network physicians to access patient-specific pharmacy data including plan formulary options, prospective Drug Utilization Review, prior authorization notification, patient medication history, potential drug interactions and perform electronic prescription processing. Additionally, under the terms of the agreement, Medix issued WellPoint Pharmacy Management warrants to purchase Medix common stock, based on its ability to meet certain performance criteria. WellPoint also now has the right to nominate a designee for appointment to the Medix board of directors. Through this project, WellPoint Health Networks will be able to offer its physicians easy access to their patients' medication regimens and pharmacy benefit plan designs via the Internet, prior to their writing a prescription. WellPoint Pharmacy Management, serving approximately 20 million lives, is the trade name of Professional Claim Services, Inc., a wholly owned subsidiary of WellPoint Health Networks, Inc. (NYSE: WLP), a $4 billion managed health care company that offers network-based managed care products in California, primarly under the name Blue Cross of California, and outside of California under the name UNICARE. This alliance with WellPoint should develop substantial revenues for Medix and establish a foundation for future alliances within the iHealth industry.
ú The Company?s Cymedix Lynx subsidiary and Advance Paradigm, Inc. have entered into a definitive agreement to develop and execute a pilot program, and initiate subsequent production projects, which will provide Advanced Paradigm?s network physicians with patient-specific pharmacy information for Advance Paradigm using Medix's Cymedix.com software product suite. Utilizing Cymedix.com's prescription management module, physicians participating in the project will have access to critical patient information including plan formulary options, prospective Drug Utilization Review, prior authorization notification, and electronic prescription processing.
ú In a development that puts the Company in a very positive position within the healthcare industry, Cymedix Lynx has been issued a patent for its software product, Cymedix.com. The patent provides protection of Cymedix's unique Universal Interface between its database/application programs and the Healthcare Professional's local database. The unique ability of the Company?s Internet transactions software to integrate with the physicians practice management system allows the Cymedix.com software product to stand above competing products for its ease of use. The biggest barrier for any software product to acceptance on the doctor?s desktop will be the installation effort required. It is here that Cymedix appears to have a unique leadership position.
ú Medix Resources, Inc. has entered into an agreement with Advica Health Resources, Inc., a leading provider of management and administrative resources to implement the Company's Cymedix.com Remote software product as part of Advica?s Web site. Advica will use the product to enable its affiliated healthcare providers to perform iHealth transactions including claims processing, claims status reporting and electronic remittance notification by linking physician office practice management systems to the Advica Web Site. The application will first be utilized in Advica's high-membership Southern Texas and New York City markets.
CYMEDIX SUBSIDIARY
Founded in 1995, Cymedix Corporation is a Thousand Oaks California-based company creating Internet solutions for the healthcare industry. Initially, product development focused on creating solutions that could address medical transactions from one facility or institution to another. Realizing that browser-based technology was still a luxury to most physicians? offices, Cymedix elected to develop a secure Internet transaction system based upon encrypted email messages.
Cymedix is now actively engaged in the dynamic healthcare data integration and Internet electronic communication arena, providing inexpensive enterprise-wide solutions to historic industry challenges of instantaneous information access, paper dependence and manual process reliance. Cymedix establishes a vital electronic communication link between health plan insurers, physician office practices and industry service providers.
There are estimated to be over fourteen hundred unique Practice Management software systems installed at physician and other healthcare offices nationally. The Cymedix Universal Interface integrates with virtually any practice management system by automatically extracting the necessary patient data to populate the Cymedix transactions without having to re-key critical data. Thus allowing the healthcare professional to interact with the Internet for everything from lab orders to pharmacy benefit, from eligibility checking to claims processing.
Cymedix Products & Services
The Cymedix product is a collection of software systems, networking technologies and data integration tools. Collectively, they create a universal communication vehicle that achieves what has long been considered a technological impossibility; an inexpensive electronic link between the dissimilar computer systems scattered throughout the healthcare sector. Cymedix links existing physician office practice hardware and software to a private network and permits the secure exchange of on-line clinical and administrative information with insurers and service providers (pharmacies, labs, hospitals, other physicians) across the enterprise.
Cymedix utilizes encapsulation or tunneling technology to enclose the data within packets of other communication network protocols (such as TCP/IP) for transport across it?s secure private network. Cymedix harnesses the power of Internet technology with a multi-layered encryption/encoding communications program to create its network and to effectively carve a secure private communication channel across the public information highway.
The software has two main components:
1. Cymedix.com Remote - The Remote application tool set includes a Cymedix?s patented Universal Interface module that allows the system to non-invasively interact with the physician?s system to extract patient data for use with the Internet transaction request module. The result is a major timesaving to the physician in utilizing the Cymedix product since data previously keyed into his or her practice management software is already available in the Cymedix Remote database. Healthcare professionals do not have to replace or upgrade their expensive practice management system in order to share their data with other healthcare organizations.
2. Cymedix.com Host - The Host application is installed at the healthcare organization that sponsors patient related information services such as insurers, pharmacy benefit managers, pharmacies, labs, medical benefit managers, hospitals, and even other physicians. The Host product manages the decryption of information requests and encryption of responses to the Remote. It also provides a tool set to communicate in real-time or batch mode with the sponsor?s legacy application utilizing the latest industry standards such as HL7, NSF, ANSI X12, and CCOW.
Practical Healthcare Applications
There are many practical applications for the Cymedix.com family of products, including:
ú Laboratory & Radiology Orders
ú Insurance Eligibility and Authorization
ú Pharmacy Benefit Management
ú Claims Processing
ú Hospital Patient Registration
ú Outcome and Encounter Processing
There are many reasons why Cymedix.com is considered to be the best Internet Healthcare (iHealth) solution. For example:
ú While the competition is trying to create enterprise-wide iHealth solutions, Cymedix is ready to install, today.
ú Patented Universal Interface allows the Cymedix.com program to interact with the physician?s practice management system so patient information does not need to be re-keyed during the Internet transaction.
ú Cymedix.com?s unique blending of secured e-mail transactions and browser based technology requires only a minimum ISP connection cost, low bandwidth, and can be scheduled for off-peak transmission.
ú The Cymedix.com Remote can handle transaction types (i.e., laboratory & radiology orders, patient eligibility, pharmacy benefit management, and electronic claims submission) within a single user interface application.
Cymedix Services
In addition to Internet-based software applications, Cymedix Corporation offers a wide variety of healthcare systems automation services. These services include:
ú Internet turn-key project management. From installing hardware, networks and operating systems to developing meaningful web content, the company?s staff of software developers can create full-feature data base applications for use at a doctor?s office as well as on the web.
ú Interfaces between the Internet and the systems already in use by the practitioner. The company?s electronic healthcare commerce (eHC-commerce) sites are designed to integrate with existing information systems. The company?s expertise in data mining allows information to be moved from one source to another via the Internet without having to re-key data.
ú Intranets and Virtual Private Networks. The Company?s staff of Microsoft Certified Systems Engineers knows what it takes to make offices share information and software applications over the Internet while maintaining the highest level of security.
ú Customer healthcare software applications. The Company?s intense knowledge of healthcare and information systems allows Cymedix to offer custom development to its clients. Often these tools are utilized to create Web-based front-end applications that allow secured access to vital patient information.
CONCLUSION
We believe that Medix Resources, Inc. possesses the knowledge both technically and strategically to rise to the top of the iHealth communications industry. Through its subsidiary, Cymedix Lynx Corporation, the Company offers a solution to the healthcare industry?s concern of overspending on healthcare administration by offering a patented suite of software products that allow healthcare providers to inexpensively automate many necessary but currently inefficiently performed administrative transactions. This software interfaces with existing physician practice management systems to create easy-to-use, secured, Internet access to laboratory and radiology orders and results, pharmacy benefit management, insurance eligibility authorization and claims processing, and hospital information system integration. Several components of the Cymedix.com software product have poised the Company for market acceptance and widespread product distribution: These include:
ú No cost to the healthcare provider (physician).
ú Flexible, transaction based pricing model.
ú Universal integration with existing physician Practice Management Systems.
ú Rapid rollout capacity to in-network physician providers.
ú Capability of creating clinical information repositories.
ú Eliminates the necessity of network clearinghouses
The Company is currently concentrating its efforts on creating core business structures and relationships to facilitate its transition from a medical staffing company to an iHealth software provider. Market distribution channels for the firm's Cymedix.com software product suite are being developed, and an overall growth agenda for the Company is being established. Strategic planning, mergers and acquisitions may fuel the Company?s growth well into the foreseeable future. With technology clearly the primary tool for improving the quality of service delivery and cost efficiencies in the healthcare vertical market, the Cymedix.com suite of iHealth software products accelerates the connection between the many entities comprising the healthcare industry.
The market for the Company?s suite of software is enormous, encompassing virtually every segment within the multi-billion-dollar healthcare industry. Industry analysts predict that the market for online transaction processing software will increase substantially over the next several years. The Company is well positioned to participate actively in the growth and development of this market, creating superior potential for appreciation of this stock. Taking these factors into account, we upgrade our recommendation to a BUY for the prudent investor.
Medix Resources, Inc. can be contacted for an investor package or more information at
MEDIX RESOURCES, INC.
7100 E. Belleview Ave., Suite 301, 302
Englewood, CO 80111
Telephone: (303) 741-2045
Facsimile: (303) 394-3653
Email: cymedix@cymedix.com
www.medixresources.com
www.cymedix.com |
