MIMS from yesterday's IBD new america
When Mim Corp. (MIMS) recently signed on as the specialty drug and services provider for Highmark Blue Cross Blue Shield in western Pennsylvania, company execs were thrilled.
No matter that only 1% of Highmark's 1.9 million members will likely need Mim's services.
To Mim, a relatively small pharmacy benefit management firm with $457 million in revenue last year, 1% represents a mighty big number.
It translates into 19,000 patients with chronic conditions. Mim gets to oversee those members, providing them with expensive drugs and related services.
The new members, who each spend about $1,000 a month on drugs, are the bane of cost-conscious managed care companies. But they're the lifeblood of the small army of firms that specialize in high-cost members.
"Taking care of the chronically ill is the highest expenditure in an HMO," said Mim Chief Executive Richard Friedman. "Not a lot of companies are set up to handle them, which is our opportunity."
That opportunity represents a big shift in direction for Mim, which until recently has focused almost solely on general drug benefit management chores.
Instead of being a small player in a big pond of pharmacy benefit managers, Mim intends to become a big fish in a small pond of specialty players. That smaller pool includes Accredo Health Inc. (ACDO) and Priority Healthcare Corp. (PHCC)
Friedman sounds confident Mim can make the transition successfully - in part by leveraging the assets and skill sets of its core business.
"We are absolutely ready," he said.
Early this year, Mim acquired Vitality Pharmaceutical Services, a $70 million specialty drug management firm that is heavily focused on oncology.
That adds to Mim's growing expertise in niche injectable and infusion drugs for conditions such as HIV, multiple sclerosis, hepatitis C and organ transplants.
The firm also has consolidated specialty operations at its mail-order pharmacy facility in Columbus, Ohio. And it's been hiring sale reps to go after new contracts.
Meanwhile, Mim terminated about $28 million in poorly performing accounts from the core side of its business. Although it plans to keep the rest of that still sizable business intact, it doesn't plan to grow it anywhere near as fast as the specialty side.
"Clearly we've reallocated our assets," Friedman said. "Our goal is to be the largest specialty pharmaceutical company in the next two years."
Mim is well on its way. Last year, the specialty business accounted for 10% of its revenue. By the end of this year, company execs expect it to generate 40% of the total. The segment is on track to account for about half of overall sales in 2003.
"The key highlight in the first quarter was the exceptional growth in Mim's specialty business," said Arnold Ursaner, analyst with CJS Securities.
He reckons that specialty revenue in the first quarter grew 164% from the prior quarter to about $33 million, or 21.7% of total revenue. Year-over-year earnings grew 58% to 19 cents a share.
Analyst Grant Jackson of First Analysis Securities Corp. figures the specialty end of the industry is growing 30% a year - more than double that of the overall market.
And since the specialty side fetches higher margins for Mim than its other segments, growth in sales of specialty products will give the bottom line an even bigger lift.
"If they continue at this rate, by sometime in the third quarter the majority of profit will come from the specialty business," Jackson said.
Analysts polled by First Call expect full-year earnings to rise 67% to 90 cents a share, then reach $1.06 in 2003.
Drug benefit managers of all persuasions are getting more popular due to rising costs of prescription drugs and increased usage overall.
Besides getting better rates on expensive drugs, specialty drug managers help patients with drug compliance and other handholding services.
Mim goes a step further by providing clients with reporting tools to help identify high-cost trouble spots.
Mim has come a long way since 1998, when former founder and CEO David Corvese resigned. The reason: He and two partners were charged with diverting millions of government dollars from a Tennessee health care system.
A grand jury indicted Corvese. The case was later settled, with Corvese agreeing to pay back a portion of the missing funds. Mim had to pay more than $9 million in legal costs.
"Most people didn't think we would survive 1998," Friedman said. "The company had a terrible reputation."
As part of a brand-building campaign, Mim dropped the company's tainted ProMark name. Friedman hired new senior managers.
Under the new team, the company began to expand its customer base, both on its own and via acquisitions.
Before the Vitality buy in January, it had bought Continental Pharmacy, a mail-order drug business. In 2000, it acquired American Disease Management Associates, which served as a springboard to grow its specialty business.
In 1998, all of Mim's revenue came from HMOs that worked under the auspices of the Tennessee health care program, known as TennCare, which still serves Medicaid patients and the uninsured.
"At the highest point, we managed close to 1.2 million lives in Tennessee," Friedman said. "It's still a big part of our business, but it's become smaller on purpose as we've gone national."
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