To All:
I'm posting this here because I believe Matria Healthcare (MATR) to be a value/growth story for the following reasons.
Matria Healthcare just completed a major restructuring, and the new management is very concerned about maximizing shareholder value.
Up until recently, Matria's focus has been on administering the Fetal Fibronectin (fFn) test to identify women with a high risk for premature birth and then monitoring them through their pregnancy and administering tocolytic therapy (trying to bring the baby to full term inside the mother by delaying premature labor.)
Physicians never really adopted the practice of routinely prescribing the fFn test, and then Adeza sued Matria for not trying hard enough to get physicians to routinely prescribe the test. The lawsuit didn't help the marketing effort, and as it stands now, Fetal Fibronectin accounts for only approximately 2% of Matria's 1997 revenues! This is why I believe that in the worst case scenario, the Adeza lawsuit is no longer the significant event that it was once perceived to be!
The only drug on the market that underwent FDA testing to delay intra-uterine contractions is Ritrodine. Doctor's have discovered that another drug Terbutaline, usually prescribed for asthma patients, had the effect of inhibiting labor with less serious side effects than Ritrodine. For about 15 years, Terbutaline has been the medical profession's drug of choice for tocolytic therapy, and Matria administers the drug when the woman's physician prescribes it. By the way, when Matria administers Terbutaline in the mother's home, they use a "pump" system that has FDA approval. The pump allows a smaller dosage of the drug to be delivered to the patient than if she was to take it orally. It is widely known that Ritrodine and Terbutaline have side effects. Matria monitors these patients by telephonically connecting them to a nursing station.
The above story is basically what the "Street" knows about Matria. The analyst's estimates of $0.41 this year, $0.55 next year, and $0.71 in 1999 are conservative estimates based upon the status quo of Matria's current operations. If there were to be no new sources of additional revenue, Matria is still cheap because they generate free cash flow from ongoing operations. It is estimated that in 1998 they will have $1.00/ share in cash!
Now let's look at some potential opportunies for revenue growth and share price appreciation.
1) There are over 400,000 pre-term births every year, and Matria only services 24,000 (6%), leaving a large untapped potential market.
2) There is a new Tocolytic drug awaiting FDA approval that can to a large extent replace Terbutaline as the treatment of choice. The drug is manufactured by Johnson & Johnson. The drug's name is Antocin (formerly Atosiban). It will have fewer side effects than either Ritrodine or the more commonly prescribed Terbutaline. Approval could come as early as the first quarter of 98.
This could be a huge growth story for Matria. Prematurity is a major contributor to infant illness and death. If the Johnson & Johnson product receives approval, physicians would have a much safer way to prescribe tocolytic therapy, and Matria would benifit greatly. Antocin will have behind it the marketing power of Johnson & Johnson which is comparable to having the Good Housekeeping Seal of Approval. Women at risk and their physicians would then have a much better option to delay premature labor for the health of their unborn child. Furthermore, the relative safety of the new therapy could further validate the maternal homecare industry.
3) Management has begun to turn Matria from a "one trick pony" into a diversified business that derives revenues from several different sources. In a November 26,1997 Wall Street Journal article, Matria was mentioned favorably as a player in the emerging $2 billion dollar a year Fertility Industry! Matria is the 3rd largest fertility provider in the U.S. In 1997 it is estimated that 11% of revenues will come from their fertility business! Matria plans on opening 2-3 new fertility centers next year, and this emerging growth industry can substantially add to future revenues. One approach to fertility service is to use fertility drugs that can result in multiple births. Matria doesn't do that. Matria provides those couples who don't want to have quadruplets, quintuplets, etc., with an approach that results in the birth of one child. In addition, Matria is the first fertility company that offers a money -back guarantee.
4) Matria will be entering a brand new high margin business that offers great synergy with their maternity monitoring business. Matria will be providing insulin therapy homecare to women with acute gestational diabetes. Matria spent over 2 years to develop a proprietary system to manage gestational diabetes. The initial test program was successful and the service will be available nationwide in all 70 of their markets by March of next year. Gestational diabetes is a very serious condition that must be aggressively managed. Currently this $100 million dollar market is owned by hospitals. Matria is in a position to capture a significant share of this market.
5) Another significant catalyst to drive the share price higher is the expression of management to be in favor of instituting a significant share buy-back program with their excess cash flow. The CEO and COO both support this form of maximizing shareholder value because they view the stock price as being significantly undervalued. This will be discussed at the February 98 board meeting and it is anticipated that an announcement about the share buy-back program will be forthcoming.
To sum up, the earnings estimates going forward do not include any additional potential revenues form Antocin. This product can contribute substantially to Matria's topline revenues, and because Matria's infrastructure is already largely in place, go straight to the bottom line earnings!
Matria now has $20 million dollars in cash and by next year they will have $36 million dollars in cash. With 36 million shares outstanding, that means that if you buy Matria at 5 1/2, by next year you will get $1.00/share in cash. In other words you will be paying $4 1/2 dollars for a stock that will conservatively earn $0.55 cents in 98. What I'm saying is that you can buy a growth company with a forward looking 1998 P/E of 8 !!!! The P/E gets even lower as the above potential revenue "drivers" kick in. This undervalued stock, in my opinion, can be a home run!
I hope you find this information useful,
Happy Investing
GM |
