From Multex Investor on e.Health. MCNS not mentioned.
The online health care industry
by Juliana Tillema
October 1, 1999
In recent months, the health care industry has shown growing interest in the Internet as a means of
dispersing information and conducting commercial transactions. A proliferation of web sites providing
health-related services have appeared, though few of them are publicly traded. As this burgeoning industry
has grown, so has the demand for investor research.
This article will discuss some of the basic issues confronting investors who are interested in the online
health care industry, highlighting the Motley Fool's recent, comprehensive report on the industry. After an
introduction to the basics, we will highlight recent investment research about CareInSite Inc. (CARI: research,
earnings), and Shared Medical Systems Inc. (SMS: research, earnings), two health care infrastructure
companies.
Content is King
Perhaps the most easily identified health care portal is DrKoop.com (KOOP: research, earnings), an early
mover in the market, with solid branding ability. DrKoop.com and other health care content providers supply
easy access to a host of information, services, and support it may otherwise be difficult to obtain. In addition to
sites for consumers, sites for health care professionals, such as WebMD/Healtheon Corp.(HLTH: research,
earnings) are multiplying.
In Jeff Fischer's September 14 analysis of the online health care industry, the Motley Fool analyst investigates
three main segments of online health care: content, connectivity, and commerce. His investment advice on
health care content sites:
"We suggest first investigating only the top two to three sites as measure by unique visitors and brand
awareness. Looking beyond these qualities, one must find a site that is able to leverage visitors into dollars
by offering a sticky service (more and more page views per visit) and by moving into transaction-based
revenue and/or subscription products. At this time, revenue of these kinds is only emerging, so leaders are
difficult to spot, let alone predict?. And this early in the game, an investor is essentially forced to consider only
a company's brand strength and the number of visitors it is attracting. From there, an investor must gauge a
company's management to project how talented it will be in drawing revenue from users while still providing a
leading editorial and community service."
Only Connect
But what is content, without connectivity? Fishcher reports that an estimated $200 to $250 billion is wasted
annually in the $1 trillion health care industry due to inefficiencies, human error, arcane insurance and
specialist referral policies, and other difficulties. The Internet provides a means to streamline operations,
connecting consumers, patients, doctors, clinics, insurers, and pharmacists.
A health care infrastructure would need to serve a large variety of applications and businesses, and, says
Fischer, "which companies will win in this niche is impossible to predict so soon. This is in part because so
many healthcare-related companies have yet to take a stance regarding the online format."
Fischer explains that the most likely infrastructure solution in the health care industry will involve thin/client
technology. The difference between a thin/client platform and a client/server platform is that the former can
easily be used across different computer systems, says the Motley Fool, and the user needs only a PC, a
browser, and an Internet connection.
Of course, investigating connectivity companies is not as easy as exploring a web site to learn about its
content and commerce capabilities, and Fischer reminds investors that brand names in this area will likely be
trade brand names, not consumer brand names. In conclusion, Fischer the Fool asserts, "The software that
makes healthcare run efficiently on a world wide network will represent a multibillion dollar industry. Early
movers are beginning to build the infrastructure."
Care Where?
Caren Taylor, CFA, of E*Offering, highlights one favored infrastructure business, CareInSite Inc. In her
September 27 report, Taylor rates the company a BUY based on the company's September 15 announcement
that it will provide AOL Inc.'s (AOL: research, earnings) 18 million members access to CareInSite's online
health care services. "Under the agreement, both parties will jointly develop web sites to allow AOL users to
communicate with their providers, insurers, HMOs, covered pharmacies, labs, and physicians," says Taylor.
Taylor notes that the announcement prompted a drop in the stock price of approximately 20% to $40 3/8, and
suspects that "investor uncertainty regarding the strategic and financial rationale behind the AOL agreement
has been a key driver behind the stock's sell off." However, Taylor believes the AOL agreement "completes the
circle of healthcare connectivity for CareInSite."
The cost of the arrangement between CareInSite and AOL is approximately $48 million over four years, says
Taylor; accordingly, E*Offering has adjusted its EPS and revenue estimates. Taylor reports her revenue
forecast for 2000 remains unchanged at $11 million, however, she has lowered her EPS estimate to a loss of
$0.59 from $0.40. She predicts revenue of $117.8 million in 2001, up from a prior estimate of $100.5 million,
and an earnings loss of $0.20 for that year.
In conclusion, Taylor predicts CareInSite will announce more strategic alliances or acquisitions in the near
future. "Given these upcoming announcements and the stock's weakness of late, we believe that the current
stock price is a terrific entry point to build positions."
Sharing is Caring
Shared Medical Systems Inc. was recently rated NEUTRAL by Daren C. Marhula, CFA of U.S. Bancorp Piper
Jaffray in his September 13 report. The company has experienced a Y2K slow down in recent months, and
Marhula expects ?to see price volatility for all of the HIS [Healthcare Information Services] vendors.?
Marhula highlights Shared Medical Systems? recent announcement that it is bundling its Internet-based
solutions into a new product suite called e-Business for Health Enterprises: ?The package includes disease
management modules, enterprise and consumer portals, personalized ?dashboards? for healthcare
providers and administrators, remote physician connectivity and financial/back-office systems. It is important
to note that all of these solutions existed independently before this announcement ? this announcement
represents the first time they have been combined into a formal product suite.?
Customers access this online health care product remotely through Shared Medical?s Information Service
Center where they have access to the e-Business applications. Functions as diverse as patient and financial
management are a feature of the product.
Research reports featured in this article:
The Motley Fool?s September 14 report on the online healthcare industry
E*Offering?s September 27 report on CareInSite Inc.
U.S. Bancorp Piper Jaffray?s September 13 report on Shared Medical Systems Inc.
Companies highlighted in this article:
CareInSite Inc.(CARI: research, earnings)
Shared Medical Systems Inc. (SMS: research, earnings)
DrKoop.com(KOOP: research, earnings
WebMD/Healtheon Corp. (HLTH: research, earnings)
AOL Inc.'s (AOL: research, earnings)
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