SW
Not sure if this has been posted here yet, but just in case it hasn't I have posted it below. This is HUGE news concerning MCNS.
The ING report follows:
ING Baring Furman Selz LLC
Health Care Information Technology
Mediconsult.com
(OTC: MCNS-13 1/8)~+
Initiating Coverage with a Strong Buy; $50 Price Target
Stephen J. DeNelsky (212) 309-6578
April 07, 1999 Max B. Haspel (212) 309-5980
STRONG BUY
52-Week Range:23--7/16EARNINGS PER SHARE
Avg. Daily Volume (000s):213.5199719981999E2000E
Shares O/S (mil.):27.1MarNA($0.03)($0.07)($0.04)
Market Cap. (mil.):$356JunNA($0.05)($0.04)($0.01)
Avg. ROE of 1999E:NMSepNA($0.04)($0.03)$0.00
EPS Growth Rate:NMDecNA($0.16)($0.03)$0.01
Debt/Capital:0%YearNA($0.27)($0.17)($0.04)
Book Value/Share:$2.11P/ENMNMNMNM
Ind. Dividend/Yield:$0.00/0.0%Revenue1.06.013.0
Insider Holdings:57%Price/Rev.356x59.3x27.4x
S & P 500:1317.00Note: Numbers may not add because of rounding.
· We are initiating coverage of Mediconsult.com with a Strong Buy rating
and a $50 price target. The company is a leading provider of online
consumer-oriented healthcare information and services.
· Subsequent to closing a secondary offering that netted $53.5 million to
the company, MCNS is the best capitalized e-health company with over $50
million on the balance sheet (ahead of Healtheon [OTC: 56-1/4 HLTH], with less
than $39 million). We believe this cash should permit the company to
aggressively undertake a broad-based marketing campaign to further strengthen
its traffic leadership, devote resources to expanding its site and remain
flexible in the pursuit of other strategic initiatives.
· The company's Websites contain rich, deep and pertinent content that
comprehensively covers 60+ chronic medical conditions that affect more than 90
million people in the U.S. and account for a significant percentage of the $1+
trillion in total U.S. healthcare expenditures.
· Mediconsult.com has a proven ROI track record with its blue-chip
pharmaceutical customers. These clients have dramatically escalated their
spending with the company and we believe MCNS is the best-positioned consumer-
focused content provider to win large, multi-million dollar contracts from the
pharmaceutical industry in the near future.
· We view MCNS as the best vehicle through which to capitalize on the
increase in pharmaceutical Direct-to-Consumer (DTC) advertising spending which
we believe will grow from $1.5 billion in 1998 to $7+ billion over the next
several years in the U.S. We estimate that under 1% of DTC spending is
currently channeled online, and believe that this figure could grow to over 25%
over time (creating a multi-billion dollar industry). We also believe that the
European DTC market will develop in coming years and that MCNS is well
positioned to target this market as well.
· The company's strong management team is conservative and focused on
traffic, revenue growth and profitability. We believe Mediconsult.com will be
EPS breakeven by 3Q00. In addition to the revenue estimates illustrated above,
our revenue model calls for $30 million in 2001, $75 million in 2002 and $160
million in 2003. We believe substantial opportunities exist for MCNS that
could create meaningful upside to our estimates.
· We believe that several near-term catalysts will help propel MCNS toward
our price target. Significant events to watch for include development-contract
wins, private-label deals, continued strong traffic and revenue growth
announcements, site acquisitions and upside from potential e-commerce endeavors
that leverage a demographically desirable captured user base.
Mediconsult.com Is a Leader in the Consumer Content and Community Segment of
the Emerging e-health Industry
Healthcare Information is One of the Most Sought After Topics on the Web We
believe that a number of factors have contributed to the health-consumer
empowerment movement, not the least of which is our belief that people want to
make educated decisions about their health and the health of their loved ones.
Until recently, consumers had no real access to the kind of medical information
Mediconsult.com makes available for free. Today, anyone with access to the
Internet can log on to learn more about particular medical conditions and
treatment options and protocols as well as interact with other consumers with
similar conditions through online communities. We believe that over 30% of
total U.S. Web users search for healthcare information online. This translates
into approximately 30 million current users of online consumer healthcare
content, up from around 12 million users in 1996 a 60% CAGR. Healthcare
information is currently the fourth largest content area of interest on the
Web. We believe that as sites develop more useful content and services, and
as more consumers gain access to the Internet and learn of their availability,
that the number of visitors will continue to grow at extraordinary rates.
Content and Community Drives Enviable Traffic Levels Mediconsult.com has
achieved a leading traffic position over its competitors in the
consumer-focused healthcare information and services arena. It has done so by
building (over a period of 2+ years) a site deep in content and spanning more
than 60 chronic medical condition areas. Visitors currently find the site
through keyword searches on the major portals and through the over 6,700 links
from other sites across the Web.
Mediconsult.com to date has not spent significantly (compared to other major
players) to either build its brand or to “buy” traffic from portals. Having
recently completed a secondary offering that netted over $53 million to the
company, we believe Mediconsult.com will now embark on a brand building
campaign that should only increase its visitor lead. The “stickiness” (a
Website quality that keeps a user on the site longer, gets her to read more
pages or compels her to return again) of the site is attributable to the
plethora of useful information on each condition, the fact that Mediconsult.com
is viewed as a trustworthy source of information and the sense of community the
site builds around chronic condition areas. Recent traffic comps are
illustrated below:
Unique Users (000s)
January 1999
Mediconsult.com875
Intelihealth.com671
MayoHealth.org616
OnHealth.com325
AHN.com336
DrKoop.com302
HealthAnswers.com223
Source: Media Metrix, I-Pro and ING Baring Furman Selz estimates.
The company has opportunistically acquired specialty sites that add consistent,
high quality traffic while simultaneously increasing its rich content base. To
date it has been able to do so on very favorable terms to the company. Recent
acquisitions include PharmInfo.com (pharmaceutical product and clinical trials
information), Cyberdiet.com (nutritional information and programs) and
INCIID.org (infertility information). We look for MCNS to make further
strategic acquisitions in the future.
Mediconsult.com's Strategy and Positioning Should Generate High Revenue Growth
and Profitability
Mediconsult.com's Traffic is Valuable to Pharmaceutical Industry (and others)
The visitors to a condition-specific area of Mediconsult.com's Website (i.e.,
diabetes, cancer, asthma, erectile dysfunction, etc.) are “pre-qualified” ad
viewers and potential promotion participants because they typically either have
been diagnosed with that condition or disease or are emotionally connected with
someone who has. Advertisers are therefore willing to pay more on a CPM (cost
per thousand) basis for these visitors than they would for more general
audiences typical of print, TV, radio, outdoor and even Internet portal and
other content site advertisements. But what truly distinguishes
Mediconsult.com from its consumer healthcare content rivals is the fact that in
addition to simple banner ads the company has successfully developed fully
interactive Websites, content areas and compliance programs around specific
pharmaceutical products. A good example of this type of program is the smoking
cessation site Mediconsult implemented for Novartis' (a leader in DTC spending)
Habitrol product. Behind a series of banner ads and connected to
Mediconsult.com's smoking cessation area is a site that works with a smoker
over the cessation period (aiding in a stepwise fashion with e-mail reminders
and other internally developed tools). The site's ROI to Novartis has been
better than expected and has prompted Novartis to embark on a series of other
development projects. The average sponsorship program yields approximately 80%
gross margins to MCNS.
The demographics of the average online healthcare information retriever make
this group a highly attractive target for other types of advertisements and as
potential e-commerce participants. As attractive as the general internet user
seems to be, Mediconsult.com's typical user is even better educated, earns a
higher income, is more likely to use the Internet everyday, is a more
sophisticated surfer and is more likely to make purchases online (Source:
CyberDialogue HealthMed data). MCNS has had an online store operating for
approximately two years selling books, vitamins and other healthcare products.
However, the current level of e-commerce interest by its visitors does not
warrant immediate additional investment beyond that already made by the
company. In light of the potential opportunity e-commerce holds, management
will continue to monitor interest levels to capitalize on this revenue source
when it believes the opportunity would yield a better ROI than its current
foci.
A Joint Venture with CommonHealth Should Provide Entrée to Established
Relationships and a Strong Sales Organization -- Mediconsult.com recently
entered into a joint venture with CommonHealth (affiliate of Ogilvy & Mather
and J. Walter Thompson) to leverage existing pharmaceutical client
relationships its affiliates have in the off-line ad world. We believe that
this relationship will bear fruit and provide Mediconsult.com entrée to
additional pharmaceutical firm management teams.
Mediconsult.com's Content is Valuable to the Healthcare Industry The content
Mediconsult has developed over the past 2+ years spans 60+ chronic conditions
and contains over 22,000 pages of useful healthcare information. There is
demand from the healthcare industry (notably hospitals, healthcare payors, and
the new breed of online pharmacies) for Mediconsult to repackage this content
under the “private label” of the customer. The content is essentially the same
that the company has already generated, but has the look and feel of, or fits
into, the new host's Website. This is a very high margin business as little
new development work is required and the company prices its private label
services attractively as each new host yields incremental traffic.
Risks
Revenue Concentration Novartis accounted for approximately 65% of Mediconsult's
revenue in 1998. Our model projects that in 1999 Novartis will comprise
approximately 60% of the company's total revenue with this figure declining
again in 2000.
Managing Growth As a relatively small company (around 40 employees) that will
continue to grow rapidly, one of the limiting factors of MCNS's continued
growth is the ability to hire new developers and other professionals. The
company has a proven track record of hiring and retaining skilled developers
and recently won a CFO/general counsel from an established HCIT company.
Timing of DTC Spending Mix Shift Future revenue growth depends on
pharmaceutical firms' shifting a greater percentage of their DTC spend to the
online channel. Current trends indicate that this shift is well underway.
Financials, Valuation and Outlook
Our Mediconsult.com model calls for revenue growth from the $1 million level
achieved in 1998 to $6 million in 1999, $13 million in 2000 and approximately
$30 million in 2001. Our EPS estimate for 1999 is ($0.17) and our EPS estimate
for 2000 is ($0.04). Our quarterly estimates, shown above, illustrate our view
that MCNS should become EPS breakeven in 3Q00. We believe that our revenue and
EPS estimates should prove conservative and that upside to these numbers exist
from multiple sources including acquisitions, significant global expansion and
entry into complementary markets.
At $13-1/8, MCNS currently trades at a discount to its online consumer
healthcare, e-health and general content peers on a price-to-forward revenue
basis. On CY2000 revenue estimates, Mediconsult is trading at just over 27x
our conservative $13 million estimate. Excluding MCNS, our comparable company
analysis yields an approximately 46x multiple on CY2000 estimates. This
translates into a 41% discount to the peer group. If MCNS were to trade inline
with its peers at 46x our $13 million revenue estimate, it would trade at the
$22 level. We believe MCNS should trade at a premium due to its position as a
content, traffic and revenue leader in consumer healthcare information and the
firm underpinnings of the secular fundamental trends in the sector.
Our price target for MCNS is $50. We believe that industry fundamentals will
yield a total online DTC market of $1.5-2.5 billion in coming years. We also
believe that 5-10 major content providers will capture the majority of this
spending and that Mediconsult.com will command leading market share among its
competitors. Our long term view is that the MCNS model is capable of
generating at least $160 million in revenue in the next several years and that
even if revenue multiples contract to the 10x range that a $50 price target is
achievable.
Additional information available upon request. Stocks priced as of previous
session's close.
~+ ING Baring Furman Selz LLC makes a market in the common stock of this
company and has participated in an underwritten offering of these securities.
The information contained herein is based on sources believed to be reliable
but is not guaranteed by this Company and is not to be considered to be all
inclusive. It is not to be construed as an offer or the solicitation of an
offer to sell or buy the securities mentioned herein. This Company, its
members, affiliates, employees, related accounts and/or discretionary accounts
may have long or short positions, which could be substantial, in securities
discussed or recommended and in the securities in which the firm makes a market
and may purchase, sell, or trade these securities from time to time in the open
market or otherwise. In addition, this Company may, from time to time, perform
investment banking, corporate finance or other services for, or solicit
investment banking, corporate finance or other business from, any of the
issuers of such securities. The investments or investment services mentioned
herein are not available to private customers in the United Kingdom.
© ING Baring Furman Selz LLC 1999 Members: New York, American & Other
Principal Stock Exchanges
John Jennings
Director, Investor Relations
Mediconsult.com
jjennings@mediconsult.com
toll-free tel: 1-888-316-1133
Redefining Medicine Through the Internet (TM)
Click Here to Visit our Sites:
URL: mediconsult.com (patient site) or
URL: mediconsultinc.com (corporate site)
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