A deal out of the United Kingdom this week has created an intriguing pure play in healthcare information technology. I’d like to let the dust settle a bit on the deal but I’m adding one party to Jim’s Watch List today.
Here’s what happened this week. (Pay close attention. It gets rather complicated.)
Misys, a United Kingdom software company, agreed to sell the majority of its majority stake in its Chicago-based Allscripts-Misys healthcare software subsidiary for $1.3 billion in cash. At the same time, the subsidiary Allscripts-Misys Healthcare Solutions, listed on the NASDAQ with ticker symbol MDRX, will buy U.S. healthcare software competitor Eclipsys (ECLP) in a $1.3 billion all-stock deal.
What’s the result?
The post-deal Allscripts—and the deal is expected to close in four to six months—will combine Allscripts’ current client base of 180,000 doctors office with Eclipsys’ customer group of 1,500 hospitals and 10,000 non-acute healthcare institutions (such as nursing homes) just in time, barely, to take advantage of the $30 billion in government incentive money available to healthcare providers who create electronic health records systems that pass the definition for “meaningful use.” Industry watchers say information software companies have a window of roughly 12 to 18 months to tap into the demand created by government funding.
Right now it looks like the winner in signing contracts with new clients is Epic Systems. The company has the most integrated platform for clinical records. But Epic Systems is still private.
For other players such as Cerner (CERN), the best opportunity lies in selling into their existing customer base. And that’s where the Allscripts/Eclipsys deal comes in. The combination creates a huge base of existing customers among doctors and healthcare institutions that want to build electronic healthcare record systems. Industry analysts say that Eclipsys hasn’t done a great job of marketing a first-class technology; Allscripts’ marketing skills should fix that problem.
The industry is likely to see a shakeout in 2012 when government incentive money runs out and most customers have made whatever purchases they’re going to make. But that leaves investors with a two year window of opportunity—if Wall Street anticipation of sales growth runs far enough of Wall Street anticipation of the end of the boom.
As of June 11, 2010 I’ll adding Allscripts-Misys to Jim’s Watch List.
jamba, Purewater
I didn’t mean to imply that there are no “good” uraniium miners. Denison probably is, and if you take a hard look you’ll see that UPC is a wholly-owned subsidiary of…Denison Mines!
I’m a firm believer in both nuclear power and uranium mining, but my un-HO is still that the bigger are the better if you want to go that way [there are a lot of other substances that make a better investment- including water and whiskey]: Jim has recommended Billiton [BHP], and along with their great Aussie deposits- yes, they can stand that punitive tax, but most likely will not have to- you get iron, coal, copper, nickel, and a lot of other stuff.
Cameco [CCJ] is the pure-play “real” miner, with real mines and real production and real exploration and as far as I know real profits, and interests in U processing too. They would be my choice if I had the noive to invest in uraniums…Denison is real, but a much smaller company. And there are two or three other very small outfits that are beginning to actually produce uranium- but not profits as yet.
The dirty little secret about uranium is that our domestic reactors have been running on fuel obtained from decommissioned nuclear warheads- a lot of them from Russia, but a lot of our own too- which will continue for quite some time [there is virtually NO domestic production.] Altho there most likely will be a huge growth in world demand for uranium over the next several years, it takes a long, long time to build a power plant…and in this country a long, long time just to get one permitted. It is a lot easier for us just to keep using the fuel from those converted bombs [another round of SALT talks was just completed] or buy the extra that we need from the Canadians, the Aussies, the Namibians, or the Kazahks.
The U industry just went thru a three-year boomlet that moved the price from under $10 a pound to over $120 a pound, and the obligatory bustlet that has moved the price back down into the low $40s range. A lot of money was made during that little whoopup- but all the good prospects were taken, and all the really interested people are still hanging on- the quick money has all been made. We may very well see another big price spike at any time…or we may see another twenty+ year period where the price doesn’t move at all, or retreats [as it did between 1984 and 2006.] I personally am going to put my nuclear power bet on the electricity provider- Exelon. Not nearly so exciting, but I’ll still have my money, and a bit more, in a few years…when [if] the U mining industry does something.
[UEC?? I know those guys…uhhh, no thanks. If you insist on midgets, try Bayswater, or Powertech, or Energy Fuels Resources, or Quaterra. I know those guys too…]
Full Disclosure: I wouldn’t own a U miner stock if you gave it to me. Except maybe Cammie…
I think Marsters does a great job in showing why the average small office is going to have a real problem with this conversion, and jcurtin is right that the time lines for them are going to be much longer, at least for the small offices.
I talked about quality not efficiency was more important in the software, but in that “quality” I forgot to mention that there is the quality of the whole system not just the software. If you come to an industry and say, automate it so that all can share data, the first thing you need is standards across the whole industry of how that data should be exchanged. And this is by far the hardest challenge in this software. Are there any such standards? It doesn’t sound like it. The whole benefit of electronic over paper is to be able to transfer data around at a faster rate, but if it can’t get from point A to point B because they can’t agree what form it should be in, then it is worst then paper. Also like Marsters pointed out if there are tons of different ways to put data in and retrieve out of the systems then training on the systems is going to be a big hurdle.
I would think that if there is real money to be made it would be to the companies that sell to the big companies, not to the small offices.
The timeline of 2012 seems too short….yes , the incentives for now may decrease then but very few Docs have gone paperless…ask your local doc and he or she is still undecided ….2011 through 2014 is more realistic
Re: Healthcare information systems
TWIW: background…
Our hospital decided to ‘go computerized’ for it’s medical records when moving to a ‘new location’; the average patient had 5 different paper medical records (e.g. a heart patient had one record in radiology, another – separate – in outpatient, a third in the cardiology clinic, the laboratory, etc, etc.) which could often not be accessed on weekend, at night, etc when the patients came in emergently. With the move to the ‘new hospital’ the administration decided to ‘pull it all together’ and after a long search chose EPIC.
Good for those who use it ‘all the time’ (the ‘hospitalists’ on site) but not for the private MD out in his office who only accesses it occasionally (and can’t remember how to ‘work it’, couldn’t remember passwords, etc!); likewise lots of ‘security’ issues with part-time nurses, medical students, interns and residents rotating through monthly needing to be ‘included or ecluded’ as they moved about their various teaching hospitals – likewise they faced different programs at each hospital they trained in – EPCI at one, CERNER at another… quite confusing and grossly inefficient!).
Most docs (and their office staff) will want to keep things simple: will go with the computerized programs that their primary hospital, insurance company, prescription provider, etc uses. So it’s like real estate: location, location, location. What works in NYC may not be a good investment in Omaha or LA… the ‘relationships’ between doctors’ offices and pharmacies/hospitals/insurers will dictate which program(s) the local MD uses; and they will try to keep it to the minumum (e.g. NOT using Walgreens AND CVS unless necessary…)
Medicine is business; keep it simple…
Jamba, I’ve owned lots of the uranium junior miners over the years…still own a few including: Pitchstone, Denison & Uranium Energy corp. Denison is listed in the US the others are Canadian. However, my favorite uranium play is just that a pure uranium play, Uranium Participation Group. They own the metal itself, a bit like a closed-end fund. It’s very volatile and you can occasionally pick it up for under $5, which I recommend, because I calculate it’s net asset value around $7. And, if you’re convinced uranium is going to double in the next couple years, this is a no-brainer if you’re patient.
jamba
OT, re: U miners-
Are you looking for companies with actual mines and production and sales [if not profits], and employees and managers, or are you looking for those with a little piece of the pie [from the sky], a snazzy website, and a very long and glib line of hype with which to reel in the fish?
Anything but the best and biggest here, you are in a crapshoot- and a penny-ante one at that. But rinky-dink mining companies have always been a great way to double or triple up [or more] …or lose yer assets fast. Rollem! IMun-HO.
Full Dislcosure: I have worked- and lived- in this business all my life, except during the busts, which are frequent.
DanielX,
In the case of software for the health industry I would be more concerned with the quality of the software then the efficiency of the developers. This what I think would matter a lot more to the companies buying the software. Really innovation in something that is nothing more then simple record keeping isn’t really at the top of their list. And efficiency in the cost area of the software development isn’t as important as the sales force finding customers.
If the quality isn’t there then I would certainly worry about the company.
And there is some really bad software out there. A friend of mine was talking to a CEO of a health management company about automating some of their processes and there was great concern because a software vendor they really depended on was doing everything ad hock. No release cycles, bug reappearing after fixed, software changed on customer’s server during the middle of the day…
Jim or Ed,
Off topic but do you know of any small to mid sized uranium mining companies?
Off topic:
This is for people has bought or planning to buy American Tower (AMT)…
“The stock goes up… and that’s all that seems to matter to the computers. I suppose if you are paying 50x forward, there is no shame in paying 80x and then 150x. This is 1999 logic. A missed opportunity as the stock has gone off to the races today.”
http://www.fundmymutualfund.com/2010/06/more-valuation-is-for-sissies-american.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+FundMyMutualFund+%28Fund+my+Mutual+Fund%29
Don’t have any comments on the article itself. I had worked for Eclipsys as a sw developer before and didn’t like the company. The compensation was good but their efficiency was low. It’s only good for people who are close to their retirement. People working there are like union people working for the government. At good times, some of those people would leave and look for better opportunity. But most of them would come back after because they are not as competitive as the people outside the company. I don’t know. Maybe a company developing medical clinic software is just like that.