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Showing posts with label healthcare. Show all posts
Showing posts with label healthcare. Show all posts
Monday, 28 October 2013
Guardian Healthcare Innovation Awards ceremony - in pictures
Richard Stubbs, head of commercial and international innovation at NHS England addresses the audience at the innovation awards. Photograph: Anna Gordon
Today in healthcare: Friday 25 October
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Guardian awards hail healthcare innovators
Healthcare Innovation Award winners from Sussex partnership NHS trust with the Guardian's David Brindle (right). Photograph: Anna Gordon for the GuardianSix organisations – including a school, a university department and a data management company – have been named as winners of the first Guardian Healthcare Innovation Awards.
Two NHS trusts and the Office of the Chief Scientific Officer also received awards at a ceremony at the Guardian's London offices on Thursday.
The awards, which aim to celebrate and share best practice across the healthcare sector, were presented across six categories – service delivery innovation, innovation with technology, innovation in hospital admissions, leadership innovation, partnership innovation and workforce innovation.
Oxford University's department of primary care health sciences won the service delivery award for an emergency multidisciplinary unit at Abingdon hospital, which offers a model for elderly care.
Southern health NHS foundation trust was winner in the leadership category for its Going Viral programme, which has coached, developed and supported 550 staff since its launch in June last year.
The teenage health project run by Rivington and Blackrod and Ladybridge high schools in Lancashire won the partnership award its work with NHS, local government and sports centres to offer pupils health and wellbeing advice.
In the hospital admissions category, Sussex partnership NHS trust won for its Brighton Urgent Response Service, which has cut waiting times for people arriving at A&E with mental health problems, as well as seeing fewer patients admitted to the observation ward via the emergency department.
The Office of the Chief Scientific Officer won the workforce category for a project that aims to help healthcare scientists become part of a sustainable and flexible workforce.
In the technology category, the winner was data management company Intelesant for a tool that aims to change the culture around end-of-life care plans.
Hundreds of entries were submitted for the awards, sponsored by NHS England, GE, Unipart and 3M, which aim to showcase ideas or services that significantly improve the quality or management of care for patients.
Each category winner and all the shortlisted entries are being profiled on the Guardian's Healthcare Professionals Network so their projects and programmes can be shared with the rest of the sector.
David Brindle, the Guardian's public services editor, who chaired the awards judging lunch, said: "The NHS doesn't have a good reputation for spreading innovation, so we were thrilled to receive so many high-quality entries for these awards in their first year.
He added: "What's great to see is how many of our winners and runners-up come from outside the NHS itself, showing that it is increasingly open to partnerships that deliver improved outcomes for patients."
This article is published by Guardian Professional. Join the Healthcare Professionals Network to receive regular emails and exclusive offers.
Monday, 30 September 2013
Today in healthcare: Monday 30 September
Sarah Johnson writes
This weekend, Randeep Ramesh, the Guardian's social affairs editor, wrote that the controversial cancer drugs fund, which pays for expensive treatments considered poor value for money by regulators, will get a £400m boost – effectively extending its life for two years.
The Observer reported that a private health insurance company has been forced to take down an advert from its website after it tried to sell its products by claiming that the NHS had been responsible for 13,000 needless deaths since 2005. The claim, made by Bestmedicalcover, was found by the Advertising Standards Authority (ASA) to have used an "appeal to fear to sell private health insurance and that it was not justified to do so".
The Telegraph featured a story that said NHS bureaucrats have banned the term 'elderly' from leaflets for fear of offending patients.
The paper also quoted health secretary Jeremy Hunt as saying that GPs need "rigorous inspection".
Meanwhile, the BBC said that charities have warned the government over the impact of an ageing population. And it featured a video with an expert from Cardiff University saying that combining traditional forms of Chinese and Western medicine could offer new hope for developing new treatments for some cancers.
It also reported that Professor Steve Field, the NHS's first chief inspector of GPs, warned that failing GP surgeries face closure.
The Sunday Times (subscription) ran a story that said the NHS must reform the way it treats children to prevent 2,000 youngsters dying needlessly every year due to poor care. The call comes from Hilary Cass, president of the Royal College of Paediatrics and Child Health, who said children in Britain were far more likely to die from diseases or infections such as asthma, pneumonia and meningitis than elsewhere in western Europe.
And, it said that almost half of maternity units have been forced to turn away women in labour because they are full and struggling to cope with the highest birth rate for 40 years
Saturday, 28 September 2013
Guardian unveils Healthcare Innovation Awards shortlist
The Guardian Healthcare Innovation Awards celebrate and share best practice across different areas of the healthcare sector. Photograph: Pilar Olivares/REUTERSA school, a charity, and a social enterprise are all in the running for the first Guardian Healthcare Innovation Awards.
The shortlist for the awards includes entries from outside the healthcare sector, as well as NHS trusts and clinical commissioning groups.
The awards, sponsored by GE, Unipart and 3M, are an opportunity to celebrate and share best practice across different areas of the healthcare sector – both inside and out of the NHS.
They aim to showcase ideas or services which significantly improve the quality or management of care for patients and share them with the rest of the sector.
The judges, including Dean Royles, chief executive of NHS Employers, Chris Hopson, chief executive of the Foundation Trust Network, and Dame Barbara Young, chief executive of Diabetes UK, looked at a number of entries in different categories including service delivery, technology, hospital admissions, leadership, partnership and workforce.
Here is the full list of organisations shortlisted this year. The winners will be announced at a ceremony on Thursday 24 October 2013 in London.
D2Digital by Design
Department of primary care health sciences, University of Oxford
Moorfields eye hospital
National Blood Service, John Radciffe hospital
Intelesant
Sandwell and West Birmingham hospitals NHS trust
Portsmouth hospitals NHS trust
Sussex partnership NHS trust
NHS South Worcestershire CCG
Southern health NHS foundation trust
NHS Dorset CCG
Centre for Patient Leadership
Spice and the Young Foundation
Rivington and Blackrod high school
Michael Yoakleys' charity
Office of the Chief Scientific Officer
University College London hospitals
United Response
This article is published by Guardian Professional. Join the Healthcare Professionals Network to receive regular emails and exclusive offers.
Today in healthcare: Wednesday 25 September
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Today in healthcare: Friday 27 September
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Today in healthcare: Friday 20 September
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Today in healthcare: Monday 23 September
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Today in healthcare: Thursday 26 September
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Tuesday, 24 September 2013
Today in healthcare: Tuesday 24 September
News, comment, blogposts and tweets across the sectorSorry, I could not read the content fromt this page.
Saturday, 21 September 2013
NuPathe's Management Presents at Stifel 2013 Healthcare Conference (Transcript)
Executives
Armando Anido - CEO and Director
Keith Goldan - CFO
Gerald McLaughlin - Chief Commercial Officer
Analysts
Annabel Samimy – Stifel, Nicolaus & Co., Inc
NuPathe Inc. (PATH) Stifel 2013 Healthcare Conference September 11, 2013 4:25 PM ET
Annabel Samimy – Stifel, Nicolaus & Co., Inc
Good afternoon everybody and welcome to the NuPathe presentation. My name is Annabel Samimy; I’m the specialty pharmaceutical analyst here at Stifel. NuPathe has developed its pending commercialization of its branded patch for migraine, ZECUITY and also involving some other drug for central nervous disorders, although I think those are probably on hold for now. The lead product is ZECUITY for acute migraine has gained FDA approval. [Last January] has two IND stage (indiscernible) products. And with us today is Mr. Armando Anido who is the -- Anido sorry, the CEO of Nupathe. We have Keith Goldan here and Jerry McLaughlin to answer questions during the Q&A portion. So I’ll step aside and let you (indiscernible)?
Keith Goldan
Thanks a lot Annabel and good afternoon everyone. Hopefully I will be able to figure out how to turn this and change slides. Hopefully over the next 10 or 15 minutes I will give you a general overview of who NuPathe is and what we’re all about and why we believe that we have a very significant opportunity in front of us with product called ZECUITY.
I’m going to be giving you some forward-looking statements as all of the presentations do. Please go on to our website under Investor Relations and checkout our risk factors and hopefully after that you’re still interested in investing in us. We are a specialty CNS pharmaceutical company. We have the first and only FDA approved migraine patch in the United States. Migraine hits about 31 million adult migraine sufferers in the United States. And there is a significant component of migraine known as migraine related nausea that is one of the major symptoms of migraine that affects tremendously.
We are in the process of preparing to launch ZECUITY in the fourth quarter of this year and we’re also in the process of having conversations with various commercial partners to help us in broaden our reach. We do have two earlier stage CNS compounds. I’m not going to spend very much time on today. But at the end of the day, it does help to establish a pipeline to build out a long-term CNS specialty company.
Let’s talk about ZECUITY, the first and only FDA approved migraine patch. We believe its game changing and innovative and disruptive technology. It uses sumatriptan, the number one prescribed migraine medicine in the world as the main molecule that gets delivered. We had excellent patent protection. Today we have five orange book listed patents that provide protection out through 2029. And yesterday we announced that we actually have a 61 that was allowed that will hopefully be issued shortly and then be in the orange book quickly thereafter.
Migraine headache pain and migraine related nausea is really the focus of what ZECUITY can help to attack. We’ve excellent clinical data that shows rapid relief for both headache pain and nausea and a very low rate of what are known as Triptan sensations are really a -- almost have feeling of a heart attack that happens in some of the patients that take Triptan. MRN affects about half of the patients that suffer from migraine attacks on the majority of their attack. So there is a very significant product opportunity, patient opportunity and we do know that MRN has a very significant impact on healthcare utilization. And we will talk a little bit further about that.
Today there are 6,000 physicians that write about 33 million Triptan units. We think that if the specialists, the headache specialists, general neurologist really can help drive and establish ZECUITY quite well. And as I mentioned in the fourth quarter is when we’re going to be launching the product.
And it was a very easy to use, single use disposable patch. It gets supplied as you start getting the first signs of your migraine. Press the button; it works for a period of four hours. Once the product has completed, it turns itself off and you can turn it off – and you can take it off at that particular point and dispose it. To comply, it’s either in the upper arm or to the fact, so it does provide opportunities for the patient to have different slides for application. But one of the main futures is that it bypasses the GI track. So when a patient is very nauseous during their attack, the last thing they want to do is take a pill or a tablet or a spray -- nasal spray up their nose.
And as we talked about it does rapidly deliver sumatriptan and we’ll talk about some of the data. Epidemiologically 31 million adult migraine suffers in the United States. We know about half of them, 16 million of them are actually being treated and are diagnosed here in the United States and there are 8 million of them who have migraine related nausea on the majority of their attacks and that’s really the core ZECUITY market opportunity, those 8 million patients.
We know MRN causes problems for the patient. We know that even before they take a medicine that they’re less likely to respond to an oral Triptan just because they have nausea with their disease. We also know they’re causing society money, six times the number of emergency room visits, eight times the hospitalization cost versus those that don’t have nausea with their attacks. And one of the other great things about this is the guidelines are already established, we’re not trending new water at this particular point. Guidelines basically say, it recommends a non-oral treatment for those patients who suffer from migraine related nausea. I’m going to helpfully tell you why we believe ZECUITY is the best of the non-orals.
Current options that are available today don’t really meet the needs of the migraine related nausea patient. Obviously with the tablets or the melts that you have to put in the mouth when you’re nauseous, the last thing that you want to do is put anything in your mouth. We know that many patients will delay therapy which is not good form or they’ll avoid it entirely and just go into a dark room and not do anything, because they feel too nausea or they feel they’re going to throw it right back up.
In addition migraine patients also suffer from gastroparesis which is slowing down of GUT motility. And so if you actually have to take something that gets absorbed from the stomach and its not moving at the appropriate rate that it normally does. It may not actually get into the blood stream and the timeframe that you need in order to work effectively. So that’s the reason the orals and melts aren’t very effective.
Nasal spray, great idea. Spray up the nose hopefully relive the migraine attack. Unfortunately with the nasal sprays, most of it goes down the back of the throat and it tastes like rotten eggs. So at the end of the day nasal spray has never really done quite well in helping to treat that migraine related nausea patient well.
And injections fastest of all of the options that are available to patients works in 10 to 15 minutes. Unfortunately these Triptan sensations appear in 4 out of 10 patients or more. And it’s a feeling like they’re having a heart attack. It’s tightening in the chest, throat, a feeling of panic comes over them and once the patient tries one injection, likely that there are not going to try it again because of that feeling of a heart attack happening.
The result of all this is the patient switch from product to product to product looking for the solution for. We know 80% of patients will try at least two Triptan’s and we know that half of them will try three or more including a non-oral in that. So we believe there is an opportunity for us to really be able to penetrate this market quite well. We think that ZECUITY provides a solution for that because its ability to rapidly deliver sumatriptan, be able to bypass regarded at the end of the day have a very low rate of triptan sensation.
It’s a part of 5(b)(2) program that we went through, but at the end of the day we did a lot of clinical work. We had over 800 patients in our study. Its 10,000 patch applications. Our pivotal Phase 3 study comparing it to placebo was published in Headache back in October, a year-ago. And we did two additional 12 months long-term repeat use studies and one of them was already published and the other one is hopefully soon to publish, 660 patients.
The data and this is a side-by-side comparison of Imitrex, left side is the pivotal Phase 3 data for ZECUITY. You can see superior efficacy over placebo, 53% achieving headache pain relief in two hours, 84% are nausea free at that two-hour time point. And compared to the gold standard in this therapy, Imitrex 50 and 100 milligram tablets and you can see efficacy against pain relief very comparable. ZECUITY does just fine relative to Imitrex tablets. But where it wins out? And where physicians will tell you over and over again that they see it being unsurpassed is relative to nausea freedom. You can see the 84 is far above the 60% rate that Imitrex gives you and we showed statistical significance in Imitrex only in one out of four major studies today.
(Indiscernible) profiles, what you'd expect from a patch? Predominantly application site reactions that you’re going to see and here is the comparison to placebo and you can see some tingling, some pain, some itching and warmth that is very short lift. Transient and at the end of the day within a 24 hour period is for the most part gone. The key piece on terms of side-effects is the atypical sensation. You can see with ZECUITY lower than 2%, atypical sensation versus we know the injection at four out of 10 patients and the tablets are up to 15% as well.
We got a very (indiscernible) same thing clear marketing strategy that were gone; they’re take as we move forward with ZECUITY later on this year. All focus would be on 6,000 headache specialists have prescribed 33 million triptan units on an annual basis. In addition there are 44,000 additionals who prescribed 50 million triptan units. We're in the process of working with some potential partners that will help to broaden our reach to get into that incremental 34,000 or so. And so we believe, combined we’re going to get to an off a lot of them. But I’m going to hopefully show you over the next few slides how even with 6,000 you’re going to be able to get to a fairly substantial market opportunity.
The great thing is our product label has the messages we need in order to remain in and actually they’ve really compete well and be very successful with this product. It got the clinical data relief of headache pain and migraine r relate to nausea as well as a low rate off sensations.
Our strategy on pricing is to price it at parity or premium. And to be quite honest, we’re thinking that it’s probably going to be more of a premium to the current non-oral branded. We also have planning on supporting patient trial with a zero dollar Copay program for the first 12 months. So that in essence a physician will be able to give to the patient, a prescription with a sample patch in order to help them try it on and make sure they know how to use it and they wont have to make a dollar payment out of their own pocket in order to try. We are going to do that not just for the first script for any script within the first 12 months period.
And the final piece of our strategy is really around racing the market focused on migraine related nausea because the current agents haven’t really been able to address MRN and the tolerable fashion; you haven’t really talked a whole lot about it. Even though it affects more than half of the patients or about half of the patients on a regular basis. So we are going to invest and making sure that physicians and patients both require a good alternative for patients that suffer from MRN. We’ve done an extensive amount of market research in order to prepare for the launch. Of course the 800 physicians close to our little bit more than 800 patient and payrolls that represent over a 140 million lives in the United States. So our basis for believing that this product can be very successful is based on the research it’s been conducted. From a pricing standpoint, the research would indicate that. Insurance covers if 90% -- greater than 90% commercial private pay. So very little Medicare D as well as Medicaid in this whole category.
(Indiscernible) see the value in ZECUITY. They know that a poorly controlled migraine suffer actually costs them money. And they acknowledge the GI issues are a significant problem for them and finding the right product for these patients is important. We anticipate that we will not be in Tier 1. We’re not going to compete with generic oral tablets that are currently available. We’re going to be in Tier 3 and Tier 3 with a single step that is going to be just fine with us because at the end of the day what it offers us is an ability to price this product very appropriately in order to get the most value for the product. And pricing we believe it's going to be anywhere between $100 and $150 more than likely up closer to the top end of that and our research would indicate that, that would work quite well.
Most of our business based on our quantitative research would indicate that we’re going to get most of the business from patients that have been on oral therapies. So 80% plus of the patients we anticipate getting are going to come out of oral. And what's going to probably happen is that patient is going to come into the doctors office, they’re going to try them on generic oral sumatriptan. Patient is going to say to them, doc I can’t take it as early as I want -- if you want me to or I want to. And at the end of the day because I am nauseous or I am throwing up I can’t tolerate it. So what's the next alternative? We want to be the next line therapy. That next line therapy should be ZECUITY and we believe that that’s what our research would indicate that we’re going to get next line therapy.
We’ve got brand positioning that we believe is very distinct, meaningful and sustainable. We’ve got game changing disruptive technology that bypasses the GI track. It has great clinical data showing efficacy in both headache pain as well as migraine related nausea and that low incidence of Triptan sensations and we get consistent delivery regardless of whether the patient has nausea or doesn’t have nausea. So regardless of what the start out with, we’ll deliver 6.5 mg of sumatriptan through the skin over a four hour period.
To give you a sense of kind of what the market opportunity may be. What we’ve done here is basically take the 8 million migraine related nausea patients that we talked about previously. We assume that they are treating their MRN and their migraine with ZECUITY two times a month. And that’s only about half the time that they have an attack. On average these patients suffer through about three to four attacks on a monthly basis. And then we put in place $100 price per patch and a $150 price per patch. And the key take away here is that if we were to really only get about 2.5% share of that 8 million patients the product becomes over $700 million product opportunity. So it requires a very low market share of these MRN patients where ZECUITY should be the first line in order to make this several $100 million in size.
So hopefully over the last 15 minutes or so I’ve given you a sense of what NuPathe is about, particularly with securities about first and only patch, game changing technology. We got a product that is approved. We will be ready to launch in the fourth quarter. Specialist driven opportunity, long run way out, protection now through 2029 and we’re pretty excited about the long-term revenue opportunity.
So maybe what I will do now is turn it over and ask if you all have any questions that I can answer or if Anido has done. I know you do.
Annabel Samimy – Stifel, Nicolaus & Co., Inc
Definitely.
Keith Goldan
(Indiscernible).
Annabel Samimy – Stifel, Nicolaus & Co., Inc
So all right. Expect a launch for Q, with or without partner?
Keith Goldan
We are in conversations with partners as we speak and at the end of the day, its we would love to have a partner to broaden our reach and be able to get to a broader group of physicians. Don’t know for sure if that will happen for sure. But today I think that its one of those that we continue in conversations. I wish that were done by now, but its not. And we will see what happens.
Annabel Samimy – Stifel, Nicolaus & Co., Inc
So are you able to prepare? Let’s just assume that it’s not with the partner, but you’re still in discussions. Are you able to prepare for your launch right now in the same way and how it change if you had a partner? Are you still doing the same thing to normally do?
Keith Goldan
Yes. We are doing everything to prepare for the launch. As if we were doing it on or around with a partner regardless. The only thing that we have yet to pull the trigger on is the hiring of the commercial sales organization today. So we’ve got managed care lined up, we’ve got sales leader ship lined up, we’ve got marketing lined up, we’ve got the back office things that are lined up. We’ve got territories cut and it's basically a matter of, if we’re doing it on our own we’ll do it one way. If we’re doing it with a partner we’ve got it set up in a different way. And at the end of the day we’re ready to go and the final button that we’ll have to push is basically -- we’ve got recruiting firms already set up in order to allow us to get the reps up and running and these are guys that -- the recruiting firm that we’re using are some of the folks that I’ve used previously and they’re able to, you press a button and within 45 to 60 days you’ve got reps on your payroll ready environment to go.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Are there any contingent -- well there is no contingent, it’s already approved. So are there any offers out right now that you know that we will have at least this size sales force regardless of whether we have a partner or not?
Armando Anido
Yeah, I am not going to answer that question in terms of contingent or not. But I think that we're -- we’ve got our ideas on the territories. So the territories are cut. Jerry has done a great job along with his team to kind of get it all setup. And in essence we have the recruiting firm ready to go and he’s found us people in each of every one of those territories. So, there are a group of three or four of them in each of one that we’re ready to kind of interview and ready to go. And at the end of the day once we make the final call and determine are we doing it alone, are we doing it with a partner or in some variation they’re up, we’re set to go.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Okay. And you may or may not be able to answer those, but I am going to ask it anyway. What is the rate limiting sub for that final decision on a partner or not the partner?
Armando Anido
Yeah, at the end of the day partnerships are about to the people who love the asset as much as you do. And by loving it, it includes the economic portions of it. And I think at the end of the day we are in a couple of different discussions that can terminate quickly or can proceed quickly. And so we’re at some point here hopefully have that call made.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Okay. And try anything special; keep on going with those partners they would earn.
Armando Anido
If you think.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Thank you. So let me move on.
Armando Anido
Okay, all right.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
And there are (indiscernible) audience have some partner questions too, because I am just batting zero here as I always do. So you’ve been now with the company a four year. You’ve been in the migraine space before. You’ve done your due diligence; is there anything about the market that you see now as you do your due diligence with this product that you didn’t see when you started, that gets you either more excited or less excited and just give us the sense of how you see the market today?
Armando Anido
Yeah. So the market today and, one; in comparison to when I was in at Glaxo back in the late 90’s, one there were no generics at that point. We were Imitrex in the various formulations and the new competitors were just coming in. Maxalt and Pfizer’s compound and Zomig and all of them were just coming in. So it's changed a lot since then. Today we’ve got a market that after a year of looking at it further I get more excited about it. And the reason I get excited about it is that particularly for ZECUITY, with ZECUITY you have a product that we don’t want to be first one. We’re not going to compete against generic orals. We don’t want to be there. We want to be the first option after they can’t tolerate it. And manage care, the more we talk to them the more we are very happy that they are in essence not thinking of us competing with the first Tier. They’re going to put us in Tier 3 and it gives me the ability to price this thing at a fairly high rate which I’m quite happy with because I think this product deserves a good value. And at the end of the day we’re able to get the next line option, put in Tier 3 and we will get significant coverage in Tier 3 and at the end of the day be able to price it appropriately in order to make good money in a shorter time period.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Okay. Now how about the landscape for migraine and how it's changing now? Obviously we know that – that’s fun..
Armando Anido
That’s fun.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Let me just clear, you go horizontal,
Armando Anido
Yeah, it’s still not approved by the way.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
That’s still not improved.
Armando Anido
I got a second COO and (indiscernible) and God knows what -- who knows what's going to happen.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Right. So they still have a clinical profile and it probably go somewhat in line with your clinical profile which is if you’re going for Triptan sale (indiscernible) respond while they can be rapid acting. They can treat nausea. So how do you position yourself which at some point in time those products will be on the market. So how are you positioning yourselves together?
Armando Anido
Yeah. I think that first and foremost I don’t think I would directly compete with DHE. I think DHE for years has been flash resort medicine in whatever formulation, whether it was nasal, injectable or whether it's orally inhaled. I think that MAP may have a nice compound or Allergan I guess at this point. It may have a nice compound that in essence maybe one of the best formulations of DHE, but at the end of the day it doesn’t really address that migraine related nausea patient very well. It's orally inhaled, so you have to put it in the mouth and many of these patients aren’t very interested in actually putting anything close to their mouth when they’re feeling nauseous or about to throw up. Second piece is, is DHE is known to cause nausea in and off itself. So that’s a big issue and if you take a look at their clinical data that’s been published you will see that at 30 minutes and at one hour it was worse than placebo, and that’s an issue for them. All right, so if you’re all of a sudden making it worse before it ultimately gets better I don’t think patients are going to go down that pathway. So I believe we’re going to compete, we’re going to get our business from the oral. If they’re going to try one oral maybe two, and then they’re going to come over to something that they need that’s non-oral and it will be I believe ZECUITY is the best of the non-orals without a doubt. It addresses it in a very tolerable fashion, and then if they don’t respond well to ZECUITY or injection or nasal, they’ll then try DHE and DHE will be in it's own little spot and I think that my guess is Levadex will become the predominant formulation in the DHE’s but it's 1% of the units today. So at the end of the day 1% of the units is 1.3 million units I’ll let them have that.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
So regardless of whether Levadex is delayed or not delayed the opportunities are completely different in your view. They’re not providing any advantage or a disadvantage?
Armando Anido
Yeah, I mean I think at the end of the day they will won't compete with us directly. I think they’re going to -- my guess is they’re going to compete and get the DHE business first. They may eventually try to get over into a broader audience. But to be quite honest because they cause nausea they’re also going to have a pregnancy category acts and if you think about the ideal patient type that is in this category it is a 30 to 50 year old female, child bearing age, why would you want to give them a product unless it's last resort. Okay, if they tried the Triptan’s and it's not working, tried several of them, tried a non-oral then go ahead and go to it. But I don’t think other than some headache specialist I don’t think primary care will ever touch DHE in whatever formulation it is whether it's oral or injectable or nasal.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Okay. Now we’ll talk about the market for a second. So you decided that eight million nausea patients, I think at some point in a couple of your conference calls you have a 1.5 million nausea vomiting, so how are you stratifying your target audience. Who do you go to first and what really is the opportunity if the 1.5 is in the eight or there’s something between, is it -- the response of that?
Armando Anido
Yeah, the eight million are those that have nausea on the majority of their attacks. They don’t have them on a 100% of their attacks. The 1.5 million that we’ve previously listed are those that vomit every single time. So those are patients that, they’re not only nauseas but they are throwing up on every single attack, that’s 1.5 million patients, okay? We think we’re broader than just that vomiting group. We think that patients that have nausea they want to bypass the gut, they don’t want to put anything in their mouth or nose. And at the end of the day we think that we can get to that broader group and we can get to that broader group through either going after just the 6000 dots that represent 33 million Triptan units or get to a slightly broader group depending on the partnership that we would have.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Okay. And in terms of identifying patients, it's pretty easy to identify someone who’s vomiting. How much education do you need to provide to the physician for them to ask the question, do you have nausea and vomiting to really identify that patient from a physician perspective?
Armando Anido
Well, remember that nausea is one of the symptoms, one of the classic symptoms of migraine. So physicians in their mind, headache specialists, general neurologists, general practitioners have all been taught that its headache pain, it's nausea, it's phonophobia, its photophobia. All right, so it's one of the four cardinal symptoms of migraine. So what we have to do is make sure that they now know that they have an option that’s tolerable form. All right, it's tolerable for the patient. In the past the reason nobody has really talked a lot about it is, if you got a tablet you’re not going to talk about nausea. If you’ve got an injection that causes severe pain to the chest, you’re probably not going to talk much about it, and if you’ve got a nasal spray that goes down the back of your throat and tastes miserable you’re not going to talk about it. So we believe that we’re going to, it's going to be one of those things we’ll continue to drive our medical message all about MRM. And we believe that, that will continue to drive physicians to be thinking more and more about what patient fits right with ZECUITY. Patients are going to self identify. Patients, the category – the one thing that hasn’t changed though over the past 15 years since I was in it back in Glaxo days, is that patients are always looking for a better alternative. They’re always looking it. The data would say 80% of them at least tried to and 50% are trying three or more. That’s always been the case. So always looking for something that’s going to work for them and we believe that as ZECUITY is introduced that patients are going to start seeking it out. We already get phone calls in the office. When we announced that the product had been approved we get calls from people. We get website hits from people asking us, when are you going to launch? When is it coming out? When can I get it? Because we’re all looking for something to address their migraine.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Okay. You already had started talking about your commercial preparedness, you have (indiscernible) in place of I guess the Regional Sales Managers and I guess I want to know more is about the manufacturing and what is the status of manufacturing and do you have sufficient capacity that you want for that launch?
Armando Anido
Yeah, we have -- our manufacturing is moving along quite well. We’re ready to -- basically we’re in final -- we’re in validations at this point and we’ll be ready to start shipping product in the fourth quarter. The capacity for the first 12 month period is about 1 million units. So it does provide us with a nice ability over the first 12 months to be able to produce enough to satisfy demand. And then in about 12 to 15 months afterwards we actually are going to be going to a commercial scale manufacturing facility with new equipment and that is currently being qualified and work is being done on that at this point to the point where it will increase our capacity to over 5 million units. So I believe that between our registration batch; God Love Us, if we run out of product at our registration batch I think we’ll all be happy because the product would have done unbelievably well in its first year. And then in 12 to 15 months we’ll have the second line up and running and that line is going to provide us with 5 million units in capacity.
Annabel Samimy – Stifel, Nicolaus & Co., Inc.
Okay. We’ll we’re run out of time but does anybody have any questions from audience? No, okay. Well, thank you.
Armando Anido
Okay, great. Thanks a lot, Annabel.
Question-and-Answer Session
[No formal Q&A for this event]
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Gentiva Health Services's Excellent Acquisition Of Harden Healthcare
Shares of Gentiva Health Services (GTIV) spiked upwards on Thursday's trading session after the provider of home health and hospice services announced the acquisition of Harden Healthcare in an attempt to mitigate the negative impact of the introduction of Obamacare.
The strategic deal takes place at fair multiples, and brings much needed diversification. Despite the great deal, I remain on the sidelines as the company remains highly leveraged, making the company vulnerable for a further reduction in reimbursements or dilution.
The Deal
Gentiva announced that it has entered into a definitive merger agreement to acquired Harden Healthcare Holdings.
Gentiva will pay $408.8 million to acquire certain assets of Harden. It will pay for the deal with $355 million in cash and the remainder $53.8 million in stock.
Harden is a leading provider of home health, hospice and community care services. Note that Gentiva will only acquire its home health as well as community care business, as Harden's shareholders will retain the long-term care business.
Chairman Rod Windley commented on the rationale behind the deal, "This transaction is a great strategic fit for Gentiva and we believe it will provide significant long-term value for our shareholders. I consider the Harden transaction a milestone in the continued Gentiva growth story. The increasing healthcare needs of an aging population and ongoing rate pressures will fuel industry consolidation and Gentiva is positioned to be a leader in this effort."
The acquired activities generated annual revenues of $476 million in 2012. The deal is expected to be accretive to adjusted earnings per share, excluding one-time costs, within the first year of closing.
The deal has already been approved by the board of directors of both companies, and by Harden's shareholders. The deal is subject to normal closing conditions, including regulatory approval, and is expected to close in the fourth quarter of this year.
Valuation
Gentiva ended its second quarter with $185.1 million in cash and equivalents, and $910.2 million in total debt. As such, the company operates with a net debt position of around $725 million.
The $355 million cash component of the deal, will increase the net debt position towards $1.08 billion. A new $855 million term loan facility will be used to fund the deal, and refinance existing debt.
For the first six months of the year, revenues came in at $830 million, down 3.9% on the year before. Gentiva reported a $200.5 million loss on the back of a $224.3 million goodwill and asset impairment charge.
Factoring in gains of 10%, with shares trading around $12 per share, the market values Gentiva at roughly $380 million.
Given the large debt position, and low operating earnings, Gentiva does not pay a dividend at the moment.
Some Historical Perspective
Long term holders in Gentiva have seen poor returns. Shares had steadily risen from $12 in 2004 to highs of around $30 in 2011, but fell to lows of $4 later that year as reimbursement cuts hit the company hard. From that point in time, shares have steadily risen to a current price of $10.
Between the calendar year of 2009 and 2012, Gentiva has increased annual revenues by a cumulative 53% to $1.71 billion. The company has reported modest profits with exception of 2011 when it took large "one-time" charges.
Investment Thesis
The deal is of a strategic rationale, and is necessary for Gentiva. "Obamacare" has resulted in lower reimbursement for Gentiva's traditional activities, spurring it to diversify further into home health and community health serves.
So while many hospital are merging ahead of Obamacare to handle greater patient streams, not all healthcare providers are benefiting from the healthcare changes as this merger proves. With the deal Gentiva will reduce the dependency on just Medicare. The patients in the activities are both eligible to Medicare as well as Medicaid.
So the deal will create much needed diversification as well as earnings accretion. Following the deal, Gentiva will derive 72% of total revenues from Medicare which compared to 86% last year. Roughly half of the revenues will come from home health, 40% from hospice and the remainder from community care.
On a pro-forma basis the company should be able to generate revenues between $2.1 and $2.2 billion, while adjusted EBITDA should come in between $210 and $220 million, excluding share-based compensation.
Given that Gentiva reported adjusted EBITDA of $78 million for the first half of this year, a simple extrapolation leans that full year EBITDA could come in around $155 million. This implies that Harden could add some $60 million in annual EBITDA. As such the $409 million deal values Harden's activities at 0.85 times annual revenues and an estimated 7 times adjusted EBITDA.
The equity of the new firm is valued around $400 million. Including the $1.1 billion estimated net debt position following the deal, the new enterprise value comes down to some $1.5 billion. Therefore, the pro-forma activities are valued at 0.7 times annual revenues and around 7 times EBITDA.
The deal makes sense, as it brings much needed diversification at a reasonable price. The deal could provide a long term safety net for the company, but for now investors should expect more volatility ahead as leverage keeps increasing. If things turn for the best, the leveraged balance sheet and low multiples leave much upside for shareholders in the long term. This obviously works both ways, as equity could be wiped out if investors receive more nasty surprises.
This is a bit too speculative for me, as I have too little knowledge about the industry and future changing legislation, so I have to pass on this one. I remain on the sidelines, but will definitely keep an eye for the next quarterly report.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
Nordion: A Healthcare Gem With An Excellent Risk-Reward Profile
Nordion (NDZ) is a health science company that provides medical isotopes and sterilization technologies. Due to fears about the future of the company's medical isotope division, the company is priced as low as just the value of its sterilization unit, providing investors with an excellent opportunity to buy the company's shares at a 25% discount and without any significant downside risk.
Business Overview & Operating Segments
Nordion used to be comprised of three distinct business divisions but sold the Targeted Therapy segment, and as of July 13, 2013, the company has only the two following segments:
Sterilization Technologies andThe Sterilization Technologies segment is focused on producing, installing and servicing Cobalt-60 (Co-60) radiation sources that are used for the sterilization of medical products as well as food and consumer products. The company not only provides its customers with the radiation devices but also supplies them with the radioactive material Cobalt-60. This segment, according to Nordion's 2012 annual results, will account for 49% of its revenue and approximately 57% of its earnings.
The Medical Isotopes segment is focused on products that are used in the diagnosis and treatment of diseases. The primary product of this division is Molybdenum-99 (Mo-99), which decays into Technetium-99 (Tc-99m), and is, according to the World Nuclear Association, utilized in approximately 80% of nuclear medical procedures worldwide. According to the same source, over 10,000 hospitals globally use radioisotopes with 90% of the procedures being for diagnosis. This segment, according to Nordion's 2012 annual results, will account for 51% of its revenue and approximately 43% of its earnings.
Competitive Advantages - Moat (examples?)
Nordion's segments, the Medical Isotopes segment and the Sterilization Technologies segment, are the dominant leaders in their respective markets and benefit from various barriers of entry that prevent new competitors from gaining access to their niche markets.
The Sterilization segment is operating under a razor-and-blade business model. Nordion sells expensive irradiation machines to its customers and then makes the majority of its profits from selling them the isotope Cobalt-60 which is necessary for operating the machines. Nordion has approximately 75% market share in the global $130 million market for Cobalt-60.
Because of the market's small size and the hurdles a competitor must overcome to enter, Nordion's revenue and market share is as safe as it gets. If a competitor decided to enter this market, they would have to convince first an operating reactor to undergo some modifications (not the easiest thing to do to a nuclear reactor) for a very small amount of profit. Supposing that they manage to do this, they should also wait for four years for the Cobalt to irradiate sufficiently before it is ready for sale.
Taking into consideration the capital expenditures needed to equip the producing reactor and the amount of time needed (which creates a huge opportunity cost) to enter this tiny market, it becomes pretty obvious that trying to enter is a highly unprofitable endeavor for any prospective new entrant.
Medical Isotopes segment has also some competitive advantages that make it very tough to compete with. The first one is geographical in nature and unfortunately will cease to exist by 2016. Nordion currently has exclusive access to North America's single source for Molybdenum-99 (Mo-99), which is the Atomic Energy of Canada Limited's National Research Universal Reactor. Competitors have to import Mo-99 from Europe, Australia or Africa and thus have a big cost disadvantage in North America, which represents 50% of the global market for Mo-99.
Unfortunately, this geographical advantage will cease to exist as by the end of October 2016 Nordion's Canadian supplier will stop producing Mo-99 due to instabilities in its more than 50-year old nuclear reactor.
The second advantage the Medical Isotopes segment has is its nuclear logistics experience and relations network. Transferring radioactive materials is no easy thing to do since it requires perfect coordination and constant communication with multiple third parties like reactors, customs, border patrol agencies, transportation vehicles, air cargo operators and many others. This logistical expertise and the vast network of established procedures and relationships is extremely difficult to replicate and customers are aware that a new entrant would have great difficulties in setting up a similar operation and matching Nordion's reliability.
The Market's Concerns
The Medical Isotopes business is also the reason Nordion has been treated so badly by the market. The uncertainty over Nordion's supply source for Mo-99 had the stock tumbling last year from $11 to a low close to $5.5. Since then, although the stock has recovered somewhat (now it's around $8.3), the company has remained well below its intrinsic value.
Don't get me wrong, the market is correct in worrying about Nordion's Mo-99 supply sources. If the company doesn't manage to find a sufficient and reliable source by 2016, then it will lose half its revenue and almost half of its earnings. While the market's fear is well-founded, there are two main reasons that I believe Nordion is an excellent investment opportunity with a highly asymmetric risk-reward profile.
The first one is that Nordion isn't sitting idle waiting for its fate to unravel. The company is already exploring alternative sources and is in talks with multiple parties that could supply in with Mo-99. Furthermore since many governments including the US strongly discourage the use of High-Enriched-Uranium or HEU, Nordion tries to move ahead of its industry by finding a source for its Mo-99 that uses low-Enriched-Uranium or LEU.
From Nordion's Q2, 2013 earnings call transcript:
Steve M. West - Chief Executive Officer, President, Director, Member of Technology Committee and Interim Chief Operating Officer of Targeted Therapies
[...] we are planning currently as far as NRU is concerned that when we get to the end of the license period in 2016 that we will no longer be sourcing HEU-moly from there. As to other options, and I have said this previously, Nordion does continue to explore other options for a sustainable, long-term supply of LEU-based moly. It's hard for me to talk about that because as you can imagine, these, again, are proprietary discussions taking place with potential partners. [...] And it's not clear as of yet how the whole supply chain will pan out when NRU comes offline. So we are, as I said, exploring a variety of options, and we'll continue to do that, noting that, obviously, as we get closer to the date of 2016, we need to get some clarity around potential partnerships. So we're actively engaged in that, and we'll continue to do so.
From Nordion's Q3, 2013 earnings call transcript:
Steve M. West - Chief Executive Officer, Director and Member of Technology Committee
[...] so first of all, I probably should have made it clear that our view is that for a credible source of supply, it has to be non-ATU based, LEU. So that is definitely a factor. We're no different to anybody else who's going -- who's looking at long-term LEU. [...] And currently to date, we should remind ourselves that still, by far, the majority of molybdenum that is on the world market is heavily enriched uranium based. And everybody is working towards a low-enriched technology base.
As you can see, Nordion is well into negotiations about founding a suitable supplier for its Mo-99. Given that it has more than two years time to accomplish this task, I believe that it is almost a certainty that the company will succeed one way or another.
Valuation
The second reason I believe that Nordion is an excellent investment opportunity is the highly asymmetrical risk-reward profile. Nordion has a rock-bottom value of at least $8 per share without its medical isotope business, and if we add it into the mix, Nordion is worth at least $10.5 per share. That is a 25% potential upside without any serious downside risk.
Nordion's $8 bottom value is justified by its huge cash hoard and the cash flow of its Sterilization segment. Nordion has $280 million of net cash or $4.5 per share, and excluding one-time items, its Sterilization segment is generating about $21.7 million of cash flows. Given this segment's powerful moat that we discussed above and the very low capital expenditures it requires, I believe that we could say conservatively that it is worth at least 10 times the cash it produces. That would add another $3.5 per share ($217 million) to Nordion's cash, raising the company's rock-bottom value to $8 per share.
Nordion's Medical Isotopes segment is contributing around to $16.2 million in cash flows, and given its similar competitive characteristics with Nordion's Sterilization segment, it should be worth at least 10 times that or about $2.6 per share. If Nordion surpasses its supplier problem, then this segment would increase the company's value to $10.5 per share. And this is without factoring any revenue growth into our assumptions.
Catalysts
There are two things that I believe can unlock Nordion's value. The first one is for obvious reasons an agreement that would ensure a Mo-99 supply for the company. And the second one is the company's annual earnings for 2013 along with the guidance for 2014. This is because at this time it will become clear to the market how much the company will benefit now that it has ended its legal battle with the AECL and finished its internal investigation. Those two items burdened the company with more that $14 million expenses in 2012 and $26 million in 2013.
Conclusion
Nordion is clear cut case where the market has overreacted and drove the company into absurdly low valuations. Although the stock has recovered some of the lost ground, there is still some room for another 25% upside before the stock reaches its fair value. While this may not seem much of a gain, we have also to take into account that due to Nordion's cash and the stable profitability of its Sterilization business, its valuation will stay at least around $8 per share. Given Nordion's current stock price of $8.5, that's a 25% potential gain for just 6% of potential downside. A pretty good deal don't you think?
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
National Healthcare Corporation: Undervalued Small-Cap With Growing Dividends And Buybacks
National Healthcare Corporation (NHC) is one of the leading providers of senior health care services. With more than 40 years of history and experience, NHC provides health care services to patients in a variety of settings including 68 skilled nursing centers with 8,803 beds in nine states, managed care specialty units, sub-acute care units, Alzheimer's care units, homecare programs, assisted living centers, hospices and independent living centers. The company also provides supporting services such as insurance, management and accounting.
Investment thesis
The majority of the facilities are leased from National Healthcare Investors REIT (NHI), in which NHC owns a minority stake. Approximately 67% of net patient revenues are derived from Medicare, Medicaid, and other government programs. Although private pay and Medicare revenue accounted for 75% of sales, NHC is still strongly influenced by the impact of reimbursements based on healthcare-related legislation, including the Obamacare, which is getting back into spotlight due to being a part of the ongoing debt-ceiling negotiation.
NHC's services will be needed more than ever due to an aging population, with a growing pool of elderly citizens and the high priority of healthcare services on their shopping list, as well as a necessity for the U.S. to somehow manage health care services, whether through setting a framework for a private system or a state-managed system. The nature of health care services virtually ensures that there will be demand for NHC's services 50 or even 100 years from now, whether the system will be financed by individuals directly or through the government agencies.
In the long-run, the government will have to decrease health care spending to help reduce the budget deficit. Hence, the government-controlled reimbursements will copy the inflation at best, and probably lag the inflation rate. On the other hand, this business model of reimbursements at least loosely following the way of inflation ensure that NHC's revenues will at least loosely copy their input prices. The model is similar to utility companies.
I am confident that NHC will be able to use the positive side of the relatively stable and predictable revenue from government-controlled reimbursements which give it partial cost inflation protection and low stock volatility, and accompany this safe, core sales with a privately funded stream, where NHC has a freedom of pricing, documented by YoY comparable revenue increases that surpass the inflation rate (3% YoY increase) and are poised to grow in line with the average inflation in the worst case and faster than inflation on average. The share of this private-source revenue has been steadily increasing and the company keeps being focused on this lucrative area. NHC has great potential to grow the privately funded portion of its revenues.
National Healthcare is a great long-term investment for dividend growth investors with a 10-year, 10.5% annual dividend increase rate, including the challenging 2008-2009 period, which the company weathered extremely well compared to other businesses, and even excluding a one-time extra dividend of $1 per share paid at the end of 2012. The company's common stock pays a regular dividend currently yielding 2.66% and NHC's preferred stock pays an even higher regular dividend with a current 5.5% annual yield and trades 8.5% below its liquidation preference price.
Valuation
From a valuation standpoint, National Healthcare is currently ~25% undervalued and my fair value estimate is approximately $60.90 per share. The downside risk is limited by a strong balance sheet with high tangible book value and the worst-case liquidation scenario would result in a ~33% downside. The steady dividend streams help decrease stock price volatility. The company currently buys back its stock at a 3.5% annual rate which is faster than my long-term 1.5% estimate. The company is authorized to repurchase virtually all of its shares outstanding and if the current faster repurchase rate continues in line with the company's proven past commitment to continuously deliver value to stockholders, the stock offers further 20% upside based on current levels of repurchases.
My valuation is based on the stock price of $48 and 2013 full year EPS estimate of $3.58 that is derived from the real results for the first two quarters, the current YoY sales and EPS trends and the company's outlook for the rest of 2013. I further estimate a very conservative 2% sales growth and 6% EPS growth for the next ten years, followed by flat results.
If repurchases continue at current 3.5% ratesource: author's calculations
Where will the EPS growth come from?
The sales growth will be delivered via slow but steady expansion of the number of beds under management and utilization of facilities that are currently under construction (1% annual sales growth contribution), as well as from sales increased due to an increasing share of private-pay patient services with prices growing faster than inflation (additional 1% annually).
Based on my estimated EPS waterfall, the 6% EPS will be delivered by the basic top line growth described above (2% annually), from improved service mix with higher share of high-margin, private-pay services (1%), as well as from ongoing cost optimization measures (1%). NHC's EPS will be boosted by 1.5% annually from smart uses of its free cash from operations to continue purchasing previously rented real estate at a roughly 14% ROI (purchase price at 7 times the annual rent it used to pay). The final EPS boost of 2% per year will come from a continuous share repurchase program that is under way. Given the company's long and stable history of catering to investors as evidenced below, there is high probability that the share buybacks will continue. The 7.5% gross annual EPS growth will be eroded by a 1.5% fall due to margin pressure and higher leasing costs due to rising interest rates, for a final net EPS growth of 6% per year.
National Healthcare offers 25% to 45% upside potential, growing dividends and strong buybacks
In conclusion of my thesis, the stock is undervalued and offers at least a 25% to 45% upside with slow but steady and resilient growth as well as regular dividend streams and share buybacks.
Based on preference and needs for income or capital appreciation, investors can choose between the common stock that offers unlimited long-term stock price upside potential plus a 2.66% dividend yield and a growing dividend, or a preferred stock with a much higher current yield of 5.66%, but a stagnant dividend which will not increase in the future due to the bond-like nature of this instrument, and a stock price upside potential limited to 8% due to the risk of the stock being redeemed by the company at liquidation preference price. My preference is to simply buy the common stock due to unlimited long-term stock upside potential and dividend growth.
For elderly investors, buying NHC stock can serve not only as a sound long-term defensive stock investment but also as one of the options to hedge part of their future rising health care costs by owning a company that will benefit if healthcare costs rise.
Significance of recent events for the company's strategy
As the reimbursement system is moving from a fee-for-service toward a bundled payment system for a defined medical treatment state or period and as the private payment segment provides better growth opportunities than the government-reimbursement segments, the company has been undertaking numerous steps to increase future revenues and profitability. NHC increased its stake in Caris Healthcare, L.P., a hospice company, from 64.9% to 75.1% in 2012. Recently, Caris has been expanding in its line of business through acquisitions.
The company also announced an alliance with TriStar Health to focus on hospital re-admissions and integrated intervention strategies. NHC also initiated construction of two skilled nursing facility projects with a total 140-bed capacity. In December, the company also announced an agreement to purchase six skilled health care centers from National Health Investors ("NHI"). The centers have been leased by NHC since 1991. Moreover, NHC also announced the extension of its master lease with NHI through December 31, 2026, for 38 skilled health care centers and three independent living centers. Furthermore, the company announced a settlement of disputes with two non-profit organizations regarding the fairness of prices it paid for purchases and leases of properties from the two non-profits.
Excellent financial management and catering to investors
NHC shows a number of activities that prove excellent cash and capital management, as well as long-term devotion to creating shareholder value. NHC has had virtually zero long-term debt in the past five years. As it generates cash from operations, it deploys it to pay regular and increasing dividends to common and preferred shareholders, and recently NHC even approved a stock buyback program. In the second quarter of 2013, the company repurchased common stock worth $100M, translating to a roughly 3.5% annualized percentage of common stock outstanding. Under the ongoing program enacted in 2012, NHC is allowed to repurchase virtually the entire amount of shares outstanding, and I expect the repurchases to continue.
Moreover, the company has switched six additional health care centers from renting to owning by purchasing them from NHI, the REIT from which it leases most of its properties under long-term contracts. The purchase price of $21M was only seven times the annual master lease payment of $3M, which means NHC has bought the properties at a very lucrative price at a roughly 14% annual return on investment. The company should definitely continue using its future free cash to purchase additional facilities instead of renting them, and I am convinced NHC will do so, as the company has options to purchase most of its leased properties in the future. The company has also started building two new health centers. All these activities are beneficial for the shareholders, as they properly manage cash and assets and continue increasing shareholder value. Some great news is that the company can keep increasing all these activities in the future if it generates cash.
Also, did I mention that the management compensation as a percentage of net income generated to shareholders is one of the lowest I have seen?
Financial performance and future outlook
As mentioned above, and as evident from a long-term annual overview of the most important income statements and balance sheet figures, the company has been a conservative and steady grower of earnings and dividends.
(click to enlarge)
source: company SEC filings
The most recent 10Q SEC filing for the second quarter of 2013 reveals that net income for the second quarter was $0.88 per common share, a 7% YoY increase. Revenues were $192M, a 2.3% YoY increase despite the automatic 2% cuts known as "sequestration" that began on April 1, 2013, for Medicare providers. Operating results for the second quarter of 2013, compared to the same quarter last year, were favorably impacted by an improved patient mix, as well as the continued effort to implement cost-saving measures to reduce expenses in NHC's skilled nursing facilities.
Medicare and managed care per diem rates (per day rates) at NHC's owned and leased skilled nursing facilities decreased 0.8% and 3.7%, respectively, compared to the second quarter a year ago. Medicaid and private pay per diem rates at NHC's owned and leased skilled nursing facilities increased 3.0% and 3.3%, respectively, compared to the quarter a year ago.
(click to enlarge)
To sum up the financial results, NHC is showing continued resiliency by managing to grow top line and bottom line YoY despite sequestration cuts, tough general economic environment and one-time legal settlement costs. The government-controlled revenue is falling, whereas the private pay sales are rising above inflation rates on a per diem and per patient day. Private pay is where the future lies for the company, as can be evidenced from the future growth activities that company has in the pipeline.
Growth activities
The company plans to undertake many activities to boost revenues from the private pay segment. In addition to past activities already mentioned, the company expects to begin construction on a 92-bed skilled nursing facility. NHC also entered into a joint venture to build and operate an 85-unit assisted living community. The property is currently under construction and plans to open in the first quarter of 2014. NHC also entered into a joint venture to develop and operate a 14-bed psychiatric hospital focusing on geriatric care, projected to open in 2014.
Moreover, during the rest of 2013 and in 2014, the company will apply for Certificates of Need for additional beds in its core markets and also evaluate the feasibility of expansion into new markets by building private-pay health care centers or by the purchase of existing health care centers. NHC is also evaluating the feasibility of construction of new assisted living facilities in select markets.
Risks
Two-thirds of NHC's revenues are earned under government-controlled programs and are subject to review by the Medicare and Medicaid intermediaries. In the long-run, the government will try to reduce spending to balance the budget, resulting in reimbursements and allowances most likely rising at a slower rate than average inflation.
Conclusion
National Healthcare stock is undervalued and offers at least 25% upside potential under my very conservative growth estimates and 45% upside if stock repurchases continue at the current rate. NHC is an excellent long-term buy-and-hold investment with growing dividends and an attractive and more than sustainable 2.66% dividend yield.
For investors heavily oriented on income, the NHC also offers a preferred stock (trading under the ticker NYSE: NHC.PRA), currently yielding 5.5%, but offering no dividend increase and only a limited 8% long-term preferred stock upside potential.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)
The Spectranetics's CEO Presents at Morgan Stanley Healthcare Conference (Transcript)
Executives
Scott Drake - President and Chief Executive Officer
Guy Childs - Chief Financial Officer
Analysts
James Francescone - Morgan Stanley
The Spectranetics Corporation (SPNC) Morgan Stanley Healthcare Conference Call September 11, 2013 11:45 AM ET
James Francescone - Morgan Stanley
Good afternoon everyone. For those of you that don’t know me, I am James Francescone. I work on the Medical Device team here at Morgan Stanley. It’s my pleasure to have with me the team from the Spectranetics, Scott Drake, President and Chief Executive Officer and Guy Childs, Chief Financial Officer. Scott, why don’t you just for those of us that are less familiar with story to oriented that, so why don’t just take us through three to five minutes Spectranetics, what the story is, what the key milestones for you have been over the past year and what the path is going forward?
Scott Drake - President and Chief Executive Officer
Yes, happy to, and thanks for having us James. So again from a broad context perspective, we are in two distinct businesses, vascular intervention and the lead management spaces. Two scaled sales organizations were present in about 40 countries worldwide, 45 maybe. We are very much in accelerating growth story. Our performance over the past couple of years has been very positive. We have grown double-digits on a constant currency basis for the last seven quarters and you see our growth rate accelerating and very nice balance between each of those two businesses and our U.S. and international business as well.
And we more recently to your point in the last three quarters we have grown 13%. And we said at the beginning of this calendar year we laid out for investors the goals of the company separate from our guidance. And we said in the short-term, I think in terms of the next 12 to 18 months, we would be able to get beyond that 10% growth to something like 12% growth in the mid-term. We would get 12% to 15% in the long-term, 15% to 20% growth. We are a little ahead of schedule on that given the performance over the last three quarters and we are in the midst right now of leaning into four really exciting incremental growth drivers for the company. They include in-stent restenosis opportunity. We should probably spend a little bit of time talking about that. It is a huge opportunity for the company and our two primary competitors are contraindicated in the space.
Second, the launch of mechanical tools on the lead management side of the business, very important milestone for us. That also will happen in the 2014 timeframe market development on the lead management and vascular side, but to give you a little snippet there, less than a third of infected leads are extracted a 100% should be. And then finally, commercial expansion, and this is something that we are talking about more aggressively now. This is true globally, but specifically within the United States we are going to significantly increase the size of our footprint with those new products, with market development with the indication coming online to really capitalize on those drivers. So we see our top line growth accelerating. We have had very good performance on the gross margin side of our business that will continue as we go forward and these things all lead to very nice leverage in our business over time.
James Francescone - Morgan Stanley
Perfect. I mean, so let’s start with something that as you mentioned has been top of mind for lot of investors the opportunity for you in in-stent restenosis, but I do want to get to your clinical program, but just as a prep if you could frame for us how you think about the commercial opportunity there? How many procedures are being done there today? What Spectranetics particularly in that segment? And how should investors think about the incremental revenue opportunity?
Scott Drake - President and Chief Executive Officer
Yes, great. So ISR big picture $750 million opportunity, about 250,000 procedures are done worldwide today. Standard-of-care is balloon angioplasty and outcomes from that are very poor. And that’s been well documented. So we are in the midst of proving the value of our laser atherectomy products to debulk that lesion to lead to a more durable clinical solution long-term. And we are doing that work today to get the indication in the mid ‘14 timeframe and then we are doing a clinical study called PHOTOPAC, which is designed to show the difference between laser atherectomy followed by drug coated balloon compared to drug coated balloon alone, very important study of ours. So the big picture that we see here is this. We will achieve the indication in the 2014 timeframe.
And to answer your question, the percent of the time that we are used today is very infrequent. There is not a lot of off-label use here. So achieve the indication, have compelling clinical data in the form of both EXCITE and PHOTOPAC are two primary competitors are contraindicated and when drug-coated balloons hit the U.S. market, we have three very large companies spending hundreds of millions of dollars developing the drug-coated balloon market and we are proving the complementary nature between our technology and drug-coated balloons and we believe we will draft on the wheel of those large companies in a very successful way.
Let me go a little bit deeper here, because I think it’s very relevant the way the PHOTOPAC study came about was very natural and very organic. There were two physicians in Europe one in Switzerland, one in Italy. They had no communication with the company, they had no communication with one another and they both recognized that patients ISR patients in-stent restenosis patients that were being treated with drug-coated balloons were continuing to come back for re-treatment in their lab. And they hypothesized that maybe debulking first would be beneficial to drug deployment. And they further thought about the morphology of the lesions that are inside of the stent and they contemplated what technology is going to work best when you have a watery lesion one that’s rubbery thrombotic what technology is going to work best and they both they came again independently to the conclusion that laser atherectomy would be superior, so they have done this. And they noticed that those patients were no longer coming back and this data in the case of Switzerland has been published, in the case of Italy is eminently going to be published. So we’ve proven in those centers that this works as a result of that we increased the size of the PHOTOPAC study and this is an enormous opportunity for us as we move forward.
James Francescone - Morgan Stanley
Okay and just sticking with PHOTOPAC for a minute as you said you increased that study to around 150 patients from 50 previously, what is the timeline of how that trial develops going forward?
Scott Drake - President and Chief Executive Officer
Yeah, the – so this decision was made relatively recently in the April-May timeframe of this year to really expand the size of the study both the number of sites and the number of patients. So, the vast majority of our work right now was getting new sites up and running. We haven’t talked publicly about when we think we’ll be able to fully enroll. It’s hard for us to predict that because we don’t have those incremental sites up and running, so for us to give false precision on that I think would be inappropriate. Certainly that will come after we get the indication via the EXCITE study and we think this has build really nicely over time.
James Francescone - Morgan Stanley
Okay, one the EXCITE study that is the structure of that trial is a little bit unusual, can you talk about how you have been able to leverage the prior work that you have done in the PATENT study to use that work in the EXCITE study?
Scott Drake - President and Chief Executive Officer
Yeah, happy too, so the EXCITE study for those of you that aren’t aware, it’s laser atherectomy followed by balloon compared to balloon angioplasty alone and the delta that we achieved and demonstrated in the PATENT study is very much what we anticipate seeing in the EXCITE study that’s why we are so confident that we’ll be able to achieve the indication. So, fundamentally that’s the construct of the study. And statistically the more similar the outcomes are between PATENT and EXCITE, the more that we’ll be able to borrow the PATENT data as we work to achieve the indication as quickly as possible. And again for those of you that are a little less familiar we reached an agreement in the May timeframe with the FDA on EXCITE that we would have multiple looks at the data, very important to maximize the speed with which we can get the indication. And number two not have to wait for six months follow-up for all of the patients, so we would be able to once we achieve the statistical end point be able to file the 510(k) essentially, immediately and gain approval and get the indication.
And as we’ve been saying now for over a year we expect the timing of that to be able to market on label mid ’14. And so as we’ve discussed so far the data sets that have been shown publicly have been very supportive of this therapy. That said, enrollments in EXCITE has a times not quite gone as fast as the (indiscernible) expected it to go. Where are we in enrollment in that trial right now, what have been the obstacles or headwinds to getting faster enrollment and are we starting to see an acceleration in the trial enrollment? Yeah, I think the punch line here is yes. First of all, we should acknowledge that it’s been slower than we would like it to be and slower than we predicted at the outset, but you saw last quarter when we announced our earnings that our enrollment rate had increased by about 50%. And this is primarily due to two things.
One, we have gotten smarter about how to manage the physicians that are in the study and what we recognized in conversations with them is that they see very clearly what happens with balloon angioplasty alone and the results are very poor. And when the patient would ask them about being a part of this trial, what happens to me doctor if I get randomized into the control arm, they would get weak need with their response there and that dramatically slowed down our enrollment rate or was an inhibitor to it. And we actually called them into my house. And we had a meeting in my basement in Colorado and we said hey, look you guys number one thing you guys want is randomized controlled data. You can’t get weak need here. We have to prove this even though you have a very clear hypothesis we have to prove it. And we are spending $9 million to prove it. And since that time, you see an increase in the enrollment rate and the other thing that’s driven it is we have some new sites that have become active. I’d highlight one not too far from here, Yale where Dr. Carlos Mena is. And we have had some very prolific sites come online here lately. So those are the two things that have driven it and the enrollment rate is pretty consistent now over the past several months.
James Francescone - Morgan Stanley
And then as you finish that on ISR, two questions on commercialization, how have you thought about from a qualitative or quantitative perspective, the investment required to support that launch in addition to sales and marketing? And two is there an opportunity for incremental reimbursements, if you get that indication on the label
Scott Drake - President and Chief Executive Officer
Yes. First, regarding the commercial opportunity there, I will give you kind of big picture and then I will maybe give you a way to think about it. So again 250,000 procedures worldwide and only considering the laser catheters here, no other pull through from a device standpoint. If you take that 250,000 times a $3,000 catheter, you are looking at three quarters of a billion dollar opportunity. And I don’t think that’s overstated. You could discount that a bit for where our installed base is although I do believe this will drive the installation of lasers across the world. So you are looking at something less than $750 million if you put that lens on it, but you know a very reasonable way, I think rationale way to contemplate what this means to us. We have got about 20% share currently in the atherectomy market. So, if you just take 20% of that $750 million market opportunity over the two, three-year horizon, I think that’s a very reasonable way to contemplate what this means to us commercially. So it is an extraordinary growth driver for the company. You might want to calculate in there that the two competitors that we face most notably Covedian and CSI are contraindicated. So we have the label. We have contraindication by our two primary competitors. We have a compelling value of clinical evidence and we should be running downhill on the opportunity. And because of that we see adding to the sales force both in the U.S. and globally incredible opportunity there.
As it relates to an increase in reimbursement, it is very reasonable given the durability that we have seen in Switzerland and in Italy that there is a shot at doing that. We can treat patients better, let me put the endovascular market into context and this opportunity into context. Today, taking the U.S. market alone, there are about 150,000, 160,000 amputations per year. Between 60% and 70% of those amputations according to the Sage Group are not proceeded by very simple diagnostic work that would tell us that the patient could be treated better with an endovascular procedure and preserve bypass and amputation later if necessary and we would save the tax payer huge dollars by treating patients better in this way because amputation is more expensive than endovascular procedures and the follow-on care is very expensive post-amputation mortality and morbidity are (indiscernible) as well. So, we believe that there is a great healthcare economic story that goes along with this improved clinical story, but it’s early to project that we’d be success getting increased reimbursement, but it is clear that we can treat patients better and save tax payer money throughout the world by doing more endovascular procedures.
James Francescone - Morgan Stanley
I think that was about half way through, any question from the audience?
Question-and-Answer Session
Unidentified Analyst
Is there any – with some product programs now companies are bringing CMS in earlier to the process, the FDA is that something you’re looking to do just make sure you get reimbursement more easily and a lot of these patients will be (indiscernible)?
Scott Drake
Yeah. So from an FDA perspective we’ve been partnering with the FDA very, very closely which was necessary to be successful with the adjunct analysis that I mentioned and we were successful with that announced in May timeframe. So we have been working very closely with them on that front and I think the collaboration has been effective. As it relates to reimbursement, it’s really important to point out here that reimbursement on both sides of the business, but on the vascular side specifically I think to your question is very favorable to physicians. It’s a compelling part of the story here.
Unidentified Analyst
And to that point on reimbursement?
Scott Drake
Yeah
Unidentified Analyst
CMS recently announced a proposed rule that would make the reimbursement in the physician office environment a little bit less favorable?
Scott Drake
Yeah.
Unidentified Analyst
And that I believe that there has been certainly a mix shift in that business for you towards the office environment probably partially as a result of the existing favorable reimbursement, is that with the understanding that it’s difficult to predict what the final rule will be just from the proposed rule, what would the impact be on your business where about proposed rule to be finalized?
Scott Drake
Yeah, great, so to put it in the context for you here, about 8% of our total revenue is in the office-based arena that we’re talking about here. So I wanted to share with you the context of that if the proposed rules went into the effect and we do believe there is a credible chance to improve from what the recommendations were. I would characterize the reimbursement going from outstanding to very good give you some data. If atherectomy and balloon angioplasty are used, the physician with the propose reimbursement still makes using our products about $3,000 per procedure.
And these procedures are roughly 90 minutes long on average. So still making very good money in that arena if a stent is deployed and atherectomy and angioplasty are used, but you’re simply adding a stent and that takes on average between 5 minutes and 10 minutes to deploy a stent. The profit to the physician, not the total reimbursement, but the profit to the physician in the office based setting is about $7500. So it’s still very good reimbursement albeit less than it was previously. We have talked to dozens, dozens of our customers that are in the office based setting to a person they are looking at ways that they can accelerate the number of cases that they do to make up any gap if you will. And if you think about it that’s not very surprising because these are both physicians and capitalists that are doing this, right. They have put $1 million to $2 million on average of their own money at risk opening up these labs and it’s quite a natural reaction they would try to close that gap by doing more procedures of being more efficient in the lab. And that’s where the cost differential between us and the competition is very important. The cost of one of our catheters from an ASP perspective is in the $2200 to $2500 range and the competition is low $3000 to $3500. So we’d like that physician, so as pressure increases I think the difference between us and the competition is even more favorable. So we are not overly concerned. We think frankly the street hasn’t roughly wrong right now, but that line itself out over time. And the other thing I would point to here is the number of physicians that are opening labs, since they’ve known about the CMS proposal and there has been no shortage of them and we don’t see anybody slowing down on that front. So sorry for the long winded answer, but I think given the reaction it’s probably we are spending a little bit of time on.
Unidentified Analyst
How should we think about the sales force expansion and the impact on financials and if you can talk to a little bit about productivity of your current sales force and how long it takes to line up?
Scott Drake
Yeah, so productivity of the sales force over the past couple of years has increased very nicely and Guy you may want to chimed in on some of this. I would think of the sales force expansion first coming in very early of ‘14. Second really adding few to the growth drivers that I talked about earlier on overall little impact all of those. Third it will have the short-term affect I will think in terms of two or three quarters of SG&A maybe increasing as a percentage of revenue but after that SG&A decreasing as a percent of revenue leading to more meaningful leverage given acceleration and growth rate overtime.
Unidentified Analyst
Any comments.
Guy Childs
I would say is roughly six to nine months for sales professional that would be cover the cost and more like 12 months to 18 months for them to be nearly fully protective. So, we’ve done this before between ’04 and ’08 we tripled the size of the sales organization managed to be financially responsible at the same time and there is a pretty clear return for this investment. We manage the stay profitable in the mid to investing for growth in over the last several years, this year’s its R&D focus. And we think we have the R&D investment roughly righted 14% of revenue that’s help from 12 last year. The sales force expansion is the next investment and completion of that as well as getting a couple of quarters into the ISR launch. We think is a key catalyst to merging operating leverage in the business.
Unidentified Analyst
(Question Inaudible)
Scott Drake
We’ve not talked about the number of territories not interest sure that with our competitors, but it’s reasonably sizable and come guidance time will share with you what we think the specific impact of the – on the P&L. The one thing that we had that’s maybe heartening to you, we have emphasize that we are kind in the way of our growth given the relatively small footprint that we have commercially.
And we announced the test that hypothesis with the best company that I am aware of have been in sales force optimization they came in did very expensive work and really validated our thought that expanding the sales forces is major growth driver for us. So, we validated this externally were building the right messaging and market development work on both sides of the business making sure. We have the right management team to really benefit from and leverage the sales force expansion. So, this is been very thoughtfully done over very long period of time then we are really leaning into outcome beginning of the calendar year.
Now let’s switch gears just for a minute away from vascular and to the other half – roughly half year business, lead management. I think there has been perception here perhaps not entirely correct that the reason growth in that business has been associated with one highly publicize, highly visible quality situation in the CRMs space. I mean what extent is that correct have you seen of both of business the associate with that event. What are the opportunities for you to maybe leverage that situation into a broader awareness of the important for lead management.
Guy Childs
Yes, you bring up the great point and I think this market by enlarges pretty fundamentally not well understood and people hypothesized that in the 2007 timeframe when another CRM player had a quality issue with one of their leads that was the catalyst the business growth and here more recently another large CRM company has had a problem with one of their leads and if you look at the CAGR of our business over the past six years and is incorporates both of those quality issues. You don’t see a perceptible bump-up in our business in fact it’s a pretty steady CAGR over the past six years of 21% growth in the business. So, lumpy a little bit from quarter-to-quarter and as you would expect nothing other than Ponzi scheme go straight up so a little bit lumpy, but what’s really driving this business fundamentally and this will continue to be true for very long period of time. Younger patients were being implanted with devices and those patients are living longer and so the physician is being confronted more times in that individual patients life with the decision of what do I do with the hardware that’s left inside and we know for a fact that those physicians that exclusively cap leads and don’t either extract or refer appropriately for extraction. They are providing suboptimal patient care and in fact in the case of infective leads and less than a third of them are extracted that’s a legal condition for the patient.
So, those are the fundamental dynamics and as these patients are living longer infection rates are going up. So, that’s what’s been driving and that’s what we’ll continue to drive it out into the future and one thing that may be interesting to keep your eye on as CRM companies are launching more sophisticated MRI conditional devices. The focus has been on de novo implants and that focus will shift overtime to replace to the replacement market. That is about an order to magnitude growth driver of this business because in order for the patient to benefit from that MRI conditional device we have to take out all of the hardware so, very interesting catalyst two, three years down the road.
Unidentified Analyst
Today have you actually seen a lot of physicians that are willing to switch the patient who already – with the replacement device to an MR conditional device and undergo the additional risk of lead extraction.
Scott Drake
I would say the short answer is no. It’s a very small part of our story today, but we think given what the big CRM companies are doing that indeed will happen and I think what physicians are appreciating more is the relative risk of all of these different considerations that we are talking about. There is a risk to extraction, very small risk, but there is risk, mortality rates are about 0.3%, adverse event rates are about a 0.5% much lower than for example ablation procedures. There is now a very clear emerging view that there is risk to capping especially when you have multiple leads left inside. So, this is a fundamental dynamics of this business are changing and those are you that attend HRS if you saw this year, they had a full day lead management symposium and they required overflow rooms and if you went to HRS five years ago, anyone then talk about lead management there will be 10 guys in a room and it was either before after the show started and now with the central part of the calendar for HRS and it’s becoming a central issue from a clinical standpoint. So, we are benefiting from that and I believe the impact of that is going to be measured in quarters and years and decades not in days so, we love the position that we’re in here.
Unidentified Analyst
One last question, profitability and leverage, right now about breakeven may be a little better if that even get up to a mid-teens operating margins over the long-term certainly reasonable given you got 70% gross margins. How fast can you get there and what are the key variables either positive or negative that will make that shorter or longer.
Scott Drake
Yes, I think the – you are looking at exactly the right way, what we said at the beginning of the calendar year is that in the mid-term, we would see a emerging leverage and then in the long-term we would see meaningful leverage and I think the first stop is kind of the mid teens that the model actually sets up much better than that, but we want to say on the right side of what we are saying to investors. So, few things we are going to drive it, one accelerating top line growth, two, we believe in that long-term environment we can get to high 70s gross margin, and three as we put more products in the bag and have more indications that just represents the leverage to the business over time. So we are doing it organically, but we are also looking in a very disciplined way about M&A opportunities that fit right into the bag and the call point that we have today.
James Francescone - Morgan Stanley
Perfect. I think we will have to call it there, but Scott and Guy thanks very much for being with us.
Scott Drake - President and Chief Executive Officer
Thanks James.
Guy Childs - Chief Financial Officer
Thanks James.
James Francescone - Morgan Stanley
Thank you all.
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