The stars are aligning for CardioNet (BEAT).
Its focus on monitoring cardiac patients in their homes dovetails with the Obama administration’s plans to both improve delivery and reduce costs of medical services.
The patient population is increasing, not only because of increasing age, but also because Americans can’t seem to give up the excesses of diet and sloth that can provoke heart disease.
And the wireless technology that makes CardioNet’s products and services possible is much advanced and improving.
CardioNet supplies heart monitors that people can wear as they go about their daily lives. The monitors can transmit warnings of heart anomalies to CardioNet’s call center near Philadelphia.
CardioNet staff can alert both the physician and the patient when an arrhythmia occurs.
The company provides big savings to the health care budget, says Randy Thurman, chief executive since February. Patients who receive heart monitoring without a wireless device might spend three or four nights in the hospital at a cost of $25,000, he says.
Compare that with $1,400 for CardioNet monitoring. That’s almost 18 patients going about their lives for the price of one in the hospital.
Real-Life Situations
Meanwhile, the patient is being monitored in real-life situations with real-life stresses. Patients in the hospital may be largely immobile and have artificial stress.
CardioNet’s device is about the size of a BlackBerry, with three electrodes and two leads.
The key to the company’s business is comfort and security for patient and doctor. “A patient can call us in the middle of the night when he can’t call his doctor,” Thurman said.
Worried patients can also call in to CardioNet. Diagnostic analysts on duty 24/7 can reassure patients if the monitor shows no abnormality, or otherwise guide them to care.
The company has a vision around the concept of wireless medicine, says Rick Wise, an analyst at Leerink Swann. The wireless technology used by CardioNet comes from Qualcomm (QCOM) .
“If you let your imagination walk, not even run, you can see the need to monitor patients and determine what’s real and not has an enormous future,” Wise said.
CardioNet has bridged two health sectors, says Matt Dolan, an analyst at Roth Capital Partners. The company meshes personal medical services with medical technology.
Wise says the company has a fascinating product blend: “It’s one part medical device, one part information technology and one part service.”
The current market for heart monitoring with all technologies is $2 billion, Dolan says. Because CardioNet is low-cost and high-value, it received a specific reimbursement code from the Centers for Medicare and Medicaid Services, the federal body overseeing Medicare and Medicaid.
That’s a big deal. It confers legitimacy on CardioNet and means private-sector insurers are apt to cover its service as well.
In fact, CardioNet has already signed reimbursement deals with private insurers who cover 200 million people, Thurman says.
CardioNet got the federal reimbursement code because it is three times more effective at detecting cardiac arrhythmias over a three-week period than conventional diagnoses, Dolan says. “It can do things in real time, and it’s more automated than any other method,” he said.
Conventional methods of diagnosis include treadmill stress tests and a blood test to look for enzymes coming from damaged heart muscle.
Competitors include LifeWatch, owned by Swiss firm Card Guard. LifeWatch has 20% of the cardiac monitoring market, Dolan says. CardioNet has 10%.
Another competitor is Philips Healthcare (PHG) .
About half the market for cardiac monitoring is held by local firms.
Thurman has big plans for the company. Dolan says that’s no surprise. In 2007, Thurman guided Viasys Healthcare to a $1.5 billion acquisition by Cardinal Health (CAH) .
CardioNet has given guidance for the next three years. That’s rare.
“While most companies are pulling their guidance,” Dolan said, “CardioNet is looking over the horizon.”
That long-range forecast is one reason for the recent run-up in share price, says CEO Thurman. “Our strategy is to provide better earnings than when the company went public,” he said.
Stock Performance
CardioNet’s IPO was in March 2008. The opening price was 18.
The stock almost doubled by August, then fell back to its issue price in December. It now trades at 26.
Thurman promises to deliver earnings of 69 to 74 cents per share for 2009. That would be double 2008’s results.
For 2010, Thurman says CardioNet will have earnings of $1.00 per share. Analysts reporting to Thomson Reuters are more optimistic, anticipating $1.36.
Thurman predicts $2.00 in earnings for 2011, while analysts project $1.85. He says he will dramatically increase margins.
How will he pull it off? One way is with acquisitions like Biotel, the Eagan, Minn., firm CardioNet bought for $14 million. Thurman announced the deal April 2.
Biotel fits right in with CardioNet, Thurman says. It has digital recorders that log cardiac function over a month or more.
It manufactures components for ultrasound and flow-measurement devices. Thurman is particularly enthusiastic about Biotel’s Chicago-based unit, Agility Centralized Research Services of Chicago.
Biotel offers centralized research services to device makers and biopharma companies testing their products in clinical trials for cardiac side effects. “We see that as an excellent add-on,” Thurman said.
With the Food and Drug Administration as well as Congress demanding better proof of drug and device safety, the Agility division will be a winner, says Leerink Swann’s Wise.
Agility already has some big-name clients, Thurman says. One is Medtronic (MDT).
The Biotel acquisition alone won’t be enough. Thurman plans more aggressive marketing. He’s also doubling the company’s sales force.
All of these moves cost money. Thurman’s plan is to spend it now to reap major rewards in 2010 and 2011.
For now, Wise says, CardioNet is focused on cardiology: “There’s a lot of opportunity to add technology and know-how and services and features and benefits.”
Dolan, of Roth Capital Partners, said: “The implications of where this concept can go is pretty impressive.”
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