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If you missed getting into the initial public offering of MedicaLogic (MDLI) last December at 17 a share -- which had shot up to 51 by mid-February -- don't fret. The stock is now languishing at 6. A leading provider of Internet-based electronic medical records (or, EMRs), MedicaLogic had been hot when Internet-linked shares hogged the market spotlight and soared to unprecedented heights earlier this year.
But the market's sharp tumble in March, exacerbated by MedicaLogic's big acquisition of two companies -- Medscape and Total eMed -- helped pull the stock down. The Street felt that MedicaLogic -- now called MedicaLogic/Medscape -- had overpaid for the buys. The stock dived to 13 in April, and by mid-May it had collapsed to 8.
But rather than avoid it now, some pros think the stock has become a real bargain. At its currently depressed price, argue these pros, it offers investors a second chance to ride up with MedicaLogic, which they figure should at least double in a year.
BULLISH BUNCH.
"The risk-reward ratio is definitely more favorable at the stock's current price," says Kevin Berg, analyst at FAC/Equities, who rates it a buy. He sees MedicaLogic climbing to 13 within 12 months. Berg isn't alone in his bullish stance. Other Street analysts who are high on MedicaLogic include Sheryl Skolnick of Robertson Stephens, Daren Marhula of U.S. Bancorp Piper Jaffray, and Steven Halper of Donaldson Lufkin & Jenrette, which led the group of underwriters that took MedicaLogic public.
The company is a leader in the nascent e-health business, says Berg. "It provides an exceptional product to a potentially high-growth market," he argues.
Berg sees MedicaLogic's Medscape acquisition as a big addition to its future growth. Medscape is the premier provider of online medical information for doctors through its Web site, Medscape.com. The latter also provides consumer-oriented medical and health information through CBSHealthwatch.com.
DIGITAL NOTES.
MedicaLogic's other recent purchase, Total eMed, is a pacesetter in outpatient digital-transcription services for physicians. It enables doctors to dictate patient notes that are then transcribed to an EMR within 48 hours. The combined company -- MedicaLogic/Medscape/Total eMed -- offers an "unmatched suite of Internet health services focused on the physician at the point of care," explains Berg.
MedicaLogic's Web-based EMR is the first fully functional service that meets the needs of the individual doctor in a cost-effective manner, he adds. With MedicaLogic's products, says Berg, physicians could increase their revenues, cut expenses, build a stronger relationship with patients, and have less difficulty complying with the complicated and cumbersome requirements of health-care rules and regulations.
MedicaLogic enables physicians to electronically gather valuable health-care data related to pharmaceuticals, patient compliance in taking drugs, and treatment protocols that can be helpful in improving care. Right now, more than 3,600 physicians have registered to use MedicaLogic's Web-based EMR services, and Berg expects the company to increase its total user base to more than 125,000 by yearend 2002. The addition of Medscape and its 160,000 registered U.S. doctors connects MedicaLogic directly to its target market of practicing physicians.
PAPERLESS OFFICE.
Early believers in MedicaLogic included investor George Soros and Benchmark Capital. They helped raise $100 million in private equity before the company went public. Berg concedes that MedicaLogic is a stock for long-term aggressive investors, since he doesn't expect it to break even until the second quarter of 2002.
For its products and services, MedicaLogic collects a $99 monthly fee from registered doctors. For physicians with 30 or more patients, MedicaLogic provides a completely paperless office. The company charges some $3,000 per doctor for this complete office solution that interrelates with a physician's practice-management system. The doctor also pays a setup fee, including hardware and servers, of more than $25,000 per office. To reduce those costs, the company is now trying to offer this particular service on a subscription basis.
Berg sees revenues jumping to $52 million this year and to $189 million next year, vs. last year's $19.7 million. The company is expected to still be in the red this year and next. It is scheduled to report this evening its second quarter results, which are expected to meet analysts expectations.
If MedicaLogic executes according to its business plan, says Berg, its EMR solution should become "the standard" in the medical practitioners' community. Then, helped by selling additional services to physicians at little extra cost to MedicaLogic, Berg expects to see its revenue opportunities multiply even more.
Gene Marcial is Business Week's Inside Wall Street columnist
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