Irvine-based Quality Systems Inc. received a cautious assessment from a Birmingham, Ala.-based investment bank that resumed coverage of the healthcare software maker this month.
“We currently feel that a ‘value trap’ exists,” said Greg Bolan, a healthcare information technology analyst with Sterne, Agee & Leach Inc., in a report.
Bolan wrote that he couldn’t advise investors to accumulate Quality’s shares until “we can ascertain some improvement in the NextGen Ambulatory segment.” He gave Quality a “neutral” rating and a $19 price target.
Quality makes software that doctors and dentists use to manage their practices. The company’s shares are flat since the start of the year, with a recent market value of about $1.1 billion.
Bolan’s report noted that NextGen Ambulatory software, which doctors use to manage their practices, makes up 75% of Quality’s total revenue of $460.2 million and “the lion’s share” of gross earnings. He wrote that he saw the segment as a mid-single-digit grower with margin erosion.
“With the tide of spending by healthcare providers to meet Stage 1 Meaningful Use now behind us, we are skeptical that the NextGen Ambulatory segment will recover in any meaningful way,” Bolan said, referring to a federal initiative requiring doctors to use electronic medical records.
Bolan also mentioned that Quality Systems’ management “has resumed its long tradition of not providing guidance, which we believe is probably best given the uncertainty confronting the ambulatory clinical IT marketplace.”
The analyst looked at other parts of Quality’s business.
Bolan wrote that segment revenue growth in Quality’s revenue cycle management business has “picked up dramatically and we are quite optimistic about the ambulatory RCM opportunity over the coming years.” But he also noted that revenue cycle management makes up only 14% of revenue and 10% of the company’s gross earnings.
Applied Medical Saga Not Wrapped Up
Applied Medical Resources Corp., the Rancho Santa Margarita-based medical device maker, is still fighting against its proposed initial public offering.
Applied asked the Securities and Exchange Commission this month to withdraw the planned IPO, which is set to raise $24.8 million through the sale of 730,000 common shares. An initial filing in late 2011 called for raising $95 million through the sale of 6.4 million common shares, but the company modified it last September.
The IPO was initiated at the behest of Institutional Venture Partners, the Menlo Park-based venture capital firm that owns about 20% of Applied.
The medical device maker said it “submits this request for withdrawal as [IVP and other selling stockholders] and the underwriter they selected for this offering, WR Hambrecht + Co, have not responded to comments and questions regarding the contemplated offering from [SEC] staff for over two months.”
“Based on these and other considerations, the selling stockholders and the underwriter appear to have abandoned the public offering of the securities contemplated by the registration statement,” Applied said in the filing.
SEC officials hadn’t responded to Applied’s request.
Irvine Consultant Wins 3 Contracts
Irvine-based Atrilogy Solutions Group Inc. has received three contracts to help healthcare providers implement new diagnosis and procedure billing codes known as ICD-10. It didn’t disclose the contracts’ values.
The World Health Organization implemented ICD-10, which is used in every industrialized country with the exception of the United States. The Department of Health and Human Services has recommended that healthcare organizations be required to use ICD-10 codes by October 2014.
Atrilogy will provide a financial impact assessment, a strategic assessment, project management and training for South Lake Tahoe-based Barton Health. Barton Health is 100 miles east of Sacramento and includes a 117-bed general hospital, laboratory services, outpatient clinics and doctors’ offices.
The firm is doing an ICD-10 assessment and strategy work for Tulare Regional Medical Center, a 112-bed general acute care hospital in the central California city of Tulare.
Atrilogy is also providing an ICD-10 impact assessment for Palm Beach Gardens, Fla.-based Aurora Diagnostics LLC, a specialized medical laboratory.
More Money for WaveTec Vision
WaveTec Vision Systems Inc., an Aliso Viejo-based device startup, just raised an additional $7 million in funding, according to a Securities and Exchange Commission regulatory filing.
WaveTec, which makes devices that assist in surgeries to replace cataracts with intraocular lenses, didn’t disclose the investor, transaction rounds or proceeds in its filing.
The company started in 1997 and operated on angel funding until 2005. That’s when Versant Venture Management LLC, a Menlo Park-based venture capital firm with a Newport Beach office, first invested in WaveTec.
New Questcor Board Member
Anaheim-based Questcor Pharmaceuticals Inc. appointed Angus Russell to its board of directors. Russell recently retired as chief executive of Irish drug maker Shire PLC.
Questcor makes H.P. Acthar Gel, an injectable drug for treating conditions such as nephrotic syndrome and multiple sclerosis flare-ups. It bought the U.S. rights to potential competitors Synacthen and Synacthen Depot this month from Switzerland’s Novartis AG for at least $135 million.
“We look forward to benefiting from Angus’ 32 years of experience in the specialty pharmaceutical industry as we continue to focus on the treatment of patients’ serious, difficult-to-treat autoimmune and inflammatory disorders,” said Virgil Thompson, Questcor’s chairman, in a news release.
