Add the TriZetto Group as another Orange County IPO that’s shot through the roof. But there’s something different about the Newport Beach-based company. Is it a healthcare company making a play in the Internet or an Internet company making a play in the healthcare industry?
Whatever. Since its debut in October, the Newport Beach-based company has seen its stock increase five-fold on the Nasdaq Exchange, from 9 to 40-plus. Its market cap is nearing $1 billion.
“I think the investment community is only beginning to understand the power of our ASP (application services provider) model,” said TriZetto Chairman, President and CEO Jeff Margolis.
What TriZetto does is help doctors and healthcare organizations manage their information flow over the Internet.
Like many things about Internet companies, the runup is counter to traditional thinking. TriZetto’s in the red this year and analysts don’t believe it will post profits until next year. In the past three months, it has bought two companies and doubled its number of employees to 600.
But Raymond Falci, a New York-based analyst for Bear Stearns, said the Street has been impressed by recent contracts. In December, Trizetto announced a five-year deal worth $10 million annually with QualChoice of Arkansas, one of that state’s largest health plans. TriZetto’s Dec. 22 acquisition of Finserv Health Care Systems Inc. will give it 20 new large customers, including New York Presbyterian Hospital, the city’s largest. This week, it landed a contract to provide software hosting for Humana Inc., one of the nation’s biggest HMOs, with 6 million medical members.
“These contracts have gotten people’s attention as to how powerful their model is and the impact that outsourcing or remote re-hosting in the healthcare industry can have,” said
“Their model is unique,” said Falci, who tracks 20 other companies that are competitors. “Historically, their competitors have sold pre-packaged software that HMOs would have to maintain, but doctors are not known for being good computer people and good business people.
“These guys are definitely visionaries in the health world, in my view. The industry has historically been resistant to change. They’re out there educating people,” he said.
Falci estimates the current market for TriZetto’s model at less than $1 billion annually, but believes it could shoot up to $10 billion in the decade.
TriZetto’s revenue for the three months ended Sept. 30, was $9 million, up from $3.4 million in the same quarter of 1998. The company reported a net loss for the quarter of $2.17 million, down from third quarter 1998 net income of $136,000. Falci said that even though the company is not expected to post profits until next year, he expects it will do so before its competitors. The downside, said Falci, is that if TriZetto doesn’t grow as quickly as expected, it will be punished.
Margolis said TriZetto’s strategy is to forgo profits while growing the top line and grabbing market share.
Margolis, who holds 14% of the shares, is only 36 but he has a wide background in the healthcare industry, including a stint as senior VP and chief information officer of Fountain Valley-based FHP International Corp. before its acquisition by PacifiCare Health Systems, Santa Ana.
Internet company or healthcare company? Margolis leans towards the latter, but not by much:
“Fundamentally, we’re a business-to-business healthcare company, where we support healthcare businesses with the technology they need to run themselves and we connect them to each other using the Internet. What we are not is a business-to-consumer Internet play. We’re not America Online or Yahoo, based on consumers coming to a web site. We’ll leave that to others. What needs to get fixed in healthcare is their inability to connect to each other, and they in turn can relate directly to consumers.” n
