AiXin Life International MCAR

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https://www.investrend.com/mcarreport.html MedCare Technologies, Inc. (Nasdaq: MCAR) John M. Dutton, Analyst May 13, 1999 DISTRIBUTED BY INVESTREND RESEARCH Date of Report: May 13, 1999 Recommendation: Strong Speculative Buy Recent Stock Price: $6.00 Target Price: 12 Mos. $15 - $17 12 Mos. Price Range: $11.25 - $4.56 Industry Sector: Health Care Services Shares Outstanding(1) 10,550,000 Estimated Float: 5,300,000 Avg. Vol. — 30 days: 44,700 (1) Estimated shares outstanding after conversion of all warrants, stock options, options and convertible preferred. As of December 31, 1998 there were 7,831,105 shares issued and outstanding. Summary MedCare Technologies (the "Company" or "MCAR") utilizes behavior modification techniques to successfully treat incontinence ("IC"). Its MedCare program is now contracted in 78 physicians’ offices, fully operating in 50 offices, as compared to 25 on December 31. Approximately 25 million people in the United States currently suffer from IC but only 1 in 10 sufferers seek any form of treatment. This rate is increasing. The Company recently introduced an internet based health information service called Medcareonline.com which is similar to WebMD.com and MedScape.com. The site is designed to provide consumers with detailed medical information. The web site also provides innovative programs for discussion groups, physicians, and a physician-consumer interactive section. Site revenues will be derived from sponsored areas and events. MCAR has been a development stage company. Its first revenues of $786,586 were reported for fiscal 1998 reflecting the rollout of the MedCare program after a two-year development period. The Company should be solidly profitable in CY 2000 The stock of MCAR is rated a strong speculative buy. We believe the following points summarize the reasons why Company growth should accelerate and lead to a significant rise in common stock valuation: Over 25 million people in the United States and over 200 million worldwide suffer from IC. The number is expected to increase significantly as the "baby-boomers" age. MCAR is the single largest provider of IC services in a highly fragmented market. MCAR is now operational at 50 physician office sites versus 12 one year ago. The Company has introduced a new sales and pricing program that should rapidly expand the number of its sites while reducing cash requirements for expansion. The new program will improve predictability of future earnings. The Journal of the American Medical Association recently published highly favorable results from clinical trials using behavior modification for IC treatment. The percentage of IC sufferers seeking treatment is increasing. Combined with the rising number of IC sufferers, these two trends will produce a dramatic rise in the number of patients seeking IC treatment. Many private insurance programs and Medicare pay for the MedCare program. We expect that managed care plans will begin to insist on behavior modification replacing surgery and pharmacology for initial treatment of most IC. The U.S. Department of Health Services now has a familiarization program for doctors on IC and the use of behavior modification for treatment of IC. Drug firms are educating physicians and sufferers on IC as well. Medcareonline has the potential to be a highly successful internet medical service site being similar to the WebMD.com and MedScape.com models. Earnings per share in fiscal 2000 should reach $.40 -$.45 including the Company’s tax loss carry forward. We expect that this estimate may be exceeded if Medcareonline.com meets management’s expectations. Per share price should move to a target range of at least $15 - $17 over the next 12 months. This would reflect the Company’s fast growing position in IC treatment and 1999 quarterly results validating the forecast fiscal 2000 operating level. Announcements supporting success with Medcareonline.com or adoption of the MedCare program by managed care plans could move the stock to the upper range. We would expect to raise our 12 months target price when future operating results and announcements warrant. Background MCAR is the United State’s single largest provider of non-surgical and non-pharmacological IC treatment services in a highly fragmented market. Its MedCare program is now contracted at 78 physician office sites versus just 12 one year ago. The number of physician offices that offer its IC program is rapidly expanding. The Company’s revenues are currently based on a "partial practice management" contract-pricing model. The Company provides the physician site with a nurse clinician, necessary equipment, and community education. MCAR receives a fixed fee per patient visit. A new pricing model, more attractive to both participating physicians and the Company, has been introduced. This new program should have a significant beneficial effect on both the Company’s reported earnings and cash flow needs. A number of macro drivers are accelerating the Company’s IC treatment growth. The drivers for health care providers include a growing need for additional revenue sources by physicians. The MedCare program provides more effective treatment at significantly lower direct and indirect costs for managed health plans and facilities. On the consumer or patient side, aging "baby boomers" are better health educated, suggesting they will be less willing to accept IC without treatment. Increasing numbers of sufferers will be seeking treatment. To prepare for these increased numbers, the US Department of Health and Human Services is actively promoting physician IC awareness and treatment options. The Department is encouraging physicians to initially treat IC by behavior modification. We expect that Company revenues and profits should significantly increase. Increasing demand from these macro drivers is being met by an increase in treatment capacity resulting from the Company’s site expansion program. While we strongly believe that MCAR’s revenues will surge in the next several years, forecasting the exact timing is difficult. We believe this difficulty relates only to forecasting in which fiscal quarter the surge will begin. While IC is becoming a recognized social, health, and economic problem, its acuity level is not directly life threatening but is a quality of life issue. The surge in consumers seeking treatment will come. The on-going education of consumers with IC as to ways to improve their quality of life coupled with the growing awareness of treatment options by physicians, support this increase. MCAR itself operates an active community awareness educational program to support its physician locations. In the end, the impressive treatment results of the MedCare program, coupled with the substantial economic benefits over surgery and pharmacology, should make MCAR an eventual winner. The Company History. The MedCare program was acquired in August 1995 via a reverse takeover of a public "shell." The MedCare Program was acquired and initial financing completed for an initial capitalization of 6,300,000 shares. The Company has been in a development mode since 1995, with capital provided by the periodic sale of stock. The additional capital has resulted in 7,831,105 shares now outstanding and 10,550,000 after conversion of all options, warrants, convertible preferred, and employee option programs. Its Chairman, Harmel S. Rayat, formed the MedCare program. The other members of its current management team have joined the Company since 1996. The MedCare Program A December 1998 article in the Journal of the American Medical Association ("JAMA") concluded from a first-time randomized clinical trial that biofeedback-assisted behavior treatment is a "safe and effective conservative intervention that should be made more readily available as a first-line treatment for urge and mixed incontinence." These two types represent over 90% of IC cases. Alternative IC treatments are surgical and pharmacological, both higher risk and more costly to the patient and their insurer. The JAMA study concluded that behavior modification was more effective than pharmacology in treating IC, achieving a mean 80.7% reduction of IC versus only 68.5% respectively. The US Department of Health and Human Services estimates that IC, in addition to causing enormous social and health problems, costs the U.S. over $16 billion annually. Incontinence. IC is associated with advancing age, predominantly in woman. While primarily associated with urine, IC also affects a person’s bowels. IC is a growing problem with 25 million people in the United States and, the Company estimates, over 200 million worldwide affected. Because IC is a condition to which social stigma is attributed, most cases go unreported. Approximately 25% - 33% of IC sufferers also experience problems with their bowels. Self-treatment is utilized in 90% of IC cases, and involves using adult diapers and absorbent materials in everyday living. This has made adult diaper products a growth industry. The Company notes that sales of adult absorbent products reached $1.6 billion in 1998 as compared to just $173 million in 1982. IC, most of all, causes a curtailed social schedule, depression, discomfort, and an overall reduction in the quality of life. Statistics on IC prevalence are startling. While gender and age are essential factors, IC is pervasive. A university study of 144 young athletic woman between the ages of 18 and 21 years found that 28% experienced urine IC at some point. For women aged between 30 and 59, 25% suffer IC, and 33% of all women who delivered babies vaginally are incontinent. The IC incidence increases to 50% of homebound women over 60. For males, one in three men who have had prostate surgery are likely to be incontinent. Taken together, these statistics applied to the growing population of America that is over 50 suggests that IC is escalating as a problem. The increase in sufferers who are seeking treatment is substantial. Among patients, there has been a 20% increase over the last two years in the rate at which IC sufferers seek treatment. It is now 1 in 10. Nursing homes credit IC as the cause of up to 50% of their admissions. The nursing home admissions are attributed, among other reasons, to a) assisted living facilities residents with IC leaving due to facility standards, b) the increasing isolated IC elderly living alone, and c) to elderly living with their families who have a progressive IC problem. Alternatives. There have been two main treatment options for reported IC cases. One is surgical and the other pharmacological. The Company estimates that over 60,000 IC bladder surgeries are performed annually at an average cost of $10,000 per surgery. Each surgery has associated hospitalization costs. Surgery can only be used to treat "stress" IC, which together with urge IC, account for 90% of IC cases. The other treatment course, lifetime drug therapy, uses Oxybutinin, but recently Detrol is being prescribed in the majority of cases. Detrol has a reduction in reported bad side effects. Both treatment methods are expensive. The JAMA article concluded that Oxybutinin was substantially less effective for first-time treatment for IC. When patient treatment satisfaction is also factored in, the JAMA article notes that "on every parameter, the behavioral group reported the highest perceived improvement and satisfaction with treatment progress". The JAMA study reported that over 75% of patients receiving Oxybutinin wished to receive another form of treatment compared to just 14% receiving behavior modification training. MedCare Program. The MedCare program is for both stress and urge IC of bladder and bowel. It is a multi-modality program based primarily on using behavioral techniques for treatment. It is designed to activate and strengthen the various sensory response mechanisms that maintain bladder and bowel control. The techniques include biofeedback using EMG (electromyography), pelvic floor muscle exercises, and bladder and bowel retraining. The biofeedback techniques are based on operant conditioning strategies whereby "specific psychological responses are progressively shaped, strengthened, and coordinated." The patient is initially evaluated by both the site’s physician and MedCare nurse clinician. The patient receives a prescribed program based on their clinical, cognitive and residential status. The JAMA article notes that the program may be less beneficial to individuals with "cognitive impairment or those with less motivation." A patient has an initial two-hour visit for evaluation and establishment of their course of treatment. The patient is then seen weekly by the nurse clinician for one hour over the next six to seven weeks, generally eight visits in all. Reimbursement for the visits are covered by Medicare and most managed care and insurance programs. Physician & Site Economics. The MedCare program is best utilized by a group practice, which includes either an urologist or an ob/gyn specialist. The practice enters a "partial practice management" agreement to offer the MedCare program. Under the present pricing model, MedCare supplies all necessary equipment, the nurse clinician, and receives a $145 per patient visit. To make a new site operational, MCAR incurs $25,000 in direct and indirect cost. The physician practice provides space and medical supervision, and nets an overall average of $55 - $60 per visit from an even patient mix of Medicare and most third party insurers. A nurse clinician can handle a maximum of 35-40 patients during their eight-week treatment course. For the practice, this patient level would generate annual revenues without direct expense, of $90,000 to $100,000. MCAR receives between $230,000 and $275,000 per site against which it has direct expenses of $70,000. From the Company’s prospective, a new site generally requires 6 to 12 months until break-even. To develop its 50 operational sites, the Company has had to invest close to $1.2 million in addition to adsorbing development and start-up losses. New Pricing Model. The Company announced in May 1999 a revised pricing model for its MedCare program. The effect on MCAR from the new pricing model should be notable. The new plan requires the physician practice to pay an up front fee exceeding $45,000 for an operational site, eliminating the Company’s $25,000 present negative cash investment. The practice then makes level monthly payments. For the Company, there will be a significant improvement to the predictability to its earnings. For a new site, this represents a cash improvement of $45,000 to $50,000. MCAR continues to provide equipment, billing consulting, software, advertising, and clinical training. The site pays MCAR the fixed monthly fee and assumes financial responsibility for the nurse clinician and the site’s operating costs. The operational leverage from an increasing program patient load will flow to the physician. The practice retains all payments received for the MedCare program. With just 20 — 25 patients, the physician comes out ahead. The Company’s requirements for cash to rapidly expand are reduced. The change makes the program more attractive to larger practices that can derive large program patient volumes from their own patients and referrals. The Company believes, for example, that the average ob/gyn has a database with 4,000 — 5,000 patient names that should translate into 700 — 800 potential IC patients. This would occupy one MedCare nurse clinician full time for several years, and become a substantial source of income for the office. Finally, the new structure places responsibility for recruiting nurse clinicians on the physician practice. The new program encourages the practice to use a nurse presently employed by the practice and reduces MCAR’s growing recruiting burden to staff the opening of large numbers of new sites. Prospective Results Fiscal 1999 is a transition year. The Company was in a start-up phase in 1998 and is now evolving into an operating company. A meaningful forecast of fiscal 1999 results is made difficult by a rapid rise in the number of sites, timing of breakeven of new sites under the old pricing program, a new site pricing program, and the probable conversion of many old sites to the new pricing program. It is also difficult to forecast the timing and magnitude of the Company’s success with managed care plans. We expect this will occur in 1999. The following is our initial look at fiscal 2000, which we expect will be revised during the present fiscal year. Likewise, our ability to forecast 1999 will be clearer as events become clearer. Fiscal 2000 Operations Summary Forecast (thousands of dollars) December 31, 2000 New Old Total Number of sites — BOY 50 50 100 Number of Sites — EOY 170 50 220 Revenues Initial site fee recognition $ 5,760 $ - $ 5,760 Monthly fees 2,880 5,742 8,622 Total revenues 8,640 5,742 14,382 Cost of Sales 1,200 - 1,200 Gross profit 7,440 5,742 13,182 Medcareonline contribution 500 Income before overhead 13,682 General and Admin 8,695 EBIT 4,987 Taxes 0 Net income 4,987 EPS $.40-$.45 Fully Converted Shares plus est. of 1999 financing 11,500 BOY = Beginning of year; EOY = End of year Looking at fiscal 2000, we can better forecast the parameters to an earnings model. The model assumes a continuation of the 1999 Q1 installation rate of 25 new sites quarterly, a majority of new sites contracting under the new pricing program, and a reasonable rate of profitability that the business should produce. The above forecast could be conservative given the recognition that is being accorded behavior modification techniques for treating IC. Added to this recognition is the increasing education of doctor and patient being undertaken by drug companies and the government as to solutions for IC. Further, we believe that managed care plans are increasingly observing the economics and efficacy offered by MedCare and behavior modification. A major upswing in the Company’s business and our forecasts would come from managed care plans switching to MedCare away from surgery and drugs. Timing of this switch is still elusive but is becoming increasingly probable it may commence this year. Importantly, the new pricing model should do a lot to stem the cash requirements for MCAR’s growth, and reduce attendant dilution. The Company has provided additional income upside to the physician under the new plan in exchange for cash, predictability, and a reduction in shareholder dilution to finance its growth. We expect, though, that MedCare will require additional private financing this year of up to $5 million. Results for 1999 Q1 will be released by May 15. We expect this year’s loss for Q1 to substantially exceed the loss reported in 1998 Q1 of $(.06). The Company is attracting essential, experienced executives to fill out its management positions. Their backgrounds run from sales and marketing with major pharmaceutical firms to Arthur Andersen on the financial/accounting side. A new head of Medcareonline was recently announced who has an extensive background in pharmaceutical consulting and sales to the major firms. The impressive treatment results and the substantial economic benefits over surgery and pharmacology make MCAR an eventual winner. We also expect that the IC market size combined with MCAR’s new business model and expanding sites could make it eventually an attractive acquisition candidate to aggressive large health care service providers looking for an immediate leading position.. John M. Dutton, 801 South Figueroa, Suite 1400, Los Angeles, CA 90017, Phone [phone], Fax [phone]. Email: [e-mail]. Investors Research Institute, Inc., P.O. 750471, Forest Hills, NY 11375-0471, Phone [phone], Fax [phone]. Email: [e-mail], https://www.investorsresearch.org , https://www.investrend.com . MedCare Technologies, 1515 West 22nd Street, Suite 1210, Oak Brook, IL 60523 / [phone] Fax: [phone]. Email: [e-mail]. https://www.medcareonline.com/