The first half of 2009 indicated an uptick for markets, with healthcare information technology stocks gaining on promises of federal funding in the future more than on their current performance, according to an analyst's report.
Health IT stocks outperformed wider markets this year, showing a 30% gain compared with the Standard & Poor's 500 index, which grew 2%, according to the
Q2 2009 Healthcare IT Transaction Summary, by Healthcare Growth Partners.
Most of that reflects the assumption that funding provisions and IT adoption mandates through the American Recovery and Reinvestment Act of 2009 are going to motivate hospitals and doctors to buy health IT over the next few years, said Christopher McCord, principal of Healthcare Growth Partners. But those drivers are still in the early stages, and it will take several more quarters before the market sees whether the expectations become reality, he said. “Meaningful use still needs to be better understood.”
Companies like Allscripts-Misys Healthcare Solutions, Cerner Corp., Eclipsys and McKesson Corp. posted higher stock prices at the end of the second quarter over the end of 2008. The stock performance came as a surprise, said Jason Baker, managing director of Healthcare Growth Partners, an Elmhurst, Ill.-based healthcare IT consultancy. “Some of these stocks are at all-time highs” and the companies' financial performance haven't justified such prices, he said. “It's clearly based on future expectations.”
Allscripts-Misys, which this month announced results of its fourth quarter ended May 31, saw net income of $13.4 million on revenue of $166.2 million. The electronic health records developer was trading at $15.86 at the end of the second quarter, up from $9.92 at the end of 2008, according to the Healthcare Growth Partners summary. Cerner announced Q2 earnings of $43.7 million on revenue of $403.8 million. It was trading at $62.29 at the end of the quarter, a 38% increase over its year-end stock price of $38.45, according to the summary. Both had a 23% increase in net earnings for their respective quarters.
Still, the optimism first hinted at earlier in the year continued through the second quarter, with two planned initial public offerings completed by two companies.
Medidata raised $88 million in its IPO that finished last month, and IBA Health, now called iSoft Group, completed a $90 million IPO, according to the summary.
While stock performance is monitored, merger and acquisition activity is another benchmark of growth in the health IT market. In the first half of the year, smaller deals were the name of the game, and large IT companies refrained from buying anything, according to the analysts' report.
Companies in the segment continued to merge with others or acquire them outright, with 48 transactions announced in the second quarter this year, compared with 56 announced for the same period in 2008. Those deals were all considered smaller, with values under $50 million, the analysts said. There was a cap on deal amounts because capital markets had tightened up in the recession and organizations could not access funds, McCord said. There will probably be some loosening of those markets in the second half of the year, which means the health IT market could start to see larger companies return to M&A activity, he said.
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