The dazzling performance of many healthcare information systems companies is drawing a flood of investor interest, attracting capital to the tasks of developing innovative information technology and then meeting production demand.
As interest grows, Wall Street is scrambling to define the healthcare information sector and compile the statistics that recommend it as an investment opportunity.
Last month, a New York-based investment bank, Punk, Ziegel & Knoell, introduced a monthly index that tracks the performance of 28 companies offering software, hardware and data for healthcare information purposes.
The firm expects to expand the list as more companies go public, said Sally Yanchus, the firm's healthcare information systems analyst.
The healthcare information sector was once dominated by hospital-oriented financial and accounting software, but now it's expanding to include clinical and networking systems in hospitals and physician offices. In addition, companies that compile and analyze information for healthcare customers are coming into their own. The index recognizes this breadth, Yanchus said.
Eight of the 28 companies in the index launched their initial public stock offerings in 1995 (See chart). And five other public companies on the list completed new equity offerings last year.
The attraction for investors: rapid stock price appreciation and fundamentals pointing to more of the same.
For calendar 1994 and 1995, the healthcare information systems index was up 178%, compared with a 35% gain in the NASDAQ Composite Index during the same period. The rise was steepest at the end of 1995, Yanchus said.
The average share price appreciation for the group in 1995 was 55%, compared with 34% for Standard & Poor's 500-stock index. Hottest on the list was HCIA, a Baltimore-based healthcare research and information company, up 234% for 1995 after going public on Feb. 22.
"Anytime you get performance like this, it attracts a lot of attention," Yanchus said.
Powering the acceleration in stock prices is a rapidly expanding market, which Yanchus expects will triple its annual revenues in five years. From an estimated $9.5 billion in 1995, the sector should grow to $12 billion in 1996, $22 billion in 1999 and $27 billion in 2000, Yanchus said.
"New companies and new technologies should continue to enter this market, both in the near and medium term, providing an attractive range of investment vehicles in the sector," she said.
Market capitalization reached $13.7 billion for the index group in 1995, though only four of the companies had capitalizations of more than $1 billion.
HBO & Co., a healthcare information systems and services company based in Atlanta, topped the list with a capitalization of $3.2 billion, computed by multiplying the number of shares outstanding by the year-end stock price.
The other three companies were Atlanta-based Medaphis Corp., a physician practice management systems company, with a market value of nearly $1.8 billion; Value Health, an Avon, Conn.-based healthcare benefits management and consulting company, $1.5 billion; and Shared Medical Systems, a Malvern, Pa.-based healthcare information systems and services company, $1.3 billion.
Despite gains by these market leaders, no company comes close to dominating the sector. That increases the chance for a small company to make a mark with a good product, Yanchus said.
Further enlivening the investment prospects in this sector are the potentially high profit margins of the software business, which has high research and development costs but little production overhead and minimal material costs compared with manufacturing.
For example, Medic Computer Systems, based in Raleigh, N.C., enjoys 40% gross margins, while Seattle-based Phamis registers margins of 60% or more on the software component of its systems development and installation business, Yanchus said.
A sampling of information systems stock prices
Price Price Percent
Company 12/29/95 12/31/94 change
CORE $8.50 $3 183%
Access Health 44.25 17.25 157
HBO & Co. 76.63 34.38 123
Medic Computer Systems 60.50 31 95
CyCare Systems 25.63 14.88 72
Phamis 29.75 18 65
Shared Medical Systems 54.38 33.13 64
Medaphis Corp. 37 23.25 59
CIS Technologies 3.25 2.31 41
Value Health 27.50 36.88 -25
GMIS 13 19.50 -33
Medicus Systems Corp. 8.25 15.75 -48
Cerner Corp. 20.50 44.13 -54
Source: Punk, Ziegel & Knoell HCIS Index
Initial public offerings in 1995
Date Year-end Offering Percent
Company went public price price change
HCIA Feb. 22 $46.75 $14 234%
Summit Medical Systems Aug. 4 21.50 9 139
Imnet Systems July 20 24 12 100
Enterprise Systems Oct. 20 30.50 16 91
Health Payment Review Aug. 10 30.13 16 88
Physician Computer Network May 2 9 5 80
HealthPlan Services Corp. May 19 25 14 79
Pace Health Management Systems April 22 2.63 5 -48 Source: Punk, Ziegel & Knoell HCIS Index