Seattle-based Phamis, a 15-year-old healthcare software company that hitched a ride on Wall Street 18 months ago, came out of a stock dive last week that had halved its market value since the first of the year.
It was the latest veer for Phamis on a stock-price roller coaster that took off at $18 a share in December 1994 and rose to $31 a year later.
That was before a reversal in earnings started the recent descent from $29.75 at the end of 1995 to as low as $14.50 at a time when the NASDAQ trading system was riding high, recording 10 consecutive records through May 1.
But in the first five trading days of May, Phamis rebounded from $14.75 on April 30 to close at $20.38 on May 7, before falling back to $19 on May 8.
Caught in a squeeze between heavy internal investment and interrupted revenues, Phamis is the latest in a line of smaller healthcare information technology companies to fall short of the steadily rising earnings expected of them once they're publicly traded.
One investment analyst, John Putnam of Boston-based Adams, Harkness and Hill, said Phamis has "caught the same cold as Cerner," the Kansas City, Mo.-based healthcare systems company whose stock has fallen since it started missing earnings targets last fall (Oct. 30, 1995, p. 24).
The stock of another healthcare software company, Evanston, Ill.-based Medicus Systems Corp., has been mired for a month at about $6 a share since trading as high as $20 two years ago and $9 last fall (Oct. 9, 1995, p. 22).
Much of the pressure on earnings stems from company commitments to increase research and development investment in cutting-edge clinical information systems, said Putnam, who follows healthcare stocks for institutional investors.
The current valuations of Phamis and Cerner, for example, are not reflective of their products, he said. "Neither of the companies are bad companies. They're just in a product transition, and a product transition is hard to cope with.*.*.*.*Wall Street investors have no patience whatsoever."
Phamis increased its research and development spending by 101% and its sales and marketing spending by 52% during the first quarter ended March 31. It also posted a charge of nearly $300,000 for acquisition of a physician practice information systems company called DataBreeze.
Phamis was counting on a chunk of anticipated revenues to cover the cost of improving and moving its products, said Gregory Blodgett, the company's chief financial officer. "The opportunity out there is tremendous right now," he said.
But revenues were crimped by implementation delays at several sites. One customer, which Blodgett declined to name, was preoccupied by a vote on a nursing strike, and several others held up implementation because of various internal problems.
At the same time, sales were down from the year-ago period in a volatile sales category-extra computer hardware purchased once a contract is signed and additional need for hardware becomes apparent.
As a result, earnings per share in the quarter dipped to 6 cents, compared with 18 cents in the first quarter of 1995.
Blodgett said the second-quarter earnings are projected to remain flat, but expenses are expected to level off as revenues from an existing backlog of $73 million in contract sales and anticipated new sales start coming in during the second half of the year.
Despite the rough treatment from investors during the past six months, Phamis executives don't regret taking the company public in 1994. It was either go to Wall Street or fall behind in the market, Blodgett said. "Quite frankly, we were in a situation where we really felt a change in how our product was perceived in the marketplace. We thought we could go out and sell systems," he said.
But large healthcare customers "weren't about to bet the company on a small, undercapitalized company," he added. "We really had to get an equity infusion."