Stung by falling software sales and doubts about its long-term viability, Medicus Systems Corp. has agreed to be acquired by a well-capitalized company that will help restart marketing and boost development.
In a definitive agreement announced last week, Evanston, Ill.-based Medicus will become part of QuadraMed Corp. in a cash and stock deal valued at $41 million. QuadraMed will pay $7.50 per share or its equivalent in stock for all Medicus shares.
QuadraMed is a Larkspur, Calif.-based vendor of healthcare financial management and decision support software and services. The publicly traded company reaped $66 million from a secondary stock offering in October. And it's been on a tear recently, nearly doubling revenues during the most recent quarter.
Medicus was similarly high-flying in 1995, but sales of software products and services slipped to $8 million in fiscal 1997 from $13.5 million in 1995. Steady revenues from support services helped brake the decline in total revenues to $18.3 million in 1997 from $22.5 million in 1995.
During that period, Medicus was "very hindered by not having products to sell," said Patrick Sommers, who became the company's president and chief executive officer in February 1996.
Blessed with a solid customer base of more than 1,200, the vendor was late in retooling popular departmental management and decision support systems for Microsoft's icon-based Windows operating environment, Sommers said.
That forced customers to switch vendors because they couldn't wait for Medicus to update its systems. At the same time, Medicus was sinking millions of development dollars into new clinical and case management products that weren't finding a market, he said.
Wall Street analysts deserted the company, and its stock price has been mired between $4 and $6 for the past year. Sommers said the company's reputation in financial circles had begun to overshadow what he asserted were improvements in products and a sharper product-line focus.
With healthcare providers sinking sizable capital into information systems, size and profitability of systems vendors have become important as decisionmakers weigh a vendor's ability to stay in business and continue to innovate.
Medicus spent $3 million on research and development in the year ended May 31, and it planned to spend the same amount in the current year. Its revenues through October were 22% ahead of the same five months last year, Sommers said.
But it needed marketing muscle to get its products back in front of healthcare organizations, and it had to find resources to finish other products.
QuadraMed's software to code claims, manage contract terms and analyze costs are complementary to many of Medicus' products, he said.*
QuadraMed's revenues in fiscal 1996 jumped to $19 million from $7.6 million in 1995. In the first nine months of 1997, revenues already had surpassed $22 million.