Ten years ago the technology looked more like an Etch-a-Sketch toy than a sophisticated device doctors could use to enter and retrieve patient information at the point of care. But the market for handheld computer devices may finally be gaining some momentum as the Internet and related technologies become ubiquitous.
A report issued late last month by San Francisco-based investment banking firm W.R. Hambrecht & Co. attempted to size up that growing market. The study said that although fewer than 1% of U.S. physicians now use handheld devices for transactions, by 2004 more than 20% of doctors will tap their Palm Pilots or similar products to send prescriptions to a pharmacy, check for drug interactions and even submit claims to insurers.
But there are still hurdles to the technology, one of which is the long-term viability of devicemakers that have yet to post a profit and whose business models--and even revenue--are still nascent. These same vendors, meanwhile, answer to an investment community increasingly wary of any e-business.
One of the companies mentioned in Hambrecht's report, publicly traded Allscripts, offers a case study of Wall Street perils.
Late last month the company had to revise its second-quarter earnings after auditors discovered that $500,000 in revenue was improperly recorded.
In its third-quarter earnings announcement, the Libertyville, Ill.-based company said it lost $15.2 million, or 52 cents per share, on revenue of $14.8 million for the period ended Sept. 30. But it also said that revenue recognized in the prior quarter was "not appropriate" because of contractual ambiguities with a customer--Westport, Conn.-based IMS Health.
"In this volatile market, bad news rings a lot louder than positive news for investors," Josh Fisher, senior research analyst at Hambrecht and co-author of its handheld technology report, said of Allscripts' need to restate revenue.
Fisher said he was unaware of the improperly recorded revenue when he wrote his report.
In Allscripts' case, the bad news rang quite loudly. On Oct. 27, one day after the company announced the new numbers, its share price fell 45% and closed down 90% from its 52-week high of $89.75.
"The amount of the restatement was less than 4% of our revenues for the quarter," said David Mullen, Allscripts' president and chief financial officer. "It was a timing issue related to documentation, not to whether or not there was an agreement in place."
As a result of the correction, Allscripts' second-quarter revenue were $12.1 million instead of the $12.6 million originally reported. The change increased the 14-year-old company's second quarter net loss to $24.8 million from $24.3 million.
In the days following Allscripts' revision, four Wall Street analysts downgraded the stock. And last week the Boston law firm Berman DeValerio & Pease filed a shareholder lawsuit in U.S. District Court in Chicago alleging that Allscripts violated federal securities laws when it misreported the revenue.
Allscripts' handheld prescribing devices are now used by about 2,000 physicians, Mullen said.
Among the other handheld technology vendors mentioned in Hambrecht's 78-page report is ePocrates, a 1-year-old company based in San Carlos, Calif. The privately held for-profit claims that 80,000 physicians have downloaded from the Internet the company's free software, which allows doctors to check prescription drug information on handheld devices.
The company does not yet provide electronic prescription writing, focusing instead on arming physicians with the drug data they need to make informed prescribing decisions.
"As the number of baby boomers taking more drugs and seeing multiple doctors increases, there will be more and more demand for good clinical tools to help (physicians) treat patients," said John Voris, ePocrates' president and chief executive officer.
The company declined to disclose any financial performance information about itself.
Other companies in the handheld market include Durham, N.C.-based MDeverywhere, which provides charge capture services on its handheld device; Mountain View, Calif.-based ePhysician and Weston, Fla.-based Parkstone Medical Information Systems, both of which provide prescription writing and formulary management applications.
Among the challenges ahead for these companies, observers said, is persuading doctors that using a handheld device to write prescriptions is easier and takes less time than it does to scribble out the scripts on paper.
"The younger doctors will embrace (handheld devices) and understand how they're going to make life easier for them," said Peter Holman, vice president of the Vermont Association of Hospitals and Health Systems. "Acceptance by older, established physicians is hard."
Joel Brandt, a solo family practice physician in Santa Barbara, Calif., offers evidence of that theory: "There is certainly a place for this kind of technology," he said. "But when you're an old-timer like me who's been practicing medicine for so long, it's a barrier to learn it."