Zix Launches E-Prescribing Business

Zix Corp. (ZIXI) is a tiny $100 million company investing big in its emerging E-Prescribing business.

E-Prescribing is being introduced to busy physicians which enables them to prescribe a patient script directly from a hand-held device to a pharmacy. There appears to be numerous benefits to this practice. The service saves time and money while also minimizing the chance of prescribing errors. According to a company presentation, there were 1.5 million medication errors last year, which resulted in 7,000 deaths.

The service is being tested in pilot programs throughout the United States. One of the major advocates for E-Prescribing is the managed care industry. According to ZIXI management, several managed care plans including Aetna (AET) and Blue Cross/Blue Shield have helped roll out the pilot programs. The insurers also have elected to pay for the implementation, training and costs of the services for the physicians. The insurers are not altruistic. Instead, they receive cost savings because the system highlights particular preferred and generic drugs that the physician can prescribe.

The pharmacy chains are also supportive. They process all the scripts through SureScripts, a private LLC, formed by Wal-Mart, Rite AID, Walgreens and CVS. ZIXI receives a small payment for each script routed through this network.

ZIXI has only one major competitor Allscripts (MDRX). However, the companies are pursuing two different marketplaces. MDRX is a larger company and is looking for the bigger markets, primarily hospitals and large clinics. ZIXI is involved in the smaller markets, mostly clinics with ten prescribers or less.

According to a recent investor presentation by the company, more than 80% of doctors are working in practices or groups of 10 physicians or less. The overall U.S. market is estimated to be approximately $500 million, with the estimated number of prescribing physicians being 225,000. It appears that there is plenty of business for both firms.

Overall, the future of E-Prescribing offers potential, and could provide a tiny micro-cap player like ZIXI with some serious growth opportunities. ZIXI would also benefit from the managed care companies shouldering most of the initial roll-out costs.

The real challenge to the success of ZIXI, and E-Prescribing will lie in physician education, and making certain that they understand the potential benefits of such a system. Most physicians are already under a great deal of time constraints caused by the managed care industry, and any new technology, business system, or application being promoted by it makes most practitioners bristle. Thus, the E-Prescribing system must be easy to use, and add an almost immediate value to the practice.

ZIXI, which already has an established, and profitable email encryption business, is worth watching because E-Prescribing could provide the company with an opportunity to triple business revenues over the next 3-5 years.

ZIXI 1-yr chart

Comments

[Kris Tuttle]

It's an interesting little story. One fly in the ointment is that these small offices lack the infrastructure and expertise to support mobile wireless devices which are the front end of the system. This creates a little bit of a chicken/egg issue. If ZIX steps in to solve it their business shifts and maybe so do margins. Maybe they can partner with someone like BestBuy/Geeksquad or Cisco.

The other issue is the company has a checkered past and several pending class-action suits regarding the whole issue of penetrating these small offices. In sum the problem is harder to solve than it appears and the opportunity may demand the resources of a bigger company.

[voiceofreason]

CVS/Caremark also has an Erx tool but they are in the same boat as Zix insofar as they do not have a specific field support team to help when technical issues arise. The Sales Reps do it all. (sales, enrollment, field tech support, utilization) They should have separate groups to support each area.

[voiceofreason]

CVS/Caremark also has an Erx tool but they are in the same boat as Zix insofar as they do not have a specific field support team to help when technical issues arise. The Sales Reps do it all. (sales, enrollment, field tech support, utilization) They should have separate groups to support each area.