Why Cerner Should Vie for Visicu

Visicu (EICU) continued its history of posting strong operating results, posting second quarter results on Thursday with in-line revenues of $9.1 million and beating the high estimate for net income by a penny at $0.06 per share or $2.1 million. Revenues increased 20% from the year-ago period while earnings per share levitated by a healthy 50%. The total revenue backlog at the end of the second quarter was $63.8 million, versus $70.1 million at the end of the first quarter. The stock finished the day strong in spite of weak market, closing above $8 per share, but gave up all its gains and more in after-hours trading, closing at just $7 per share on very light volume.

For those unfamiliar with Visicu, the company’s proprietary eICU system revolutionizes the practice of critical care by using remote monitoring technology to allow systems to centralize scarce critical care trained staff to improve coverage and to allow intervention to prevent or manage crises. This system is consistent with major themes in healthcare today -- namely cost containment and technological innovation.

Investors appeared to be disappointed with the lack of financial guidance due to uncertainty in the timing and implementation of installations for the company's remote monitoring systems. In addition, management stated during the earnings conference call that although the order backlog declined about 10% sequentially, their sales pipeline is increasing at a robust pace as more hospitals are inquiring about the company's revolutionary technology and ! how they can use it to both save money and, more importantly, improve patient outcomes in the intensive care setting. The company also stated that they are actively exploring the possibility for professional service codes that would allow for insurance reimbursement for hospitals using their remote monitoring technology based on the activities of healthcare professionals that run the systems. This would provide hospitals with additional income to offset the expenses associated with maintaining Visicu's eICU remote monitoring systems.

Finally, the company continues to face pending litigation from Cerner (CERN), despite a second successful patent re-examination in mid-June that reaffirmed all 26 claims of Visicu's remote ICU monitoring system. With a market cap just under $250 million and about half of that in cash (over $125 million or about $4 per share of greenbacks), Cerner should just buy Visicu and save itself the headaches and cost of litigation. Since Cerner's litigation is based on a claim that Visicu's patents are invalid, the successful second re-examination by the US Patent and Trademark Office bodes well for Visicu in this legal battle. Also, Visicu is actively working to strengthen its intellectual property by applying for additional patents. Given its history of strong operating results and cash position, Visicu represents a strong buy at current levels of $7 or lower, which are close to all-time lows for the company since its IPO debut in April 2006 at over $20 per share.

Disclosure: Author has a long position in EICU

EICU 1-yr chart