IPO Analysis: Visicu Has Low Competitive Barriers (EICU)

Story: Visicu Inc. sells a system for remote monitoring of patients in hospital intensive care units (ICUs). They claim their "...eICU solution has been proved effective at reducing mortality by more than 25%." Their marketing story is that patients in intensive care need high levels of monitoring, and they claim that about 10% of deaths that occur in ICUs could have been prevented through greater monitoring. They claim a doctor shortage, and their system is designed to allow those well trained physicians that do exist to remotely monitor more patients, more effectively.

Those claims seem wildly inflated to me. I'm not a health care specialist, so I could be wrong, but I think the situation is quite different. First, almost all doctors, during their medical school training, go through a stint in an emergency room, and almost all of their other general training is also applicable to "...care for critically ill patients...", so if there is any doctor specialty shortage in this field, I'm guessing it has only to do with interest and compensation, and not with skill set shortage.

Second, it is my impression that there is no place in a hospital that is better monitored than the ICU. It's just not the case that patients languish unmonitored, at least not in any hospital I have ever been in in America. So the dire need for more monitoring seems overblown. Finally, 10% of ICU deaths preventable? If that were true, I hope the tort lawyers are going crazy on the negligent medical care givers. That just seems like an absurdly high number. 1-2% I would believe, 10%? No way. Maybe overall, but not in the ICU, and if in the ICU, how do you measure and prove it?

So, rather than their marketing position of dire unmet need bridged by their technology, I think the market position is something more along the lines of they have a better replacement technology, that offers cost savings as well. That is, marginal improvement, not disruptive technology.

Here's what the eICU system provides:

Video-conferencing/Video-assessment - web cams to watch patients. That seems useless and a big step down in service to me, if I were a patient. It may provide a hospital some liability coverage though. Medically useless, and can be duplicated for about $30 from Office Depot.

Image acquisition - scanning of x-rays and doctors notes for network transfer and availability. Medically useful, but can be duplicated for about $100 from Office Depot.

Remote Bedside Monitoring - medically vital, but as far as I know it's been around for about 15 years already, and every ICU already has something along these lines. Their implementation has some barriers to entry, but it depends on the "...tools supplied by bedside monitor vendors..." Not unique.

Dedicated hot phones - dedicated instant line between physician and ICU. Medically useful, but can be duplicated for about $50 from Office Depot. The real point is having the doctor available.

Are they serious? Those are all fine ideas, but so is putting on your shoes before you go outside. You wouldn't today build a business model around that. Their hardware technology is a joke. They do state that they have all received FDA clearance, and are HIPAA privacy compliant, so that is a bit of a barrier that they overcame. Still seems like a joke. With a web cam, remote wireless weather monitor, and a scanner, I think my office system compares to theirs. And mine is cheaper, and close to cutting edge, but not FDA approved.

On the other hand, they offer software that they claim allows for the detection of problems much earlier than conventional monitoring systems, pipes all the info to a central location, tells the people there what to do, and tracks the outcomes. Again, this seems to me to facilitate lower quality care on the cheap, rather than higher quality care. Ever called an advice nurse today with a medical problem and got a diagnostic chain of questions and opinions that you had just read on the internet? That is, a monkey could just as well be reading them back to you. That's what the eVantage software facilitates, and it is not the same thing as talking to the doctor, who has first hand experience, and will offer you a quality opinion, although their system facilitates the analogy to that too. And remote monitoring is the standard already.

Their only competitive barrier is the FDA approval. I am unimpressed with the hardware and software, and view market adoption as driven by cost cutting, not quality. That may be a fine market driver. Let's see.

Company: From their prospectus, they have had operating losses for every year of the five years shown, and while revenue has increased recently, so have operating expenses. They have no demonstrated profitable business model, but a possible path to profitability. For example, using their 2005 data Y/Y revenue increased by 232% ($18.3M/$5.5M) or $12.8M, but operating expenses increased 47% ($20.0M/$13.6M) or $6.4M. So if they scale up large enough they may finally be operationally profitable, but they should have proven they can do that before asking for our money. They seem weak.

Since they have operating loses, we can't even calculate operating P/E's, etc.They show GAAP net earnings only because of an income tax benefit. Dog. They are not complete trash - their products work fine - they are just no where near good enough for a business investment.

Stock: EICU priced at $16/share on 5Apr2006, above its initial estimate of $13/share, and could be had easily for around $23/share on the open market. I'm surprised they received any sort of premium in the marketplace. Pass.