Download (ZMD-TSX) -$0.28 Target - $0.55 (BUY)

ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
MARKET INFO
$0.28
Closing Price, July 14, 2008
$0.550
12 Month Target Price
96.4%
1-Year Return
$0.215 - $0.550
52-week range
83.21 MM
S/O basic
127.1 MM
Fully diluted
$35.6 MM
Market Capitalization (f.d.)
$35.6 MM
Enterprise Value
$0.10
Book Value / Share (f.d.)
36,338
Avg. Dly. Vol. (3 mo.)
0.7%
Total Debt to Equity
FYE June 30
FY 2007A FY 2008E FY 2009E
Revenues
$0.722
$1.005
$3.421
Revenue Growth YoY (%)
n.m.
39.2%
240.5%
EBITDA (mm)
($3.677) ($2.645) ($1.089)
EBITDA Margin (%)
n.m.
n.m.
n.m.
Net Income
($4.102) ($3.530) ($2.136)
Net Income Margin (%)
n.m.
n.m.
n.m.
FD EPS
($0.08)
($0.05)
($0.03)
FD FCF
($0.05)
($0.06)
($0.04)
Valuation
FY 2007A FY 2008E FY 2009E
P/E
n.m.
n.m.
n.m.
EV/EBITDA
n.m.
n.m.
n.m.
Book value / share
$0.09
$0.05
$0.08
ROE (before 1-time items)
-93.0%
-51.7%
-33.1%
Quarterly EPS (fd)
Q1
$0.02
($0.01)
($0.01)
Q2
$0.02
($0.01)
($0.01)
Q3
$0.01
($0.01)
($0.01)
$0.03
($0.01)
($0.01)
Q4
INITIATING COVERAGE
We are initiating coverage of ZoomMed Inc. (ZMD –TSX.V) with a
BUY recommendation and a twelve month target price of $0.55 for
a potential 96.4% return.
INVESTMENT THESIS
ZMD’s network is positioned to deliver a platform that in our
estimation could be worth in excess of $340 million or 7x today’s
EV. To arrive at this figure we estimate that 20,000 doctors will
use the platform with each one generating $4,250 per year in
advertising revenue to ZMD. As this would be a recurring revenue
stream, we are comfortable applying a 4x to 5x multiple of
revenue to yield $17,000 to $21,250 of EV per doctor. We believe
that as the ZRx Prescriber reaches a critical mass of users, ZMD
will benefit from a revenue stream that becomes based on a
percentage of pharmaceutical value processed as opposed to the
current flat fee per ad model that exists today.
Increasing the number of users is the critical success factor for
ZMD, as it has already proven that its technology works and is
effective. A market test showed a 90% statistical level of
confidence that doctors introduced to the system would became
Notes: All values in million excluding per share data.
regular users of the system. When extrapolated to a mainstream
EPS (fully diluted) are based on continuing operations, and
do not include one-time or non-recurring items. FY may not
adoption assumption, the results create a meaningful recurring
equal quarters due to rounding.
revenue stream for ZMD. An October 2007 sample of 846 doctors
Source: M Partners Inc., Company Estimates
using the ZRx Prescriber in Quebec revealed that the group
generated an average of 35 prescriptions per day for each day
worked over a five month period. The participants included 503
males with an average age of 53 years and 343 females with an
average age of 45 years. This demonstrates that adoption
occurred among doctors who have been practicing for many years,
a group which many believed would have been resistant to
utilizing the new technology. We estimate that 14.8% of Ontario
and 32.7% of Quebec general/family physicians will be ZMD users
by the end of FY 2009, and we expect this number to be much
larger if a carrier relationship is signed during 2008, creating an accelerated rollout in 2009. Fundamental to
a concentrated market share position and the associated premium valuation remains an eventual revenue
model shift reflective of the value and influence the network would command on pharmaceutical prescribing
and education. Investors today have an opportunity to establish a position in advance of the anticipated
aforementioned milestones and as a result benefit from an expected rise in the share price. We expect 2H08
and FY 2009 to be a time of milestones and believe that this relatively unknown story backed by a proven
management team that built and sold Les ordinateurs Hypocrat Inc. to FoxMyer Health will gather
momentum leading to greater investor interest. Our Buy recommendation and twelve month $0.55 price
target is based on a physician adoption rate of 42% in Quebec and 23.8% in Ontario and a transition from
the current flat rate per drug revenue model to a percentage of pharmaceutical value processed.
Member of the Investment Dealers Association of Canada (IDA)
Participating Organization – Toronto Stock Exchange (TSX)
Member Canadian Investor Protection Fund (CIPF)
Research • Trading • Advisory
Husein Kirefu
Research
416.603.7381 x231
[email protected]
1
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
COMPANY HIGHLIGHTS
ZoomMed is building a marketplace for pharmaceuticals by bringing together a network or physicians,
pharmacies and pharmaceutical advertisers. ZMD has proven itself to be the link that moves prescription
information from the point of prescribing into an electronic medical/health record system.
Electronic Prescribing: In 2007-08, Canada Infoway’s business plan made reference to spending
$250 mm to “Implement solutions that allow prescriptions to be sent, viewed and confirmed
electronically. Drug-to-drug interaction checks are performed automatically and added to the
patient’s drug profile to warn of potential dangers”. We see this as a positive statement in support of
electronic prescribing and drug-to-drug interaction management.
Physician Adoption: As of October 2007, 846 doctors were using the ZRx Prescriber out of the
Montreal area. The statistics of the sample are 503 males with an average age of 53 years and 343
females with an average age of 45 years. These statistics demonstrate that adoption is occurring
even among doctors who have been practicing for 20 years. A sample of 846 doctors generated an
average of 35 prescriptions per day for each day worked over a 5 month period. Statistically, the
sample of doctors produces a 90% confidence level that the application will be accepted by
physicians and the prescription volume will hold true.
Pharmaceutical Adoption: We expect in Q208E 7 drugs to be advertised on the platform by 4
drug companies. ZMD is pricing its premium advertising package at $120,000 per drug per annum.
A study by the Boston Consulting Group found that a majority of physicians who visit health-related
Web sites report that the information they find online has a strong influence on their medical
decisions: “…e-prescribing could undermine the influence of drug reps and direct-to-consumer
advertising by making formularies considerably more accessible and more enforceable at the point of
prescribing…[pharmaceutical] companies must continue to hone their e-health strategies or forfeit
their place in the examination room…”.
Proven Management: Yves Marmet, CEO of ZoomMed Inc. and Andre Marmet, Director of
ZoomMed Inc. founded in 1980 Les Ordinateurs Hypocrat Inc., a provider of healthcare technology
services. Hypocrat grew to become a leading provider of Health IT services in Quebec, servicing 40
hospitals, 700 pharmacies, 500 medical clinics with more than 5,000 physicians, 200 dental clinics,
and 130 nursing homes. In 1995, the company was sold to FoxMyer Health Corporation.
VALUATION
We used a Discounted Cash Flow (DCF) model to calculate our non-carrier catalyst target price given it
reflects a longer-term view based on future cash flows and fundamental analysis which in our opinion is
appropriate for an early stage company.
Significant assumptions in our model include:
1) Integration to Electronic Health Records (EHR), billing and scheduling systems remain at the current levels
of 80% in Quebec and 27% in Ontario. Additional adoption represents upside to our model,
2) Acquisition of physicians in Quebec rise to 2,800 by Q4 FY 2009 (now 1,350) and 1,850 in Ontario (now
630), and,
3) An increase to ten drugs being advertised by Q408E (now seven)
Member of the Investment Dealers Association of Canada (IDA)
Participating Organization – Toronto Stock Exchange (TSX)
Member Canadian Investor Protection Fund (CIPF)
Research • Trading • Advisory
Husein Kirefu
Research
416.603.7381 x231
[email protected]
2
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
DISCOUNTED CASHFLOW (DCF)
Based on five-year assumptions that exclude the
signing of a carrier agreement, we arrive at a
valuation of $0.55 per share. The model
estimates 86% CAGR revenue growth with a
terminal growth rate of 5%, and a WACC of
14.1%. The terminal growth rate of 5%
represents a conservative estimate as the historic
prescription CAGRs have averaged 5.8% and
6.2% over the last 11 years and 5 years,
respectively. Our WACC rate of 14.1% reflects a
risk premium given the early stage of the
network’s development.
Our discounted cash-flow sensitivity analysis table
demonstrates the sensitivity to both WACC
(discount rate) and terminal growth rate to the
share price under current revenue and cash flow
assumptions. As the network is built out, we will
look to lower our discount rate as we see risk
being reduced as the business model is proven.
ZoomMed Inc.
Discounted Cashflow
FYE May 31
(C$ 000's)
(C$ millions)
2008E
ZRx Prescriber
YoY Growth
ZoomCite Strore
ZoomCite Franchise
Total Revenue
Growth Rate
EBIT
Operating Margin
Taxes
Tax Rate
EBIT - Taxes
Depreciation & Amortization
Growth Rate
Capital Expenditures
Growth Rate
Change in Working Capital
Growth Rate
FCF
Growth Rate
WACC
Discount Factor
Present Value
EBITDA
0.456
0.515
0.034
1.005
(3.657)
n.m.
0.0%
(3.657)
1.011
(1.146)
(0.357)
(4.149)
2009E
2010E
2011E
2012E
2013E
2.757
505%
0.639
0.025
3.421
240%
(2.335)
n.m.
0.0%
(2.335)
1.245
23.1%
(2.894)
152.6%
0.075
-121.0%
6.868
149%
0.651
0.049
7.568
121%
(1.327)
n.m.
0.0%
(1.327)
1.447
16.2%
(2.401)
-17.0%
0.308
309.1%
11.447
67%
0.665
0.099
12.210
61%
1.991
16.3%
0.0%
1.991
1.562
8.0%
(2.097)
-12.7%
0.056
-81.8%
16.381
43%
0.678
0.197
17.256
41%
6.487
37.6%
0.0%
6.487
1.543
-1.2%
(1.331)
-36.5%
0.031
-44.7%
21.284
30%
0.691
0.394
22.370
30%
11.174
50.0%
1.222
10.4%
9.952
1.437
-6.8%
(1.265)
-4.9%
0.014
-55.1%
(3.908)
-6%
(1.974)
10.138
1.513
6.730
14.1%
0.876
-49%
14.1%
0.768
-177%
14.1%
0.673
345%
14.1%
0.590
51%
14.1%
0.517
(3.425)
-31.9%
(1.516)
1.6%
1.018
29.1%
3.971
46.5%
5.243
56.4%
Terminal
Year
Growth Rate
5.0%
116.983
14.1%
0.517
60.491
Source: M Partners Inc.
Terminal
Growth
Rate
0.55
4.5%
5.0%
5.5%
6.0%
12.0%
13.0%
$ 0.71
$ 0.76
$ 0.81
$ 0.88
$ 0.61
$ 0.65
$ 0.69
$ 0.73
Discount Rate
14.1%
$ 0.52
$ 0.55
$ 0.58
$ 0.61
16.0%
20.0%
$ 0.41
$ 0.43
$ 0.45
$ 0.47
$ 0.28
$ 0.29
$ 0.29
$ 0.30
Source: M Partners Inc.
M&A THESIS
Our DCF based target price excludes any benefit from a possible Telus acquisition. We see Telus as a
potential strategic acquirer of ZMD, given the synergies with Emergis, which was acquired by Telus, and the
attractiveness of the physician market to Telus’ Health Division. The Telus Health strategy may be best
described as bundling, which means combining commodity voice and data services with value added services.
Bundling strategies aim at protecting existing commodity revenue streams by removing pricing transparency.
As an affinity group, a potential population of over 20,000 physicians can be profitable to Telus. The PDA
provided by ZMD can be activated for voice/data, as required by the physician. ZMD provides an entry point
for Telus acquiring not only the mobile relationship but other telecom services consumed by the physician at
the office and home. For example, Telus can offer a physician a cost effective plan that gives the physician a
bundle inclusive of the ZRx Prescriber, a voice/data plan, and high speed Internet access for the office. The
physician, when thinking of switching telecom service providers, is then faced with the challenge of
unbundling the services and reestablishing them individually.
We anticipate that ZMD may announce a commercial relationship with Telus before the end of the year to
offer physicians a bundle consisting of voice/data with a ZRx Prescriber enabled PDA. If this happens, we
expect that ZMD will experience a significant reduction in its $1,000 per physician deployment cost. This is
because Telus would likely absorb hardware costs for physicians that purchase a voice/data plan, similar to
the way that other air time packages are currently sold. If this were to occur we would anticipate a rapid
acceleration of adoption by the physician and clinician community.
For Emergis, ZMD extends the core prescription revenue model by simultaneously adding a new prescription
transaction revenue stream and extending the value of its Pharmacy Management System (PMS) to include
order origination from doctors and the elimination of customer prescription data entry for the pharmacist.
Member of the Investment Dealers Association of Canada (IDA)
Participating Organization – Toronto Stock Exchange (TSX)
Member Canadian Investor Protection Fund (CIPF)
Research • Trading • Advisory
Husein Kirefu
Research
416.603.7381 x231
[email protected]
3
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
Advertising Value of a Physician
With Healthcare Tech stocks, such as Emergis and SXC Health Solutions’ IT Health division trading in the
range of 3x to 4x revenue, and advertising platforms selling in the range of 1.0x to 10.5x revenue, the target
multiple range is broad. Telus paid 4x trailing revenue in its February 2008 acquisition of Emergis. With this
backdrop, we present our revenue multiple valuation view of ZMD based on a $4,250 per year advertising
value per physician. Applying a 4x to 5x multiple against this recurring revenue stream generates $17,000 to
$21,250 of enterprise value per physician on the platform.
Our first step in determining the advertising value of a physician was to size the market. Based on an
average wholesale price per prescription of $37.28, we estimated that both general and family physicians
write $12.8 billion worth of prescriptions that are dispensed at retail. Based on the top 13 pharmaceuticals
dispensed by both general and family physicians, the wholesale market is estimated at $2.7 billion in Canada.
Exhibit 1 presents our approach to arriving at a valuation
based on an advertising revenue multiple. First we sized
the wholesale prescription market (refer to [1] in Exhibit
1) in Quebec and Ontario for general and family physicians
at $2.7 and $3.5 billion, respectively. Next, based on our
projected adoption of the ZRx Prescriber in both provinces
[2] by FY09, we arrived at a wholesale prescription value
of $1.4 billion [3] driven by ZMD physicians or $296.8 mm
for the top 10 drugs.
According to industry estimates, pharmaceutical
companies spend 10% of revenue on marketing and
advertising, which includes sales representatives’ costs.
We estimate that ZMD can receive 1% of this expenditure
[4]. We estimate for the top 13 pharmaceuticals, of which
7 are off-patent, the allocation of advertising dollars can
be 2%, given the threat of substitution and the need to
maximize profits before patent expiry. Based on these
estimates, our FY09 advertising revenue estimate [5] is
$14.1 mm with $5.9 mm coming from the manufactures of
the top 13 prescribed pharmaceuticals.
The gap between our advertising revenue estimate in our
DCF model for FY09, and the $14.1 mm presented comes
from a change in the revenue model. Today, ZMD sells
advertising based on a per drug basis without regard to
revenue or volume of prescriptions. We believe that as the
ZMD network will mature, the pricing model will more
closely reflect a per prescription model, which may be
reflected in an acquisition price.
Applying a 5x multiple to the aforementioned advertising
revenue results in an estimate of $0.70 per share [6] value
based on FY 2009E for physician penetration versus our
current target of $0.55 is based on the current per drug
flat rate pricing model.
Exhibit 1 – Advertising Revenue
[1]
[4]
[2]
[3]
[5]
[6]
Total Prescriptions
$12,800.0
Top 13 Prescriptions
$2,700.0
$2,730.3
$3,461.5
$575.9
$730.2
1.0%
5
2.0%
5
2008 May
% of Doctors Signed Up
Quebec
Ontario
Prescription Wholesale Value (mm)
Advertising Revenue (mm)
5x Revenue Market Cap (mm)
Per Share (f.d.)
17.6%
3.1%
$585.8
$5.9
$29.3
$0.29
17.6%
3.1%
$123.6
$2.5
$12.4
$0.12
2009 May
% of Doctors Signed Up
Quebec
Ontario
Prescription Wholesale Value (mm)
Advertising Revenue (mm)
5x Revenue Market Cap (mm)
Per Share (f.d.)
32.7%
14.8%
$1,407.1
$14.1
$70.4
$0.70
32.7%
14.8%
$296.8
$5.9
$29.7
$0.30
2010 May
% of Doctors Signed Up
Quebec
Ontario
Prescription Wholesale Value (mm)
Advertising Revenue (mm)
5x Revenue Market Cap (mm)
Per Share (f.d.)
42.0%
23.8%
$1,970.1
$19.7
$98.5
$0.98
42.0%
23.8%
$415.6
$8.3
$41.6
$0.41
Prescription Wholesale Value (mm)
Allocation
Quebec
Ontario
ZMD Advertising Revenue
Revenue Multiple
Source: M Partners Inc.
Exhibit 2 – Advertising & Revenue Multiple Sensitivity
2009 Sensitivity Analysis, Total Prescription
Adv.
Rev.
0.5%
1.0%
2.0%
3.0%
1
$0.07
$0.14
$0.28
$0.42
Revenue Multiple
5
10
$0.35
$0.70
$0.70
$1.40
$1.40
$2.80
$2.10
$4.20
15
$1.05
$2.10
$4.20
$6.29
2009 Sensitivity Analysis, Top 13 Prescriptions
Adv.
Rev.
1.0%
2.0%
3.0%
4.0%
1
$0.03
$0.06
$0.09
$0.12
Revenue Multiple
5
10
$0.15
$0.30
$0.30
$0.59
$0.44
$0.89
$0.59
$1.18
15
$0.44
$0.89
$1.33
$1.77
Source: M Partners Inc.
Member of the Investment Dealers Association of Canada (IDA)
Participating Organization – Toronto Stock Exchange (TSX)
Member Canadian Investor Protection Fund (CIPF)
Research • Trading • Advisory
Husein Kirefu
Research
416.603.7381 x231
[email protected]
4
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
COMPANY OVERVIEW
ZoomMed is the provider of ZRx Prescriber, a software application that enables pharmaceutical companies to
advertise to physicians, and allows physicians to electronically prescribe and communicate prescriptions to
pharmacies.
ZoomMed Inc. was incorporated in February 2005 as a capital pool company, and went public in July 2005
through an acquisition of 9103-8240 Quebec Inc. Today the company has 40 employees of which 35 are
employed in the ZRx Prescriber division and 5 are employed in the ZoomMed Equipments division.
The Company’s most recent financing was completed in April 2007 at a price of $0.30 per share, plus onehalf warrant at $0.45 per share for gross proceeds of $6 mm. The financing was in support of
commercialization of ZRx Prescriber in the province of Quebec and market extension into Ontario. The
Company entered the Ontario market in September 2007.
This report focuses on ZRx Prescriber and will exclude ZoomMed Equipments unless explicitly referenced.
ZoomMed Equipments, in our opinion, will not be the key value driver over the next 36 months.
STRATEGY
The Company’s strategy is to develop an electronic network of physicians, pharmacies, and pharmaceutical
companies. ZMD’s goal is to have deployed ZRx Prescriber with 2,800 general practitioners in Quebec and
1,850 in Ontario by the end of May 2009. The goal includes the processing of 33 mm prescriptions and the
sign-up of 100 drug products through advertising
Exhibit 3 – ZoomMed Business Architecture
agreements with pharmaceutical companies. Initially, the
Company chose to focus on general practitioners because
this group produces the highest volume of prescriptions,
thus attracting both pharmaceutical companies as
advertisers, and pharmacies into the network. The
culmination is a marketplace of buyers and sellers for
prescriptions and an advertising platform for advertisers,
both pharmaceutical and those interested in reaching
doctors. See Exhibit 3. ZRx Prescriber is the growth engine
of the company and the focus of this report.
BUSINESS MODEL
The business model includes a complimentary Personal
Digital Assistant (PDA) provided to physicians. The PDA
connects physicians to three revenue generating
participants: pharmaceutical companies, pharmacies, and
the government.
Source: ZoomMed
ZMD has 3 revenue sources:
1. Pharmaceutical Advertising
2. Pharmacy Order Flow
3. Patient Profile
Pharmaceutical Companies: On the PDA provided by ZMD to physicians, an e-Prescribing application will
present a list of all available drugs for each ailment. ZMD will charge pharmaceutical companies a placement
fee for preferred placement on the screen, which is similar to packaged goods companies buying shelf-space at
Member of the Investment Dealers Association of Canada (IDA)
Participating Organization – Toronto Stock Exchange (TSX)
Member Canadian Investor Protection Fund (CIPF)
Research • Trading • Advisory
Husein Kirefu
Research
416.603.7381 x231
[email protected]
5
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
a grocer or the positioning of an advertisement on Google’s AdWords. Currently, the placement fee is a flat fee
per drug, with a probable future pricing model based on per doctor or per click-through basis.
Pharmacies: As each prescription is prescribed, the doctor gives the patient the option of having electronic
prescription information sent to a ZMD partner pharmacist of their choice. ZMD intends to receive a fee
($0.50) from the pharmacy for each ZMD enabled prescription. In addition, a bar coded prescription will be
printed and signed by the doctor, which the patient can then take to the pharmacist. Current legislation
requires that a pharmacist files a signed copy of the prescription. In the event the pharmacist receives an
electronic order, the bar coded and signed prescription will be used to verify the order. In the case of a walkin order, a partner pharmacy can scan the bar code, triggering an automated sending of client and prescribed
drug information into the pharmacy software application and a $0.25 fee to ZMD. In the situation where a
patient goes to a non-partner pharmacist, ZMD will not receive fees because the pharmacist will manually
process the prescription, as is done currently. We believe pharmacist will join the network as it reduces the
wait time for customers, has the potential to increase traffic to their stores as patients opt-in to have
prescriptions forwarded and eliminates the risk associated with incorrectly filling a prescription due to poor
hand writer associated with written prescriptions.
We expect that generic drug manufacturers will pay the fees on behalf of the pharmacists. Our expectation is
based on the regulatory environment in Quebec and Ontario that has recently restricted generic drug
company inducements to pharmacies. The ZMD solution will qualify as a value added service under new
regulations in our opinion since it enhances patient care, thus allowing generic drug manufacturers to allocate
their inducements to pharmacists in a compliant manner.
Government: Doctors in Quebec will be able to request drug profiles of their patients from pharmacists
using the ZMD platform, thus eliminating the phone and fax transaction between the pharmacist and the
doctor’s office. ZMD will charge the pharmacist, a portion of the fee ($8.10) it currently receives from the
government for automating this service between the doctor and pharmacist. The value to the pharmacist
includes reduced time in entering requests for profiles and simplicity of transaction for the doctor, which in
turn should lead to an increased volume of profile requests.
Note: The service of pharmacists providing patient profiles to physicians is only funded by the provincial
government of Quebec.
PRODUCT OFFERINGS
ZoomMed has two divisions, ZoomMed Equipments and ZRx Prescriber.
ZoomMed Equipment
ZoomMed Equipments sells paramedical equipment to franchisees and healthcare agencies. Two ZoomCité
franchisees servicing the public have been opened in Quebec, one in Laval and the other in Brossard.
ZoomMed operates the Brossard franchisee as a corporate owned franchisee.
Member of the Investment Dealers Association of Canada (IDA)
Participating Organization – Toronto Stock Exchange (TSX)
Member Canadian Investor Protection Fund (CIPF)
Research • Trading • Advisory
Husein Kirefu
Research
416.603.7381 x231
[email protected]
6
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
ZRx Prescriber
The ZRx Prescriber (see Exhibit 4) is a browser based
software application that can be accessed by both
mobile and desktop devices connected to the Internet.
The application enables doctors to write and send
electronic prescription information to pharmacists who
can view the information online and confirm the
prescription via a signed copy. The application enables
the transmission of a patient’s pharmacological profile,
provides physicians with therapeutic advice to facilitate
the choice of drug (including side effects and reactions
with other drugs), and in future, will validate applicable
insurance coverage (adjudication). The current mobile
application is configured for the HP iPaq. An overview is
Source: ZoomMed, M Partners Inc.
presented at
http://www.zoommed.com/video/Zmd_bnn_20071010.wmv .
Exhibit 4 – ZRx Prescriber
Patient
Drug
History
Paid
Placement
Legible
prescription
details
ZRx Prescriber is equivalent to a grocery store’s shelf space – you have to pay to get the best location.
Beyond its prescription-related functions, the ZRx Prescriber supplies physicians a portal, either mobile or
desktop via a Web browser, with medical news and information, such as clinical studies, scientific discoveries,
the launch of new products or drugs, educational briefs, clinical trials, follow-ups on relevant issues, and
government guidelines.
Security: Patient data is accessed on a physician’s EMR system and on ZMD’s servers via a Web browser on
the PDA. The ZMD Web site is hosted on a secure Class B Data Bunker protected by Secure Socket Layer
(SSL) protocols. In addition, all data is encrypted. For WiFi security, the WPA protocol is used, and if a hacker
succeeds in hacking the WPA WiFi protocol, the SSL layer will provide an additional layer of security.
COMPETITION
ZoomMed has limited competition in the Canadian market place. Its competitors include the various EMR
applications that include an e-prescribing utility. These solutions are not widely deployed or used by doctors,
but tend to be used for patient prescription information entry by office administrators into the EMR. ZMD
offers an application that is in the palm of the doctor’s hand and/or on his/her computer screen. Additionally,
the ZRx Prescriber provides drug interaction alters and education. These features are lacking in today’s EMR
solutions.
In the United States, AllScripts offers similar applications, such as TouchScript and eRxNow. The Company's
TouchScript is an e-prescribing solution that physicians can access via the Internet to prescribe medications,
check for drug interactions, access medication histories, review drug reference information, and send
prescriptions directly to a pharmacy or mail order facility. eRxNOW is a Web-based, e-prescribing solution
that requires no downloading and no new hardware. The eRxNOW solution offers all the features of
TouchScript in an Application Service Provider (ASP) model that is accessible by the Internet on computers,
handheld devices, and cell phones. Our research into AllScripts leads us to conclude that AllScripts is not
interested in the Canadian market, thus is neither a competitor nor possible acquirer of ZMD.
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7
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
INDUSTRY SUMMARY
The following is an assessment of the two industries in which ZMD participates: the pharmaceutical
advertising industry and the health care information technology industry.
PHARMACEUTICAL ADVERTISING
Pharmaceutical advertising to physicians: A 2003 healthcare poll by the Wall Street Journal
Online/Harris Interactive found that 67% of adult Americans trust their doctors to choose the best medication
for them. Hence, doctors are key sales agents for pharmaceutical companies and receive 80% of
pharmaceutical marketing budgets according to MedBanner.
Pharmaceutical companies compete for the attention of overworked doctors with the pharmaceutical
marketers facing the following challenges:
•
The Food and Drug Act of 1952 prohibits direct-to-consumer advertising of prescription
pharmaceuticals in Canada, therefore leaving the physician as the obvious source of influencing drug
consumption.
•
Physicians are inundated with direct mail advertising, reducing the effectiveness of direct mail.
•
Physicians are refusing to meet or speak with pharmaceutical representatives during office hours.
•
Physician-patient loads are leaving physicians with limited time to meet pharmaceutical
representatives.
e-Prescribing: A study by the Boston Consulting Group found that a majority of physicians who visit healthrelated Web sites report that the information they find online has a strong influence on their medical
decisions and impacts what they prescribe to patients. According to a study conducted in the United States:
“…e-prescribing could undermine the influence of drug reps and direct-to-consumer
advertising by making formularies considerably more accessible and more enforceable at
the point of prescribing…[pharmaceutical] companies must continue to hone their ehealth strategies or forfeit their place in the examination room…”
Express Script versus Pfizer: The importance of being included on a preferred drugs list is similar to the
placement of a drug on a selection menu. Those drugs with preferred placement enjoy greater click-through
sales. As an example, consider the October 2005 conflict between Express Script, a US pharmacy-benefits
manager (PMB) and Pfizer. Express Script pulled Pfizer’s Lipitor from its preferred drug list, and in May 2007,
Pfizer finally agreed to the concessions requested by Express Script to gain listing on Express Script’s drug
list.
Generic Drugs: Generic drugs, given their profitability in Canada, are just as likely an advertiser as name
brand drugs. With Ontario changing the rules around generic drug rebates to pharmacists, the ZRx platform
offers an alternative advertising platform to influence volumes. According to Helen Stevenson, the executive
lead for the Drug System Secretariat of Ontario, “between the public and private plans … that's a lot of
rebate money ($720 mm)” that generic drug companies paid out in 2005 in the form of rebates to
pharmacists. We expect generic drug manufactures to be both prominent advertisers and payers of the ePrescribing fees on behalf of pharmacists. Refer to the business model section of this report for details.
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8
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
Market Size for Pharmaceutical Advertising
Using the magazine advertising industry as a floor for the market size, we highlight the finding of a 2007
study by Magazines Canada. Magazines Canada asserts that the pharmaceutical advertising sector is one of
the largest by revenue in the U.S. Extrapolating from the U.S. experience the pharmaceutical advertising
sector could be worth $40 to 50 mm (USD) in incremental revenues to Canada’s magazine sector. We note
that much of this is aimed at consumers, a less influential decision maker in prescribing, than a physician. A
2003 healthcare poll by the Wall Street Journal Online/Harris Interactive found that 67% of adult Americans
trust their doctors to choose the best medication for them.
According to the U.S. industry estimates for the year 2000, drug companies’ spent $8.5 billion on advertising
with most of it aimed at doctors. An allocation of $8.5 billion on a percentage of population basis translates
into a Canadian market of $1.1 billion, based on 2000 data.
Canada’s wholesale drug trade to retail pharmacies stood at $15.7 billion in 2006. An advertising budget of
$1.1 billion equates to an approximate 7% of the wholesale value, which in our opinion is realistic given
packaged goods companies spend up to 15% of revenues on a brand. As more drugs come off patent, the
advertising dollars will follow as attention for physician attention intensifies.
HEALTHCARE INFORMATION TECHNOLOGY
An aging population combined with a declining/flat birth rate is resulting in an overburdened health care
Exhibit 5 – Annual IT Expenditures as a % of Total
system in Canada. With fewer tax payers relative to
historic ratios of working to retired individuals, the
health system has to serve more people with fewer
6.0%
5.4%
dollars. Technology can allow patients to better manage
4.7%
5.0%
4.5%
4.3%
4.0%
4.0%
their health needs via an Electronic Health Record (EHR)
4.0%
3.4%
3.0%
while providing care givers with accurate information to
1.5%-2.0%
2.0%
better deliver health services.
1
Per cent of total budget/revenues
____ Average of other systems/information intensive industries
1.0%
The health care industry in Canada has lagged behind
other industries in the adoption of technology. It is
estimated that as a percentage of total expenditures,
operating and capital, only 1.5% to 2.0% is allocated to
information technology (IT) within the Canadian health
care sector, which is well below the worldwide average
of 4.2% for health providers and 4.3% for other
systems/information intensive industries (see Exhibit 5).
The federal government has allocated some $1.2 billion
to partially fund provincial private-public partnerships to
develop core components of a national system or EHR.
The system is intended to allow a care provider, such as
a pharmacist or a doctor to view a patient’s health file
electronically, independent of the patient’s location. Like
many CRM systems, many modules plug into the system
to create a picture of a client. The EHR has several
components (see Exhibit 6).
0.0%
US HC
providers (2)
UHN (3)
UK
health
care (4)
Calgary
Regional
Heatlh
Authority
Professional
services
US banking/
financial services
Canada
Avgerage
1 Operating and capital
2 Gartner estimate as percent of revenues; assumes providers working on a non-profit basis
3 The Universtiy Health Network in Toronto, ON; spend is between 3.75 and 4.2%; on average UHN operates slightly below 4%
4 Predicated to rise to 4.3% from 1.5% in 2004
Source: Information Technology Association of Canada, 2004; Gartner; CHI
Exhibit 6 – Electronic Health Record
Doctor’s Office
Homecare
Community
Care Center
Emergency
Services
Electronic Health
Record
(EHR)
Clients/Patients
Pharmacy
Specialist Clinic
Hospital
Emergency
Laboratory
Diagnostic
Source: CHI, M Partners Inc.
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9
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
ZoomMed Addresses the Missing Link
Scenario: A patient has an accident. The ambulatory team pulls up his/her profile but it does not include the
most recent prescription details. Without an up-to-date drug profile, the ambulatory staff risks giving the
patient a drug that causes complications or a fatal drug interaction. ZRx Prescriber enables all medical
practitioners to electronically prescribe pharmaceuticals and ensure that the patient’s profile is up-to-date. In
addition, the ZRx Prescriber offers critical drug-to-drug interaction alters at the point of prescribing and/or
administering.
While both provincial and federal governments have allocated dollars to the development of a national EHR
system, they have not yet addressed the issue of how to ensure that patient data is captured within the
doctor’s office (see Exhibit 6). The province of Ontario has allocated $150 mm to induce doctors to adopt
electronic medical records but these solutions still do not effectively address the prescription challenge.
ZoomMed is the link that moves prescription information from the point of prescribing into an electronic
medical/health record system, from the pharmacist’s or doctor’s office, or from any other point of prescribing.
In 2007-08, Canada Infoway’s business plan made reference to spending $250 mm to “Implement solutions
that allow prescriptions to be sent, viewed and confirmed electronically. Drug-to-drug interaction checks are
performed automatically and added to the patient’s drug profile to warn of potential dangers”. This is a
statement in support of electronic prescribing and drug-to-drug interaction management. Canada Infoway
has stated that e-prescribing and drug-to-drug interactions are primary goals of the national program.
DEMAND DRIVERS FOR ZMD SERVICES
DOCTORS
Medication errors related to drug interaction conflicts and prescribing errors take 700 lives a year in Canada
and cost the system over $600 mm annually, it is estimated. “Of 500,000 prescriptions, 161,000 were
modified following the dissemination of messages, such as drug interactions, allergies, and therapeutic
indicators.” Source: RxHub LLC, 2006, Henry Ford Medical Group.
~32% of prescriptions are modified. It is estimated that medication errors account for ~700
lives being lost and costs the Canadian health care system ~$600 mm annually
Given the ability of the ZRx platform to alert doctors about drug interaction conflicts, given a patients medical
profile and the reduced transcribing errors between the doctor and the pharmacist, we are of the opinion that
doctors’ acceptance of ZRx Prescriber will accelerate.
The U.S. is surprisingly leading Canada in addressing this challenge and we are of the opinion that this
positive development will be reflected in the Canadian market.
“In July of 2006 the Institute of Medicine published a study highlighting one of the most significant
challenges in healthcare today—each year, approximately 1.5 mm people are injured and over 7,000
die due to preventable medication errors. Even though we have the technology to make this problem
go away, less than one in five of the nation’s practicing physicians regularly use electronic
prescribing. We can do better...as a country and as a healthcare system.
So, as a leader, we took action. Beginning in late 2006, Allscripts assembled a broad-based coalition
of healthcare and technology companies to offer free ePrescribing to every physician in America. The
National ePrescribing Patient Safety Coalition was officially announced in Washington, D.C. in January
of 2007 and now includes a virtual who’s who of technology companies and healthcare organizations.
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Research
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10
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
We believe this initiative will accelerate adoption of all electronic tools, increase our brand awareness
with physicians and ease their entry onto the electronic healthcare highway.” (Source: Allscripts 2006
Annual Report)
Demo: http://nationalerx.com/demo/index.html
PHARMACIES
The ZoomMed solution offers the following benefits to pharmacists:
• Provides prescription order flow for those pharmacists who are part of the ZRx network.
• Eliminates legibility issues related to deciphering doctors’ prescriptions, thus reducing medication
errors.
• Increases efficiency by not having to key in patient information and prescription details.
• Increases customer satisfaction since orders can be received before the patient arrives at the
pharmacy, thus increasing throughput/patient wait times.
PHARMACEUTICAL COMPANIES
We believe that pharmaceutical companies will be drawn by the ZRx advertising platform that communicates
with the doctor at the point of prescribing and allows the doctor to select when he/she wants to be educated.
THE OPPORTUNITY FOR ZOOMMED
We see several key drivers to growth over the next three to five years, including the following:
Macro
• EHR deployment in Canada will require a solution for e-Prescribing.
• A younger generation of doctors is more open to technology and hand held computing devices, such
as iPhone, BlackBerry, Palm etc.
Micro
• Canada is a Greenfield with respect to e-Prescribing, with ZoomMed having the early mover
advantage.
• Pharmaceutical companies continue to look for new channels to reach doctors.
• Multi-lingual compliance, as evident by Quebec roll out, introduces a hurdle for a new entrant.
MARKET SIZE
Pharmaceutical Advertising: In 2000, industry estimates put U.S. drug companies’ advertising spending at
$8.5 billion, with most of it aimed at doctors. Allocation of the $8.5 billon on a percentage of population basis
translates into a Canadian market estimated at $1.1 billion based on data for the year 2000.
Pharmacy Revenue: With an estimated 422 mm prescriptions processed at retail pharmacies, we estimate
the revenue potential from retail pharmacies, with the assumption of a $0.50 fee per transaction, to be
between $100 mm to $200 mm, annually.
Patient Profile Revenue: We estimated the annual market size at a minimum of $15 mm for the province
of Quebec.
MANAGEMENT
Yves Marmet, CEO of ZoomMed Inc. and Andre Marmet, Director of ZoomMed Inc. together founded Les
ordinateurs Hypocrat Inc., a provider of development and integration services to the health care sector in
1980. In 1995, the company was sold to FoxMyer Health Corporation.
In 1985, with 35 employees and earnings of $1.5 mm, Hypocrat conducted its first public issue of $2 mm, on
the Montreal Exchange. The company, under the leadership of Yves and Andre, acquired ten companies
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11
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
ranging in acquisition price from $25,000 to $8 mm from 1986 through 1994. Acquisitions and finances
totaled $28.7 mm during this period.
Hypocrat grew to become a leading provider of Health IT services in Quebec, servicing 40 hospitals, 700
pharmacies, 500 medical clinics with more than 5,000 physicians, 200 dental clinics, and 130 nursing homes.
FINANCIAL ANALYSIS AND PROJECTIONS
Our revenue forecast and discounted cash flow (DCF) valuation is based on ZMD as a standalone entity
without regard to a possible Telus acquisition or any strategic partnership benefits. Our investment thesis
includes ZMD as a leader in e-prescribing in Canada, and as a possible acquisition candidate. We believe that
the Health Division (Emergis) of Telus is a strategic acquirer of ZMD, which in our estimation could occur as
early as calendar year 2009.
PARTNERSHIPS
ADN Medical: Provides computer services to approximately 4,500 Quebec physicians, thus providing a resell
and deployment channel for ZRx Prescriber (signed February 2006)
SOFT Informatique: A provider of Clinical Management Systems to more than 9,000 Physicians spread
among 1,300 customers throughout Quebec (singed May 2008). The agreement aims at facilitating the
exchange of information between the data-processing applications of the two companies.
Emergis Inc.: Licensing of Emergis’ SanteXpert™, which offers various functionalities including drug
interactions, counter-indications, therapeutic and drug classifications, and treatment alternatives. We
anticipate that an agreement for integration to Emergis’ pharmacy management platform is forthcoming.
Emergis currently connects to approximately 3,100 retail pharmacies out of an estimated 7,900 in Canada.
DOCTORS
As of October 2007, 846 doctors were using the ZRx Prescriber in Montreal. The statistics of the sample are
503 males with an average age of 53 years and 343 females with an average age of 45 years. These
statistics demonstrate that adoption is occurring even among doctors who have been practicing for 20 years.
A sample of 846 doctors generated an average of 35 prescriptions per day for each day worked over the last
5 months. Statistically, the sample of doctors produces a 90% confidence level that the application will be
accepted by physicians and the prescription volume will hold true.
REVENUE DRIVER
Given the early revenue stage of the Company, we are primarily focused on ZMD achieving several strategic
goals by FY09 ending May 2009. These goals relate to the provinces of Quebec and Ontario given these
provinces account for approximately 60% of Canada’s family and general medicine practitioners who
prescribe 48% of all retail prescriptions in Canada. They are presented in order of importance and execution
reflecting what will drive first pharmaceutical revenue followed by prescription revenue:
•
Integration to EHR, and billing and scheduling systems
•
Acquisition of physicians in Ontario and Quebec
•
Advertising contracts with pharmaceutical companies
•
Integration with Pharmacy Management Systems (PMS)
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12
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
The integration to an EHR system allows for ZMD to leverage EHR vendors as resellers of the ZRx Prescriber
and to quicken the deployment of the ZRx Prescriber at physician locations. As more physicians use the ZRx
Prescriber the more valuable it becomes to pharmaceutical companies as an advertising platform that can
influence which drug a physician selects for a patient at the point of prescribing. As more pharmaceuticals
are prescribed by physicians using the ZRx Prescriber, the more valuable the volume of prescriptions
generated by the ZRx Prescriber becomes to pharmacies as a source of receiving prescription information –
revenue flow. The integration to PMS will enable ZMD to leverage its network of physicians into an additional
revenue stream with pharmacist as it will receive revenue for providing pharmacies with prescription
information.
Integration to EHR, Billing and Scheduling System
We estimate that in the province of Quebec, ZMD has developed interfaces to 4 EHR solutions that represent
access to 80% of all physician offices including 8,390 general/family practitioners. In Ontario, with the
signing of the Health Screen partnership, approximately 27% of all physicians will be addressed upon
completion of the interface by March 2008, see Exhibit 7. Ontario has approximately 17 EHR, and billing and
scheduling solutions available to approximately 14,900
Exhibit 7 – Integration to EHR and Billing & Scheduling Systems
physicians, including 10,637 general/family practitioners.
% of Physicians Reached as of Q408E
Ontario Milestone: The next major catalyst for the
Ontario region will be integration with York Med, an EHR
vendor estimated to have 5,000 doctors using its
application.
Quebec
80%
Ontario
27%
Source: M Partners Inc.
Acquisition of Physicians in Ontario and Quebec
The Company has a goal of acquiring 1,850 physicians in Ontario and 2,800 in Quebec by Q409 for a total of
4,650 physicians - see Exhibit 8. As of April 2008, ZMD had approximately 1,000 physicians signed-up to use
its prescribing tool primarily in Quebec, which is 36% of their Q409 goal for Quebec. In December 2007, the
Company announced its first significant win in Ontario after opening its local office in the fall, with a 110
physician deployment at the Oshawa Clinic. On January 17, 2008 the Company added MCI clinics with an
estimated 26 clinics and 236 doctors in Ontario.
Exhibit 8 – Q409E Acquisition of Physicians in Ontario and Quebec
Quebec Acceleration: ZMD has a strategic relationship
with ADN Medical and SOFT Informatique. Both
organizations provide computer services to approximately
9,000 Quebec physicians, and provide a resell and
deployment channel for the ZRx Prescriber. These
relationships will reduce the fixed cost structure at ZMD.
Co. Goal
Our Estimate
% of Total*
Ontario
1,850
1,579
14.8%
Quebec
2,800
2,745
32.7%
* % of all General and Family practitioners in the province
Source: M Partners Inc.
Success: As of October 2007, 846 doctors were using the ZRx Prescriber in Quebec. The statistics of the
sample includes 503 males with an average age of 53 years and 343 females with an average age of 45
years. These statistics demonstrate that adoption is occurring even among doctors who have been practicing
for 20 years. A sample of 846 doctors generated an average of 35 prescriptions per day for each day worked
over the last 5 months. Statistically, the sample of doctors produces a 90% confidence level that the
application will be accepted by physicians and the prescription volume will hold true.
90% confidence level that the application will be accepted by physicians and the prescription volume will hold
true.
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Research
416.603.7381 x231
[email protected]
13
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
Sign up of Pharmaceutical Advertisers
The key driver to mass pharmaceutical adoption will be physician adoption. We believe that pharmaceutical
companies will be drawn by the ZRx advertising platform that communicates with the doctor at the point of
prescribing and allows the doctor to select when he/she wants to be educated. By interacting at the point of
prescribing, the ZRx Prescriber can influence which drug a company selects thus impacting the revenue
earned by a pharmaceutical company. For this reason, we believe that a pharmaceutical company will pay
more than the current $120,000 annual advertising fee per drug charged by ZMD’s.
We estimate that there are 20 pharmaceutical companies selling pharmaceuticals into the Canadian market.
Based on an average wholesale price per prescription of $37.28, we estimated that both general and family
physicians write $12.8 billion worth of prescriptions annually that are dispensed at retail pharmacies. Based
on the top 13 pharmaceuticals dispensed by both general and family physicians, the wholesale market is
estimated at $2.7 billion annually in Canada.
The Company currently offers several advertising plans but given the early nature of the market, we
anticipate these plans to change. Currently the most popular plan offered by the Company is priced at
$120,000 per drug per year. We anticipate the current per drug pricing model will evolve to better reflect the
economic value to the pharmaceutical company, which is best measured per prescription written on the ZRx
platform. Under the Company’s current advertising pricing model, the top 13 drugs would produce only
$1.56 mm annually in revenue for ZMD, while generating $2.7 billion annually for the drug companies. The
$1.56 mm represents 0.001% of the $2.7 billion wholesale value versus the estimated 10% of wholesale
value spent today by pharmaceutical companies to reach physicians. Given the potential for ZRx Prescriber
to impact pharmaceutical company revenue, we believe the ZMD pricing model will evolve to reflect the value
of pharmaceuticals dispensed as more doctors adopt the platform.
Our FY 2008E estimates 10 drugs being advertised on the platform by 4 drug companies. We estimate that
at the end of FY09 and FY10, 28 and 60 drugs respectively will be advertised on the platform. Onward from
FY11 through to FY13 we estimate a change in pricing will occur to better reflect the value of
pharmaceuticals prescribed. Our FY11, FY12 and FY13 revenue estimates for ZRx Prescriber represent 0.4%,
0.6% and 0.8% of the value of the $2.7 billion wholesale value of the top 13 drugs dispensed by family and
general family physicians or less than 0.2% of the $12.7 billion prescribed by this group of physicians.
Integration with Pharmacy Management Systems
A Pharmacy Management System (PMS) is an application that facilitates the dispensing of prescriptions by a
pharmacist. Part of its function includes recording patient information and drug history. ZMD eliminates the
need for a pharmacist to enter data, reducing both transcribing errors and data entry.
Quebec has two primary PMS vendors, Emergis and Jean Coutu. ZMD licenses Emergis’ SanteXpert™, which
offers various functionalities, including drug interactions, counter-indications, therapeutic and drug
classifications, and treatment alternatives. We anticipate that this relationship will be extended into an
agreement for integration with Emergis’ pharmacy management platform. Emergis currently connects to
approximately 3,100 retail pharmacies out of an estimated 7,900 in Canada. We expect that Emergis’
LabXpert PMS serving 900 retail pharmacies in Quebec and the DLD PMS interface serving 400 pharmacies
will be fully integrated and announced by Q409. Integration to Jean Coutu’s PMS is anticipated by end of
FY09, giving ZMD connectivity to 96.5% of the pharmacies in Quebec by May 2009.
In Ontario, Emergis’ Frontline solution serves an estimated 200 pharmacies out of 3,000 pharmacies. We
estimate the integration to be completed by Q409.
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Research
416.603.7381 x231
[email protected]
14
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
We expect ZMD will move from a push to pull marketing strategy. This is because pharmacists will become
aware that those who are part of the network are receiving patient prescription information from physicians.
BALANCE SHEET AND CASHFLOW
The July 2008 closing of a $7.671 million equity financing provides ZMD with the capital to meet the
accelerating ZRx Prescriber implementations requirements, which cost approximately $800 to $1,000 per
physician. We estimate that ZMD now has sufficient capital to reach FCF positive in the first quarter of FY
2011 (Calendar August 2010).
INVESTMENT RISK
Customer Adoption: ZMD has yet to gain sufficient adoption from doctors, pharmacists, and
pharmaceutical companies for us to forecast with a high degree of probability, the future revenue or
profitability.
Limited Experience with ZRx Prescriber: The Company does not have a substantial history with its
offerings.
Regulation: ZMD operates in the healthcare industry, which has seen costs increase at a rapid rate. Future
changes in laws and regulations can adversely affect the business.
Growth Capital: Given the current business model centered on giving physicians an iPAQ device at an all in
cost of approximately $1,000 per physician, accelerating growth although positive will likely outstrip shortterm advertising revenue from pharmaceuticals. Given the focus on liquidity and larger capitalized stocks by
investors, the company may face challenges in raising growth capital in the current environment.
Other Risks: Like other technology companies, ZMD faces risks associated with loss of key customers,
intellectual property and licensing claims against the firm, security breaches, goodwill write downs that may
result from acquisitions, and new disruptive technologies that may or may not exist as of today, such as
adjudication at the point of prescribing versus dispensing.
Member of the Investment Dealers Association of Canada (IDA)
Participating Organization – Toronto Stock Exchange (TSX)
Member Canadian Investor Protection Fund (CIPF)
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Research
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[email protected]
15
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
ZoomMed Inc.
Income Statement
FYE May 31
(C$ 000's, except per share data)
FY
Q108A
Revenue
ZRx Prescriber
ZoomCite Strore
ZoomCite Franchise
Total Revenue
EBITDA
% Margin
EBIT
% Margin
NI continuing ops
% Margin
Non-controlling Interest
0.1
0.1
0.0
0.2
FY
Q208A
0.1
0.1
0.0
0.2
FY
Q308A
0.1
0.2
0.0
0.3
FY
Q408E
0.1
0.2
0.0
0.2
FY
Q109E
0.3
0.2
0.0
0.5
FY
Q209E
0.6
0.2
0.0
0.8
FY
Q309E
0.8
0.2
0.0
1.0
FY
Q409E
1.1
0.2
0.0
1.2
FY
2007A
0.1
0.6
0.0
0.7
FY
2008E
0.5
0.5
0.0
1.0
FY
2009E
2.8
0.6
0.0
3.4
FY
2010E
6.9
0.7
0.0
7.6
FY
2011E
FY
2012E
FY
2013E
11.4
0.7
0.1
12.2
16.4
0.7
0.2
17.3
21.3
0.7
0.4
22.4
(0.5)
-213.8%
(0.7)
-306.4%
(0.7)
-289.7%
(0.9)
-392.1%
(0.8)
-262.3%
(1.0)
-355.7%
(0.7)
-287.6%
(1.0)
-403.2%
(0.1)
-30.1%
(0.4)
-90.4%
(0.4)
-54.4%
(0.7)
-93.2%
(0.3)
-33.5%
(0.7)
-68.4%
(0.2)
-17.3%
(0.6)
-44.6%
(3.7)
-509.4%
(4.1)
-566.9%
(2.6)
-263.3%
(3.7)
-364.0%
(1.1)
-31.9%
(2.3)
-68.3%
0.1
1.6%
(1.3)
-17.5%
3.6
29.1%
2.0
16.3%
8.0
46.5%
6.5
37.6%
12.6
56.4%
11.2
50.0%
(0.7)
0.0%
(0.9)
0.0%
(1.0)
0.0%
(0.9)
0.0%
(0.4)
0.0%
(0.6)
0.0%
(0.6)
0.0%
(0.5)
0.0%
(4.1)
-567.4%
(3.5)
-352.1%
(2.1)
-62.5%
(1.2)
-15.8%
2.1
17.1%
6.7
39.0%
10.6
47.2%
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
(0.0)
(0.0)
(0.0)
(0.0)
0.0
0.0
0.0
(0.7)
-289.0%
(0.9)
-378.5%
(1.0)
-348.7%
(0.9)
-395.6%
(0.4)
-85.9%
(0.6)
-84.2%
(0.6)
-62.8%
(0.5)
-40.6%
(4.1)
-568.4%
(3.5)
-351.4%
(2.1)
-62.4%
(1.2)
-15.8%
2.1
17.1%
6.7
38.9%
10.5
47.1%
Basic share outstanding
Fully diluted share outstanding
71.4
100.6
71.5
100.5
71.7
100.6
71.7
100.6
83.2
127.1
83.2
127.1
83.2
127.1
83.2
127.1
50.8
100.6
71.6
100.6
83.2
127.1
83.2
127.1
116.1
127.1
127.1
127.1
127.1
127.1
EPS before non-controlling
Basic EPS
Diluted EPS
(0.01)
(0.01)
(0.01)
(0.01)
(0.01)
(0.01)
(0.01)
(0.01)
(0.00)
(0.00)
(0.01)
(0.01)
(0.01)
(0.01)
(0.01)
(0.01)
(0.08)
(0.08)
(0.05)
(0.05)
(0.03)
(0.03)
(0.01)
(0.01)
0.02
0.02
0.05
0.05
0.08
0.08
EPS Adjusted from continuing ops
NI from Continuing Ops
One-time items pre-tax
Tax Effect (37.5%)
Adjusted NI from Continuing Ops
EPS Adjusted - Basic
EPS Adjusted - Diluted
(0.7)
(0.7)
(0.01)
(0.01)
(0.9)
(0.0)
(0.9)
(0.01)
(0.01)
(1.0)
0.0
(1.0)
(0.01)
(0.01)
(0.9)
(0.9)
(0.01)
(0.01)
(0.4)
(0.5)
(0.9)
(0.01)
(0.01)
(0.6)
(0.6)
(0.01)
(0.01)
(0.6)
(0.6)
(0.01)
(0.01)
(0.5)
(0.5)
(0.01)
(0.01)
(4.1)
0.1
(4.0)
(0.08)
(0.08)
(3.5)
(0.0)
(3.6)
(0.05)
(0.05)
(2.1)
(0.5)
(2.6)
(0.03)
(0.03)
(1.2)
(1.2)
(0.01)
(0.01)
2.1
2.1
0.02
0.02
6.7
6.7
0.05
0.05
10.6
10.6
0.08
0.08
FY
Q108A
FY
Q208A
FY
Q308A
FY
Q408E
FY
Q109E
FY
Q209E
FY
Q309E
FY
Q409E
FY
2007A
FY
2008E
FY
2009E
FY
2010E
FY
2011E
FY
2012E
FY
2013E
Net Income
% Margin
Source: M Parnters Inc., ZoomMed
ZoomMed Inc.
Balance Sheet
FYE May 31
(C$ 000's)
Assets
Cash & cash equivalents
Temporary Investments
Accounts Receivable
Other
Total Current Assets
1.2
1.0
0.4
0.1
2.7
0.7
0.3
0.4
0.1
1.4
0.6
0.0
0.4
0.1
1.2
0.8
0.5
0.1
1.4
7.1
0.4
0.1
7.6
5.5
0.4
0.1
6.0
5.1
0.4
0.1
5.6
4.2
0.4
0.1
4.7
5.1
0.0
0.5
0.2
5.8
0.8
0.5
0.1
1.4
4.2
0.4
0.1
4.7
2.4
0.4
0.1
2.9
4.0
0.4
0.1
4.5
11.0
0.4
0.1
11.5
21.7
0.4
0.1
22.3
Goodwill & Intangible
Fixed Assets
Other
Total Long Term Assets
2.8
0.7
2.9
6.4
2.8
0.9
3.0
6.6
2.7
1.0
2.3
6.0
4.8
4.8
5.2
5.2
6.0
6.0
6.1
6.1
6.4
6.4
2.9
0.5
0.8
4.2
4.8
4.8
6.4
6.4
7.4
7.4
7.9
7.9
7.7
7.7
7.5
7.5
Total Assets
9.1
8.0
7.2
6.2
12.9
11.9
11.7
11.2
10.0
6.2
11.2
10.3
12.4
19.2
29.8
Current portion of LTD
Accounts Payable & accrued liabilities
Other
Total Current Liabilities
0.1
0.6
0.3
0.9
0.1
0.5
0.2
0.7
0.0
0.6
0.1
0.8
0.0
0.6
0.7
0.0
0.6
0.6
0.0
0.3
0.3
0.0
0.6
0.7
0.0
0.6
0.7
0.1
0.7
0.4
1.1
0.0
0.6
0.7
0.0
0.6
0.7
0.0
0.9
1.0
0.0
1.0
1.0
0.0
1.0
1.1
0.0
1.0
1.1
Long Term Debt less current
Other Assets
Total Long Term Liabilities
0.0
0.2
0.2
0.0
0.2
0.2
0.0
0.2
0.3
0.0
0.2
0.3
0.0
0.2
0.3
0.0
0.2
0.3
0.0
0.2
0.3
0.0
0.2
0.3
0.0
0.2
0.2
0.0
0.2
0.3
0.0
0.2
0.3
0.0
0.2
0.3
0.0
0.2
0.3
0.0
0.2
0.3
0.0
0.2
0.3
(9.0)
17.0
7.9
(9.9)
17.0
7.1
(10.9)
17.1
6.2
(11.9)
17.1
5.2
(12.3)
24.8
12.5
(12.9)
24.8
11.8
(13.5)
24.8
11.2
(14.0)
24.8
10.7
(8.3)
16.9
8.6
(11.9)
17.1
5.2
(14.0)
24.8
10.7
(15.2)
24.8
9.5
(13.1)
24.8
11.6
(6.4)
24.8
18.4
4.2
24.8
29.0
9.1
8.0
7.2
6.2
13.4
12.4
12.2
11.7
10.0
6.2
11.7
10.8
12.9
19.7
30.3
Liabilities & Shareholders' Equity
Shareholders' Equity
Deficit
Other
Total Equity
Total Liabilities & Equity
Source: M Parnters Inc., ZoomMed
Member of the Investment Dealers Association of Canada (IDA)
Participating Organization – Toronto Stock Exchange (TSX)
Member Canadian Investor Protection Fund (CIPF)
Research • Trading • Advisory
Husein Kirefu
Research
416.603.7381 x231
[email protected]
16
ZoomMed Inc.
(ZMD-TSX) -$0.28
Target - $0.55 (BUY)
July 15, 2008
ZoomMed Inc.
Cash Flows
FYE May 31
(C$ 000's)
FY
Q108A
FY
Q208A
FY
Q308A
FY
Q408E
FY
Q109E
FY
Q209E
FY
Q309E
FY
Q409E
FY
2007A
FY
2008E
FY
2009E
FY
2010E
FY
2011E
FY
2012E
FY
2013E
NI (loss) from continuing ops
Depreciation & amortization
Other
Changes in NCWC
(0.7)
0.2
0.0
(0.0)
(0.9)
0.2
(0.0)
(0.2)
(1.0)
0.3
0.0
0.0
(0.9)
0.3
(0.1)
(0.4)
0.3
0.0
(0.6)
0.3
(0.3)
(0.6)
0.3
0.4
(0.5)
0.3
(0.0)
(4.1)
0.4
1.3
0.4
(3.5)
1.0
0.0
(0.4)
(2.1)
1.2
0.1
(1.2)
1.4
0.3
2.1
1.6
0.1
6.7
1.5
(0.0)
0.0
10.6
1.4
0.0
CF from Operations
(0.5)
(0.9)
(0.6)
(0.8)
(0.1)
(0.6)
0.1
(0.2)
(2.0)
(2.9)
(0.8)
0.6
3.7
8.3
12.0
Temporary investments & cash
Other
Additions to fixed assets
(3.0)
(0.2)
(0.2)
0.8
(0.2)
(0.3)
0.9
(0.1)
(0.2)
0.0
(0.5)
(0.7)
(1.0)
(0.5)
(0.6)
0.1
(0.6)
(0.4)
(1.3)
(0.4)
(1.1)
(2.9)
(2.4)
(2.1)
(1.3)
(1.3)
CF from Investing Activities
(3.4)
0.3
0.6
(0.5)
(0.7)
(1.0)
(0.5)
(0.6)
(0.9)
(2.9)
(2.9)
(2.4)
(2.1)
(1.3)
(1.3)
Change in Long Term Debt (net)
Other
(0.0)
0.0
(0.0)
0.1
(0.0)
0.0
1.4
-
7.2
-
-
-
(0.2)
7.5
1.4
0.1
7.2
-
-
-
-
CF from Financing
(0.0)
0.0
0.0
1.4
7.2
-
-
-
7.4
1.5
7.2
-
-
-
-
CF (used in) continuing ops
(3.9)
(0.5)
(0.0)
0.1
6.4
(1.7)
(0.4)
(0.8)
4.5
(4.3)
3.5
(1.8)
1.6
7.0
10.8
CF used in discontinued ops
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Cash and cash equivalents
Increase (decrease) in Cash
Cash at Beginning of Year
Cash at End of Year
(3.9)
5.1
1.2
(0.5)
1.2
0.7
(0.0)
0.7
0.6
0.1
0.6
0.8
6.4
0.8
7.1
(1.7)
7.1
5.5
(0.4)
5.5
5.1
(0.8)
5.1
4.2
4.5
4.5
(4.3)
4.5
0.2
3.5
0.2
3.6
(1.8)
3.6
1.8
1.6
1.8
3.4
7.0
3.4
10.4
10.8
10.4
21.2
Source: M Parnters Inc., ZoomMed
Member of the Investment Dealers Association of Canada (IDA)
Participating Organization – Toronto Stock Exchange (TSX)
Member Canadian Investor Protection Fund (CIPF)
Research • Trading • Advisory
Husein Kirefu
Research
416.603.7381 x231
[email protected]
17
M|PARTNERS
100 Yonge Street, Ste. 1000
Toronto, Ontario
Main line: 416-603-4343
Fax:
416–603-8608
Contact Information
Research
Corey Dias
Tara Hassan
Husein Kirefu
Michael Krestell
Merrill McHenry
Alexander Pope
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Trading
Patrick Bellmore
Rob Clark
Steve Isenberg
Steve Sandusky
Jeff Stevens
Tommy Trinh
Neil Whitaker
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Advisory
Christopher Dingle
Riley Keast
Thomas Kofman
Jason Matheson
Zeeshan Mukaddam
Jonathan Pinto
Daniel Sorger
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Who we are
As a full-service investment bank, M Partners’ first priority lies in the financial satisfaction of its clients. In keeping with the firm’s self-imposed high standards, M Partners’ approach to investment is anything
but standardized. Aiming to create new opportunities and ideas for clients rather than steering them towards typical investment outlets, M Partners has adopted a keen strategy of focused and relevant
research. Such knowledge-driven efforts, coupled with the ample skills of the firm’s management, produces successful services ranging from account management to advisory engagements.
M Partners received Investment Dealers Association of Canada (IDA) approval on April 14th 2005 and trades under broker number 97. The team currently has 19 members of varying degrees of financial
experience, including principals Thomas Kofman and Steve Isenberg, who have a combined 35 years of financial experience and are well known in the field. This backbone of strong leadership will help chart
the firm’s course into the future. In the coming months and years, M Partners will be focusing on a number of verticals, including environmental and infrastructure, real estate, mining, merchandising and
consumer products, and other special situations.
M Partners has strong financial backers who have extensive capital markets experience. The firm is a member of the IDA, a participating member of the Toronto Stock Exchange, The TSX Venture Exchange
and the Canadian Investor Protection Fund (CIPF).
Disclosure
The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and
interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein.
In accordance with Policy 11 of the IDA, M Partners hereby confirms as of the date of this report:
(i)
(ii)
(iii)
(iv)
(v)
M Partners or its affiliates collectively beneficially own less than 1% of any class of equity securities of the company which is the subject of the research report;
the analyst or any associate of the analyst responsible for the report or public comment does hold shares in the company;
M Partners or a director or officer of M Partners or any analyst has provided services to the company for remuneration other than normal investment advisory or trade execution
services within the last 12 months, and may receive or may seek compensation for investment banking services from the company herein within the next 3 months;
no director, officer, employee or research analyst is an officer, director or employee of the company, or serves in an advisory capacity to the company;
the analyst has not viewed the material operations of the company. We define material operations as an issuer’s corporate head office and its main production facility or a
satellite facility that is representative of the company’s operations.
The particulars contained herein were obtained from sources which we believe to be reliable but are not guaranteed by us and may be incomplete. The opinions expressed are based upon our analysis and
interpretation of these particulars and are not to be construed as a solicitation or offer to buy or sell the securities mentioned herein.
Dissemination
All final research reports are disseminated to institutional clients of M Partners simultaneously in electronic form. Hard copies will be disseminated to any client that has requested to be on the distribution list
of M Partners. All research reports are also posted on the website of M Partners Inc., at www.mpartners.ca. Reproduction of this report in whole or in part without permission is prohibited.
Research Analysts
The Research Analyst(s) who prepare this report certify that their respective report accurately reflects his/her personal opinion and that no part of his/her compensation was, is, or will be directly or indirectly
related to the specific recommendations or views as to the securities or companies. M Partners compensates its research analysts from a variety of sources.
Rating System
Buy: price expected to rise
Sell: price is inflated and expected to decrease
Hold: properly priced
Under review: not currently rated
Summary of Recommendations
as of June 30, 2008
Buy
24
96%
Hold
1
4%
Sell
0
0%
Under Review
0
0%
25
100%
Total
M|PARTNERS
Research • Trading • Advisory