Cerner (CERN) The Top Pick In The Big Integrated Hospital Delivery Vendor Space; Managing Director At Piper Jaffray And Co. Identifies His Top Picks In Health Care IT
December 16, 2011 - The Wall Street Transcript has just published Health Care IT Report offering a timely review of the sector. This Special Report contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. Please find an excerpt below.
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Sean Wieland is a Managing Director and a Senior Research Analyst at Piper Jaffray & Co. focusing on health care information technology and health care services. Mr. Wieland has 13 years of experience in health care information technology, including six years on the sell side. Before joining Piper Jaffray in 2005, he was Senior Research Analyst at WR Hambrecht + Co and Prudential Securities. Before joining the sell side, Mr. Wieland spent seven years in the industry, working in multiple roles at IDX Systems Corporation, most recently as a Senior Sales Executive, where he learned firsthand about the need for technology in the health care setting. Mr. Wieland earned his MBA and his bachelor's degree in electrical engineering from The University of Vermont.
TWST: Are we going to see any mergers?
Mr. Wieland: I always turn to what I refer to as the four quadrants of health care IT as a predictor as who will merge with whom. To be successful in today's modern provider setting, you have to uniquely coordinate your efforts across hospital and physician and across clinical and billing. So the new model in an accountable care organization is you really need an IT system that integrates work flow across all four of those quadrants. This is a prime reason why Epic has gained market share in this cycle as they are really the only company that has a truly integrated database across all four quadrants. Cerner also has one integrated architecture across all four quadrants, and they've gained market share. But this is why Allscripts bought Eclipsys, because they needed to sell all four of those quadrants. This is why Quality Systems has bought Opus, because they needed something on the in-patient side.
So if you think about it from that perspective, yes, there's going to be more M And A within the industry to serve all four of those quadrants. These vendors can go out and sell a strong system into every one of those four quadrants. In terms of outside consolidation of other companies with deep pockets coming in and buying these little companies, that's been a drumbeat in this industry for the past 10 years that has given the stocks quite a bit of buoyancy. There has been some speculation that Oracle (ORCL) and Microsoft (MSFT) and IBM (IBM) are going to come in and buy all these companies, but that doesn't seem likely right now.
We've seen three transactions like that. We've seen McKesson (MCK) buy HBOC. We've seen Siemens (SI) buy Shared Medical. We've seen GE (GE) buy IDX. None of those three were an overwhelming success for the acquirer. What Oracle likes to do when they do an acquisition is they like to integrate the entire business into their business and consolidate R And D, consolidate sales and drive a lot of efficiencies. But Cerner has such a specialized R And D talent for developing code specifically for health care, and the sales executives there have deep and rich clinical expertise that it's not a software sale as much as it is a clinical sale. You can't really gain a lot of efficiencies or economies of scale in sales and marketing. That's one reason I think the outside acquirer coming in these businesses aren't as attractive as some people think. The other reason is Oracle serves 20 some odd different verticals.
TWST: Who do you like right now in your coverage?
Mr. Wieland: I think that the two companies that are executing extremely well with multiples to prove it are athena and Cerner. Cerner is my top pick for a big integrated delivery system hospital vendor. They seem to be gaining share, beating numbers, and I think that they've got an incredible vision of the future. I think Neal Patterson has a vision on how he can fix health care, and they're working toward that vision. So I think Cerner gets it.
On athena, I think that their cloud-based architecture for the ambulatory environment is exactly the right model that the market needs. I think that the lion's share of the opportunity remaining in the ambulatory environment is in the small and midsized physician practices. So the 100, 200 doc practices for the most part have implemented an electronic medical record. But it's the small, solo practice market that has not, and I think that athena's cloud-based architecture is absolutely the right tool for the job in that environment because of its completely recurring-revenue model.
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