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CardioNet Inc. (Nasdaq: BEAT)

CardioNet Inc. (BEAT) is a provider of real-time outpatient cardiac monitoring services for ambulatory (mobile) patients. It provides the next-generation ambulatory cardiac monitoring service with beat-to-beat, real-time analysis, automatic arrhythmia detection and wireless ECG transmission. The Company’s initial efforts are focused on the diagnosis and monitoring of cardiac arrhythmias, or heart rhythm disorders, with a solution that it markets as Mobile Cardiac Outpatient TelemetryTM (MCOT™). MCOT™, as an integrated technology and service, offers physicians a powerful diagnostic and patient management tool to address the challenges of diagnosing and treating arrhythmias, which some forms are life-threatening medical emergencies that can result in cardiac arrest and sudden death. The Company also offers traditional Holter, event and pacemaker monitoring services.

Founded in 1999, the Company is headquartered in Conshohocken, Pennsylvania.

Source: Reuters.com

Financial Summary

Driven by continued strong demand for its CardioNet MCOT™ system, with a 53% increase in patients over the prior year, BEAT’s revenues for the second quarter of 2009 increased to $38.3 million compared to $29.3 million in the second quarter of 2008, an increase of $9.0 million, or 30.4%. For the six months ended June 30, 2009, revenues increased to $74.0 million compared to $54.8 million in the comparable period in the prior year, an increase of $19.2 million, or 35.0%.

In the second quarter of 2009, operating income on a GAAP basis was $2.1 million, compared to $2.5 million in the second quarter of 2008. Excluding $3.2 million of expense related to management restructuring, primarily severance costs for former senior executives and costs incurred in connection with the merger agreement to acquire Biotel Inc., which has since been terminated, adjusted operating income increased to $4.0 million in the first half of 2009, or 5.3% of revenue

Net income on a GAAP basis for the second quarter of 2009 was $1.6 million, or $0.07 per diluted share, compared to net income of $1.6 million, or $0.07 per diluted share it posted in the year-ago quarter. BEAT CFO Marty Galvan stated that the Company’s net income on a GAAP basis in the second quarter and first half of 2009 was relatively flat compared to the previous year as the Company continued to invest in the expansion of its sales and marketing organization.

BEAT revenues grew 65.02% year-over-year, from $72.99 million to $120.45 million, while net income improved from a loss of $356,000 to a gain of $9.21 million. Last year, the Company increased its cash reserves by 221.55%, or $40.08 million. The Company boasts of a strong balance sheet and has consistently grown its cash reserves over the last four years to total $58.17 million.

Source: Reuters.com

Analyst Consensus
Consensus Recommendation
Recent analysts polled rate shares of BEAT a “Hold.” This is the consensus forecast among 10 polled investment analysts.

Source: Reuters.com

Investment Highlights

Overview

BEAT is the world’s leading supplier of Mobile Cardiac Outpatient Telemetry™ (MCOT™), a technology that integrates cardiac monitoring, wireless communication, and Internet technologies to offer unprecedented diagnostic information and patient management resources to physicians treating patients with arrhythmias. Through this technology, BEAT is able to provide the next-generation ambulatory cardiac monitoring service with beat-to-beat, real-time analysis, automatic arrhythmia detection and wireless ECG transmission.

Having obtained an FDA marketing clearance for its core technology in February 2002, BEAT has provided a tool to help clinicians prevent morbidity, mortality and disability with rapid diagnosis and treatment of patients with cardiovascular disease.

Cardiac arrhythmia is a broad term for a group of conditions in which there is abnormal electrical activity in the heart. Accordingly, some arrhythmias are very minor and can be regarded as normal variants, but others are life threatening medical emergencies that can result in cardiac arrest and sudden death. It was reported that in the U.S., more than 5 million people are affected by cardiac arrhythmias nationwide, and result in more than 1.2 million hospitalizations and 400,000 deaths each year.

CardioNet MCOT™

Physicians prescribe CardioNet MCOT™ for patients enrolled with CardioNet for up to 21 days of monitoring. The device is a lightweight patient-worn sensor attached to electrodes that capture two-channel electrocardiogram (ECG), data measuring electrical activity of the heart and communicates wirelessly with a compact, handheld monitor. The monitor analyzes incoming heartbeat-by-heartbeat information from the sensor on a real-time basis by applying algorithms designed to detect arrhythmias. When the monitor detects an arrhythmic event, it automatically transmits the ECG to the CardioNet Monitoring Center, even in the absence of symptoms noticed by the patient and without patient involvement. At the CardioNet Monitoring Center, which operates around the clock seven days per week, experienced certified cardiac monitoring specialists analyze the sent data, respond to urgent events and report results in the manner prescribed by the physician.

The MCOT device employs two-way wireless communications, enabling continuous transmission of patient data to the CardioNet Monitoring Center and permitting physicians to remotely adjust monitoring parameters and request previous ECG data from the memory stored in the monitor. By providing continuous heartbeat monitoring with up to 21 days of data, the CardioNet System provides doctors with a more complete picture of heart functions when diagnosing and monitoring arrhythmias.

This year, BEAT achieved a milestone by surpassing 200,000 patients monitored.

Recent News

On September 10, the Company announced the availability of new, innovative clinical and reporting enhancements to the Company’s existing Mobile Cardiac Outpatient Telemetry™ (MCOT™) service, which sustain MCOT’s diagnostic and reporting superiority in monitoring cardiac events, according to BEAT chairman and CEO Randy Thurman.

In the Company’s release, Dr. Peter Kowey, BEAT’s medical director and chief of the Division Of Cardiovascular Disease for the Main Line Health System stated, “These enhancements deepen our understanding of the individual cardiac events for each patient and minimizes the likelihood of making an inaccurate diagnosis and treatment decision.”

Earlier last month, the Company reported its second-quarter results, which highlighted several developments including the 30.4% year-over-year quarterly increase in revenue. CEO Randy Thurman expressed confidence that “wireless healthcare technologies will be one of the most dramatic, revolutionary changes in human health for the next decade and beyond, and that the cost/benefit advantages and superior clinical outcomes of technologies such as MCOT™ will ultimately prevail even in this cost driven reimbursement environment.”

On September 1, shares of BEAT plummeted on Highmark Medicare Service’s (HMS) confirmation that it will reduce its reimbursement rate for mobile heart technology by 33%, to $754 per service from $1,123 per service. BEAT said the change would have a significant effect on its business, but it did not estimate the size of that change. CEO Thurman commented that the Company and other industry providers brought compelling data to HMS to justify a higher level of reimbursement, and said that they will be persistent in pursuing every appropriate means to remedy the situation.

The news was followed by a filing of securities Class Action against BEAT, alleging that the Company knowingly or recklessly disregarded that it was currently experiencing reductions in its reimbursement rates for its MCOT, and that these reimbursement rates were under review by payors, and a reduction in rates could result in the Company’s current independent business model not being economically viable.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui

As of last close on September 14, 2009, BEAT closed at $7.78, 38.93% above the 5- week low of $5.60 set July 13, 2009.

Currently, BEAT’s MACD reflects a weak bullish signal, with the indicator trending above the 9-day moving average signal line but still below the 0 level, indicating bearish moving averages.

The penny stock is trading within its Bollinger Bands, a normal condition signaling that the s stock is neither overbought nor oversold relative to the recent price action.

With share prices currently above the penny stock’s 13-day moving average, a bullish trend is indicated. Also, a rising moving average signals that there has been buying interest in this small cap stock.

Comparative Analysis

BEAT is one of a few publicly traded companies engaged in wireless medicine. Its Mobile Cardiac Outpatient Telemetry™ (MCOT™) system is the first to provide real-time ECG monitoring and 24/7/365 analysis and response for patients at home, at work or traveling.

BEAT has a positive Return on Assets of 5.40%, compared with an industry average of 0.45%; Return on Investment of 5.89%, compared with an industry average of 0.59%; and Return on Equity of 5.95%, compared with an industry average of 0.91%.

The chart below shows a comparative analysis of companies engaged in the cardiovascular medical devices market.

Source: Yahoo! Finance, Analyst Estimates.

Insider Trading Activity

Data provided by Thomson Financial

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