Monday, May 17, 2010

The Gospel of the Call According to Mike

Dalai's note:  As I noted, Mike Cannavo, the One and Only PACSMan, was in on the call with Merge as well.  Here is his take:  

As the Dalai indicated “The Call” was interesting both in its timing and content. After hearing what was said, though, I felt like the kid who finally realizes there in no Easter Bunny or Santa Claus- you sorta knew all along what was going on but now had to face the realization that your hunch was right all along. Interestingly, the reverence shown for “Michael” (a.k.a. Mr.. Ferro) was nothing short of what would be given to the Pope or others held in esteem by the Roman Catholic Italian community. I was waiting for his ring to be kissed and him being addressed as the Holy Father or Godfather, but I guess that’s what happens when you are part of the core team that helped his former company be sold for $300M- the line between man and Superman tends to blur.  Pulling off this deal as well some might indeed call him Superman- he earned my respect just pulling the deal off however he managed to do it- but in the end he puts his pants on in the morning just like I do. Honestly though, most days I work from home in gym shorts and a tee shirt while he gets dressed up so I guess that’s what differentiates his role in the business world from mine- that and a few million per year in salary and other perks. Minor details…

Initially the Dalai and I were told that not just Kurt and Nancy would be on the call but Paul Merrild, Merge’s new (and AMICAS’ old) Executive VP of Marketing, Justin Dearborn, Merge’s CEO, and perhaps a few others who were invited  as well. I guess we either didn’t rate highly enough or they were too busy to deal with lowlife’s like us, but either way it was just a cozy chat among the four of us without the big(ger) Kahuna’s listening in . (Side note: Merge also needs to get with Yahoo Finance because Nancy is still listed with her old title as are many of the “old” players). 

It doesn’t take much for the Dalai to get excited, being a married man of 25+ years or so, but after seven years of being divorced and dating way too many women with ambitious- or as I prefer to view it, grandiose- plans I’m a lot more skeptical of anyone with plans like those Merge outlined for the company. Let’s pick out my engagement ring after the second date. Umm…let’s not and say we did.  Certainly keeping everything and merging it into one product would be the best of all worlds and makes sense, but keeping the company alive and financially viable until this is actually done will be an incredible challenge, especially given both companies lack of positive cash flow and the significantly increased debt load.  Also keep in mind after two extensions Merge still only sold <92% of the available stock so….

I’m not sure I completely agree with Dalai that Merge was brought back from death’s door. Yes, the stock did hit the $0.20 range after being investigated by the SEC among others (from a high of $28.00 or so) but after nearly three years the patient still has quite a bit of rehab to go before they can be discharged, especially since it the stock still languishes in the low to mid $2.00 range since the sale to AMICAS went through (it’s in the mid $2.30’s as I write this).

Much of what was in “the call” outlined for us makes sense for a bigger company  but it remains to be seen if it makes sense for a company the size of Merge, even the “new” Merge. AMICAS could have taken the Emageon VNA components and done something with then but they elected not to. For that matter Emageon could have done the same themselves and elected not to. I’m not sure what Merge suddenly sees in this market except that the world is suddenly getting into it. It seems like the VNA and cloud market is averaging one new competitor every other week and already has at least two dozen providers vying for a piece of this pie. Now Merge it seems like is going to play in this marketplace too.

That is one of my biggest concerns- what exactly is Merge offering as a company? They already play in radiology, cardiology, and orthopedics markets and now with AMICAS they will enter into the healthcare IT market with VNA’s, financial, clinical trials, EMPI, perioperative, and many other areas. The vision expressed on the call was for Merge to either dominate the independent marketplace or compete with the bigger IT shops (all that is missing is a HIS), but neither makes much sense unless you believe that is part of Merge’s future. I’ll get to that in a bit.

Putting everything together in a single package is an admirable task but not nearly as easy to do as it sounds. As this strategy was being outlined to the Dalai and I all I could think about was that famous bus song the Hokey Pokey…
You put your right foot in,
You put your right foot out,
You put your right foot in
And you shake it all about.
You do the Hokey Pokey
And you turn yourself around,
That's what it's all about.

Of course you continue with your left foot, right hand, left hand, right shoulder, left shoulder, right hip, left hip and then your whole self in. One part at a time then you put it all together and jump in completely. That’s how Merge seems to address putting everything together- one part at a time- until their “whole self” was in .Maybe it was just my ADHD acting up but that’s all I could think about as they talked Of course instead of the Hokey Pokey I could have been thinking 99 Bottles of Beer on the Wall but I won’t go there.

I wouldn’t compare Merge to GE in any way, shape or form and while Merge may be a software company they lost a lot of good AMICAS software developers as well as sales people and others. I’m sure they will find all the engineers they need at “Bhopal Bob’s Developers and More” (BBDAM) but it still kinda sucks the way the guys were let go. Yes, they were offered a package after the fact, but it’s all about trust…and software engineers are very much like women- some may forgive but they NEVER EVER forget so in a situation like that it’s best to move on. Tiger, please take note…The logic of teamwork is also great when they are a team but with technology the way it is and everyone at Merge now Skyping, Webcasting and connecting remotely in various ways, all the engineers would have had to do is put on their orange ties, turn on the camera and voila- instant meeting! But alas, no sense crying over spilled milk. The kitties have no doubt lapped it up elsewhere which is a huge loss for Merge.

I’m also not sure I would compare what happened to AMICAS with Ben and Jerry’s getting bought up by Breyers (which happens to be owned by Unilever and makes everything from Lipton tea to Dove soap). Dalai, have you had Breyers lately? Yuck. Adding insult to injury they shrank their half gallon to 1.5 quarts and hoped no one noticed since they kept the price the same. Give me a full half gallon of Blue Bell, Ben and Jerrys, Haagen Dazs or even Publix Premium over Breyers any day. But alas, I digress.

Merge is the little engine that could that showed it can…at least in terms of pulling off the deal. My take on it is that the company has a much bigger vision of the future than what we are seeing and that AMICAS is merely a stepping stone.

The move of both companies to Chicago defied logic (why incur two expenses when one suffices?) but when you look at the long term picture it makes sense.

  • Mr. Ferro’s mentor on this deal was Glen Tullman who has been Allscripts CEO since 1997.
  • Merge also just added Jeff Surges, President of U.S. Sales for Allscripts Healthcare Solutions, Inc. to their Board of Directors.
  • Allscripts is based in Chicago. Merge just moved the headquarters to Chicago.
  • Allscripts currently offers clinical and healthcare solutions that address nearly every area EXCEPT those that Merge currently offers.
  • Lastly, Allscripts has dipped their toe in the PACS marketplace a few times already without any real success but still retains a keen interest in this market.

I found this comment from 5/13 Merge press release very interesting- "Jeff joins a group of business leaders who have worked hard on behalf of Merge with no cash compensation, and who have each personally invested in the company through common stock purchases." Re-read that again-“….business leaders who have worked hard on behalf of Merge… who have each personally invested in the company through common stock purchases.”(emphasis added). So these “business leaders” (plural), also have skin in the game…and when you have skin in the game the rules usually change. That’s MY money you are playing with, not just investors.

You connect the dots and come up with your own conclusions…I’m not saying anything other than it’s mere speculation but…since Merrick Ventures (Mr. Ferro’s company) now owns 36% of the common stock, 24% of the preferred (non-voting) stock and they seem to be getting a lot closer with a certain $3B IT company somebody stands poised to get very, very rich in the near term if all goes well. It ain’t me- and I seriously doubt it’s the Dalai either.

So the Dalai was right. It’s a very different company for sure. But if Merge can deliver on the vision as expressed everyone will be in pretty good shape, especially the PACS marketplace. Only time will tell.


Anonymous said...

PACSMAN, you are dead on in your comments regarding the VNA. Emageon, the company that built the product early in the decade, squeezed about as much juice as they could from it. They had grandoise ideas about releasing a next generation VNA to make it on par with other market players, but that never happened. It was no suprise that Amicas never did anything with it either becuase they know nothing about that type of technology. Merge.....well same story. Amicas PACS to my knowledge has never played well with 3rd party archives so as you mentioned this is all pretty big talk from Merge.

Anonymous said...

I agree with everything you have said....except the part about Breyer's ice cream. IT IS THE BEST!!!! :-)

Anonymous said...

Mike: Regarding Allscripts, I think the 2009 agreement with Aspyra gives some indication as to Tullman's thinking:

Aspyra is in a sorry state. Allscripts could have bought the company for couch cushion change, but passed. Clearly, Tullman has other plans.

This is the key bit of the 2009 PR:

According to Kelley Schudy, Vice President of Channel Sales for Allscripts, at least 60% of patient's electronic medical record consists of data elements generated by clinical systems. "Our goal in working closely with Aspyra is to establish a digital environment within physician practices, multi-specialty clinics, and diagnostic centers-to name a few. This highly complementary relationship between Aspyra's clinical systems and Allscripts' solutions facilitate acquisition, distribution, and storage of clinical information across the healthcare community while optimizing the care provider and patient experience."

My interpretation of this statement is that Tullman believes that it's critical that Allscripts own not just the EMR skeleton, but the content-generating technology as well, the so-called "data elements."

Clearly, the Aspyra deal was a dead-end, given the fact that Aspyra has few customers. The new Merge, OTOH, has thousands of customers. A $3 billion company such as Allscripts needs scale, and Ferro can now deliver just that. It all fits very neatly, indeed.

One last thing: this isn't Surges first encounter with Merge. He was point man on the Cedara WebAccess deal. Again, from a 2009 PR:

“I’m looking forward to getting Cedara WebAccess in front of more of our early adopter customers,” states Jeff Surges, President of Sales of Allscripts. “It is the solution we have been looking for to make medical imaging information flow faster and more cost-effectively. At the end of the day, it will help our clients deliver and document more efficient patient care, which benefits all constituents.” As a part of the new agreement, Merge recently demonstrated the solution for the 2700 attendees at the Allscripts Client Experience national user conference held in Orlando from July 30th to August 1, 2009.

Anonymous said...

Interesting perspective and quotes. Thanks for sharing.

Aspyra was as much of a dead end as have other choices and forays that Misys/Allscripts has pursued in the PACS arena in the past and there have been a few. Aspyra couldn't even effectively compete in its own market space let alone the space that Allscripts plays in (larger players) so why Allscripts would ink a reseller agreement with them is anyone's guess. As you astutely pointed out purchasing Aspyra, even before they got de-listed, would be chump change, very similar to the $1.5M DocuSys purchase recently made by Merge. That leads you to ask though to what end? Keep in mind Merge's last two corporate purchases for around $20M each haven't exactly set the world on fire sales-wise either which is no doubt why they chose not to break out figures for them but instead bundle it in with general corporate sales. I would love to see a breakout by the different Merge divisions- what they made on eFilm, Cedera, Fusion sales, etc, and of course service which is a good 70% or more of their total revenue stream, but I'm not holding my breath on that. Breaking it out that way they might have to acknowledge that some of the investments weren't as good as they should have been and that is a no-no- especially since Merge stock has dropped over 15% in the past 5 days.

Who knows where this will all go but it should be interesting to say the least.


Anonymous said...

I think you're right about the bolt-on acquisitions, although the eTrials acquisition seems to be going well in the context of today's announcement. My guess is that Tullman is helping Merge to decide what to buy. In other words, these are items on Allscripts' shopping list.

The bottom line on all this is that, going forward, RIS/PACS isn't a standalone business. It's a part of the larger EMR/EHR. In the end, the MDRX's, QSII's, ATHN's, and eClinical's of the world will all sell RIS/PACS as part of the complete service offering. As always, Allscripts has first mover advantage. Anyone who runs a RIS/PACS vendor and who dosen't recognize this inevitability will pay a heavy price indeed.

Anonymous said...

I'm with you 110%.