QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
Confirmation #2277509
Page 1
FILED BY QUOVADX, INC.
PURSUANT TO RULE 425 UNDER THE SECURITIES ACT OF 1933
SUBJECT COMPANY: CARESCIENCE, INC.
COMMISSION FILE NO. 000-30859
Quovadx intends to commence an exchange offer and to file with the Securities
and Exchange Commission (SEC) a Schedule TO and Registration Statement on Form
S-4 relating to the exchange offer. CareScience intends to file a
Solicitation/Recommendation Statement on Schedule 14D-9 with the SEC relating to
the exchange offer. Quovadx expects to mail a Prospectus/Offer to Exchange and
related offer materials to stockholders of CareScience, and CareScience expects
to mail a Schedule 14D-9 to its stockholders. Investors and security holders are
urged to read these documents carefully when they are available because they
will contain important information about the transaction. Documents filed by
Quovadx with the SEC may be obtained without charge at the SEC's website at
www.sec.gov and at Quovadx's website at www.quovadx.com. Documents filed by
CareScience with the SEC may be obtained without charge at the SEC's website and
at CareScience's website at www.carescience.com.
QUOVADX, INC.
MODERATOR: LARRY THEDE
AUGUST 14, 2003
9:15 AM EDT
Operator: Good morning. My name is (Tina), and I will be your
conference facilitator.
At this time I would like to welcome everyone to the
Quovadx /Care Science Investor Briefing Conference call.
All lines have been placed on mute to prevent any
background noise.
After the speakers' remarks there will be a question and
answer period. If you would like to ask a question during
this time, simply press Star then the number 1 on your
telephone keypad.
If you would like to withdraw your question, press Star
then the number 2 on your telephone keypad.
Thank you. Mr. Thede, you may begin your conference.
Larry Thede: Good morning, and thank you for joining us for today's
conference call. With us today are Quovadx' president and
CEO, Lorine Sweeny, and Care Sciences President and CEO,
Dr. Ron Paulus. Gary Scherping, Quovadx' CFO, will join us
for the question and answer session.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
Confirmation #2277509
Page 2
We've prepared several slides for you to review as we go
through our presentation. To access the presentation you
can go to the Webcast link for the call that can be found
on the Events page of the Investors section of our Quovadx
website.
That Web address is www.quovadx.com/investors/calendar.jsp.
Those slides are there now on the Webcast link.
We'll begin the call with Management's formal comments
concerning today's announcement of Quovadx' agreement to
acquire CareScience in a cash and stock offer. We will then
open the call to your questions.
Before we begin, I'd like to draw you attention to Slide 2,
where you will find additional information regarding the
CareScience acquisition.
We would like to advise you as to where you can find more
information about the transaction. Quovadx will be filing a
Schedule TO and a registration statement on Form S-4 with
the SEC relating to the offer of cash and Quovadx stock to
CareScience shareholders.
And CareScience will be filing a Solicitation
Recommendation Statement on Schedule 14D-9 with the SEC
regarding the offer.
We urge you to read these documents carefully when they are
available, because they will contain important information
about the transaction.
Documents filed by Quovadx with the SEC may be obtained
without charge at the SEC's website at www.sec.gov, and at
Quovadx' website at www.quovadx.com.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
Confirmation #2277509
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Documents filed by CareScience with the SEC may be
obtained without charge at the SEC's website and at
CareScience's website at www.carescience.com.
I'd like you to move to Slide 3. Please note that during
the course of this call Management will be making
forward-looking statements regarding the CareScience
acquisition, including statements regarding the timing of
the transaction, the anticipated effect of the acquisition
on Quovadx' operating results and financial condition, the
anticipated improvement in Quovadx' position in the
industry in which it competes as a result of the
transaction, and the expected effect of the transaction on
Quovadx' product offerings.
These statements reflect Management's current expectations
regarding future events. Actual events may differ
materially from these statements.
These statements are subject to a number of risks and
uncertainties, including risks relating to the
consummation of the acquisition, potential difficulties in
the assimilation of CareScience's business, the risk of
loss of key personnel at CareScience, and the risk of
diversion of Management attention from other business
concerns.
We do not undertake any obligation to update or correct
any forward-looking statements included in this
presentation to reflect events or circumstances occurring
after the date of this presentation.
Let's move on to Slide 4, and I'd now like to turn the
call over to Lorine.
Lorine Sweeny: Thanks Larry, and good morning everyone.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
Confirmation #2277509
Page 4
Earlier today we announced that the Board of Directors of
Quovadx and of CareScience had each approved a transaction
for Quovadx to acquire CareScience, one of the nation's
leading healthcare management companies.
We have signed a definitive agreement and will soon
commence an exchange offer for the outstanding stock of
CareScience.
Before I go into details on the terms of the offer, I'd
like to express my enthusiasm for this transaction and for
what it means for our future.
CareScience is one of the nation's leading care management
companies. Founded in 1992, it currently supports more
than 170 provider organizations in 34 states.
They have a highly visible, high-margin recurring revenue
model with significant backlog. Their trailing 12-months
revenue is $13.5 million. And at June 30 of this year
their total backlog, which represents unrecognized revenue
on signed customer contracts, was $33.2 million.
This backlog, which has been growing significantly, will
be recognized as revenue in the future in accordance with
the terms of the contracts.
CareScience offers products and services that help
hospitals and health systems deliver high quality,
efficient care. CareScience has developed a proprietary
clinical analysis method and clinical data sharing and
collaboration tools.
Their expertise in care management is a natural extension
to our medical management product offerings in the health
care provider and payer segments.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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This transaction further solidifies our leadership in the
large and growing healthcare market, and it extends our
reach in the clinical process improvement in care
management arenas.
I'm especially pleased to welcome CareScience's President
and CEO, Dr. Ron Paulus, to Quovadx and today's call.
Ron and I have been working on this transaction for
several weeks. And I've been impressed by his passion for
CareScience, and for what they bring to their customers.
Their products truly do make a difference in the lives and
quality of care for medical patients.
Ron joined CareScience in March of 1993. And he became the
president in 1998. Earlier this year he was named Chief
Executive Officer.
I'd like to have Ron comment on CareScience and on today's
news. Ron?
Ron Paulus: Thanks Lorine, and good morning everyone.
Today is truly an exciting day for CareScience and for me.
I'm absolutely thrilled to be joining the Quovadx team.
And I'm very enthusiastic for what this means for the
future of our company as we combine our organization with
Quovadx.
As Lorine mentioned, CareScience is a company specializing
in clinical knowledge. We supply the people and technology
required to support the delivery of high-quality,
efficient care.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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By combining our deep care management expertise and our
industry leading care process analysis and data sharing
tools with Quovadx' existing integration technology and
work flow applications, our offerings will become more
robust and even more effective.
I am very eager to complete this transaction and look
forward to bringing our products to new markets.
Lorine Sweeny: Thanks Ron.
I'd like to offer some details about today's announcement
and about the transaction.
On Slide 5 you'll see a summary of the agreement. The
value of our offer for CareScience is $2.09 per share,
based on yesterday's closing price. They have 13.3 million
shares outstanding. So the total value of the transaction
is $27.8 million.
At June 30 of this year CareScience had $14.3 million of
cash and equivalents, net of debt. This results in an
enterprise value of $13.5 million. This also equates to
one times CareScience's trailing 12-months revenue.
Our offer is a combination of cash and stock. We're
offering $1.40 per share in cash and 0.1818 share of
Quovadx for each share of CareScience.
Since CareScience has 13.3 million shares outstanding, we
will issue 2.4 million new shares of Quovadx stock in this
transaction. And we will pay $18.6 million in cash to
CareScience shareholders.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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Since they have over $14 million in cash, our net cash
outflow will be under $5 million.
We anticipate that the transaction will close early in the
fourth quarter. We intend to file our registration
statement with the SEC and commence our exchange offer in
the next week.
The steps to closing include the acceptance of our
exchange offer by at least 80% of the outstanding shares
of CareScience.
We expect this transaction to be accretive to our 2004
results. I'll talk more about this after the next slide.
On Slide 6 you'll see summary financial statistics for
CareScience. Their trailing 12-months revenue was $13.5
million.
Their gross margin is 50%. The margin has improved
significantly over the past several years.
In the past 12 months they incurred $4.1 million in R&D
costs and another $9.2 million in SG&A expenses. We
believe we will be able to recognize significant cost
synergies once we complete the transaction.
They have a strong balance sheet and had $14.6 million in
cash and investments at June 30 of this year. They have
$325,000 of debt.
They have a history of good collections and have working
capital of $10.7 million as of June 30.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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Their main product offering, the Care Management System,
is offered on a subscription basis. Typically the
subscriptions are for three to five year periods.
They are not performance-based contracts and do not have
early termination provisions.
They have an excellent track record of renewal. And they
currently support over 170 provider organizations.
Backlog revenue at June 30 of this year was $33.2 million.
This was up 31% from their backlog at the end of 2002.
As I've already mentioned, this backlog will be recognized
as revenue in accordance with the terms of contracts with
customers. And this amount also represents future cash
collections less deferred revenue remaining on those
agreements.
I'd like to have Ron talk a bit about their product
offerings, which we've summarized on Slide 7.
Ron Paulus: Thanks Lorine.
As noticed previously, CareScience is a solutions provider
to hospitals and healthcare systems nationally.
We have two primary product sets. First and foremost is
our Care Management System.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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Clients use our Care Management System for quality
measurement and for quality documentation and for care
management analysis, support and execution.
I am particularly excited about the ability to link this
product with Quovadx' data integration and workflow
technologies to create an even more robust and effective
solution.
As the business case for quality is increasingly apparent,
organizations are turning to the Care Management System
and related services to help drive quality improvements,
cost efficiencies and ultimately, strategic advantage.
The second product set is our Care Data Exchange, which is
currently deployed in Santa Barbara, California.
The Care Data Exchange is a peer-to-peer clinical data
sharing solution that enables clinicians to access a
patient-centered view of clinical information regardless
of where that information may be located and without a
centralized database, so long as the data reside within a
participating data sharing organization.
In addition to both these technologies, CareScience also
provides the people and services required to support
organizations' deployment of integrated care management
solutions ranging from quality improvement to care
coordination and liability prevention.
Within our service offerings we currently have two
business processing outsourcing partners, Cooper Health
System and the University of Tennessee Medical Center.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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Within these two organizations we have management
responsibility for quality management and both quality
management and care coordination, respectively.
Taken together, our technologies and services provide an
impactful solution for our care management clients. Now
back to Lorine, who will discuss potential synergies and
the strategic fit between our organizations.
Lorine Sweeny: As our press release states, we expect this transaction to
be accretive to our 2004 results. On Slide 8 are some
synergies we have identified.
On the revenue front, we believe there is opportunity for
each of our product offerings to be introduced and cross
sold to the combined installed based of customers.
We bring a very large installed base of healthcare
customers to CareScience. And we will aggressively target
these accounts with our newly expanded suite of products.
Similarly, there is an opportunity for us to approach the
installed base of CareScience customers with our
technology platform and adaptive application offerings.
In addition to significant revenue opportunity, we'll
eliminate duplicate costs between our two companies. There
are obvious cost elimination opportunities, as CareScience
ceases to be a publicly traded company.
Costs associated with stock exchange filing fees, SEC
compliance costs, Board costs, D&O insurance costs and so
on.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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CareScience also has a data center in Philadelphia that we
intend to continue operating. This will allow us to
consolidate operations from our two existing data centers.
We will continue to operate our Albuquerque facility. But
we will discontinue a third-party backup facility we have
been using in California.
We see opportunity on the R&D front. And we'll use our
resources to bring real time capabilities to CareScience's
offerings.
We'll also absorb a number of overhead functions within
our existing cost structure. While we have additional work
to do to fine-tune our expectations, I'm comfortable
targeting a minimum 5 cents per share contribution from
this transaction in 2004.
As in any acquisition, there will be some one-time costs
associated with this transaction. They include things like
investment banker fees, exchange agent fees, severance
costs and related deal costs.
I'd like to talk briefly about the strategic fit for our
two companies. Slide 9 highlights some of the strengths of
each company.
CareScience brings to Quovadx tremendous experience and
expertise in care management and clinical process
improvements.
They have a history of working with healthcare providers
and health systems to manage clinical processes
surrounding the point of care so that fundamental
reductions can be achieved in operating costs, clinical
inefficiencies and medical errors. And they offer
industry-leading care process analysis technology.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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They support over 170 provider organizations in 34 states.
They bring Quovadx significant talent in the medical
profession. And they bring us a highly visible, high
margin recurring revenue model with significant backlog
that will add visibility to future revenue streams.
Quovadx has proven technology, an industry-leading
integration platform and adaptive application offerings
that have traditionally focused on the healthcare
verticals.
I believe we can make the CareScience offerings even more
robust by bringing data to users of their products in real
time.
Our interface engines are in hospitals all over the
country, so we can offer real time transaction capability
to users of CareScience products.
We've made tremendous progress over the past year in
building our sales force and strengthening our
distribution networks. These improvements will help us
aggressively market and sell CareScience products to more
customers than they have been able to achieve on their
own.
And we'll aggressively cross-sell CareScience products to
our existing base of over 1700 healthcare customers.
Well, let me stop with that and welcome any questions that
you may have. Operator, I'll be happy to take questions
from the floor.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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Operator: At this time I would like to remind everyone that in order
to ask a question, please press Star then the number 1 on
your telephone keypad. We'll pause for just a moment to
compile the Q&A roster.
Your first question comes from the line of (William Haus)
with (Advest).
(William Haus): Hi everyone, congratulations on a nice deal.
Lorine Sweeny: Hi Bill.
(William Haus): I was wondering if you could maybe talk about - and maybe
this is for Ron. In your core care management area you've
had quite a bit of growth recently. I think the last Q was
about 40% there or plus.
Could you talk a bit about your pipeline there, and what
is driving that growth for you?
Ron Paulus: Sure. Our pipeline has been strong and continues to get
stronger.
And you noted the fact that our core care management
revenue has been growing at about 40% on a regular basis
quarter over quarter over quarter.
And we're expecting to have a similar growth in that core
care management arena on a going-forward basis.
So we see the signs in the marketplace, and just looking
back historically that this is consistent with where we've
been.
(William Haus): And Ron, is there any particular area within the three
product segments or offerings that you highlighted where
you're seeing - is it the care management
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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system and the quality care? Or is it this patient-
centered data access? What is the driver for you?
Ron Paulus: The driver has been on the revenue side of the equation,
is the care management quality business.
And that's where I'm particularly excited about the
opportunities to link with Quovadx' real-time data and
workflow applications, which really marries together the
quality and care coordination piece that we've done
through services. And now we'll have a technology base.
(William Haus): And for you folks on a payer-provider mix, what would you
say there in terms of revenue breakdown?
Ron Paulus: For CareScience?
(William Haus): Yes, sir.
Ron Paulus: It's 100% provider.
(William Haus): Okay.
And I guess one last question there, in terms of total
revenue in these three product offerings; can you give me
a sense of how that breaks down? Or have you discussed
that previously?
Ron Paulus: Well we disclose in our MD&A from our most recent 10Q the
fact that for the first half of 2003 we had sort of two
things going on in revenue.
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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Our core care management increased substantially. And we
had a decline in revenue in our funded development
contracts, which had come to an end, and in our
pharmaceutical consulting offerings, which we've
redirected.
So that growth and the revenue itself have driven from
that core care management offering that we're now very
focused upon.
(William Haus): And the patient-centric data access that's
cross-enterprise, I guess. Is that the identified patient
data? Any issues there with HIPAA?
Ron Paulus: It's identified data. It is a HIPAA compliant application.
We get security and authorization in terms of the
clinicians that are accessing that information verifying
that they have rights to view that information.
Essentially it's the same information that they would
otherwise view but have to get through a fax or some other
means that is less convenient and less efficient.
(William Haus): I understand. So it's in the giving of care, not for
research purposes?
Ron Paulus: That's correct.
(William Haus): All right sir, thank you.
Operator: Your next question comes from the line of (Mark Dishop)
with The Boston Company.
(Mark Dishop): Hi, along similar lines on the revenue, did you say that
your core care revenue had been rising 40% sequentially
for several quarters?
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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Ron Paulus: At a 40% rate. It has been growing year over year at a 40%
rate for some time now.
(Mark Dishop): So it's year over year.
Ron Paulus: Yes.
(Mark Dishop): Okay, and can you say what that revenue was in the last
several quarters? Can you give like what it was last three
or four quarters, roughly?
Ron Paulus: Yes, I don't have the numbers in front of me here. But as
I mentioned, for the first half of 2003 the core care
management revenue increased by $1.8 million on a
year-over-year basis. And we reported revenue. So the
second quarter of 2003, it was about...
Gary Scherping: The second quarter of 2003 I have - it was most of the
revenue that they reported, so about $3.1 million.
Ron Paulus: $3.157 million was our reported, I think, of which only
$23,000 related to pharmaceutical and other revenue. I
apologize for the little math trauma I had there.
(Mark Dishop): So minus $27,000 was pharma and other?
Ron Paulus: Yeah, about $23,000 was....
(Mark Dishop): $23,000. And the rest was all core care?
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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Ron Paulus: That's right, and this was sort of the end of this
transition we've had with a decline in revenue coming from
our funded development contract ending the redirection of
the pharmaceutical offering.
So we won't have any more impact from declines in those
lines of business. So the growth that's been underlying
our revenue, where it's appeared to be flat or declining,
will now be on an upward trajectory.
(Mark Dishop): Okay, and your...
So that's $3.134 million of care revenue last quarter,
that was up about 40% or so, year over year?
Ron Paulus: That's right.
(Mark Dishop): And you're saying that's likely to continue at that kind
of rate of growth for a while?
Ron Paulus: Yeah, that's our general expectation.
(Mark Dishop): And what is the driver of that growth?
Ron Paulus: It's two things. The first is the backlog that Lorine
mentioned a number of times.
Our backlog has increased significantly on a
year-over-year basis and has increased significantly on a
quarter-by-quarter basis.
Because we recognize all of our revenue (unintelligible)
over the life of our agreements, even including
implementation fees, when we sign even a large
QUOVADX, INC.
Moderator: Larry Thede
08-14-03/9:15 am EDT
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contract the impact in any given quarter is only for a
three-year agreement 1/36th of the total amount.
So we know in any given point in time we'll have a certain
amount of revenue coming from backlog directly into that
next quarter's revenue as well as impact from the sales
that are closed in that particular quarter.
(Mark Dishop): Okay, so when you said the backlog is up, that's from
prior contracts you signed. It just hasn't been recognized
fully yet.
Ron Paulus: That's right.
(Mark Dishop): And the pipeline is also up?
Ron Paulus: The pipeline has been steady and climbing in a similar
fashion.
(Mark Dishop): So that's up in the neighborhood of 30 or 40%?
Ron Paulus: On a year-over-year basis I think that's a reasonable
sense.
(Mark Dishop): Okay, has it been increasing sequentially?
Ron Paulus: Well we've had a mix in the pipeline across the different
service areas that I talked, but within care management it
has been increasing on a quarter-by-quarter basis as well.
(Mark Dishop): Okay, thanks very much.
Operator: Your next question comes from the line of Gene Mannheimer
with Roth Capital Partners.
QUOVADX, INC.
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08-14-03/9:15 am EDT
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Gene Mannheimer: Good morning. Congratulations Lorine and Ron, nice
transaction.
Lorine Sweeny: Hi Gene, thanks.
Gene Mannheimer: Just a question for Ron, could you just discuss a little
bit about the competitive landscape and the quality
management care / management arena, including Landacorp
and others, and how this synergy and this combination will
make you more competitive?
Ron Paulus: Sure. Historically we've thought of this space as being
broken up between sort of the benchmarking type companies
like Premiere, a company called Solutions and a small
group within Cardinal Health called Medicall.
They basically collect a lot of information from hospitals
and then allow different hospitals to compare their
performance to one another. So that's sort of the
benchmarking piece of this.
We also have noticed organizations like Landacorp and
(Camby) and some others that provide case management
applications.
We sort of sat in the middle between those. We provide a
modest amount of benchmarking. But our real focus is not
on how you compare but what you can do about it, given
whatever your position is, and on the case management side
has focused largely on sort of managed-care related
coordination and financial metrics.
We've focused on the clinical process area. What do
clinicians do in caring for patients? How do they make
treatment decisions, because fundamentally
QUOVADX, INC.
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08-14-03/9:15 am EDT
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that's what determines the cost structure and the quality
output of those organizations.
We've done that by enabling the organization to measure
their quality, to document their quality, and most
importantly, to do something about it.
Now the doing something about it has historically been a
service-based action, whether that's something that our
client does directly or that we do in conjunction with
them as part of consulting, facilitation, or in the two
examples, business process outsourcing.
The tremendous opportunity of this transaction, and the
reason why I was so excited about this being the company
that we linked together with, is the real-time data
application and the workflow capacity, because we'll now
have the ability not only to measure and document quality
but also to effectuate the change actions that relate to
those quality issues directly into the workflow of the
organization - essentially not just measuring it and
documenting what happens, but by doing something about it
before it goes wrong.
And so that's the space that I see us having a very unique
position in, because the benchmarking companies don't have
anything related to real-time data, even remotely, and the
case management companies don't really do clinical
analysis or clinical process improvement.
Gene Mannheimer: Excellent, thanks Ron.
Operator: Your next question comes from the line of (Ben Cubit) with
Mcap.
(Ben Cubit): Yeah, hi there.
QUOVADX, INC.
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08-14-03/9:15 am EDT
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You mentioned that one of the requirements was a minimum
80% tender. I'm just wondering if you had a kind of a
lockup with major shareholders or management.
Gary Scherping: We have one (unintelligible) agreement signed with a major
shareholder that represents about 18.6% I believe of the
outstanding shares.
(Ben Cubit): And so far those are the only people that have agreed to
vote or to tender to this offer?
Gary Scherping: Yes, that's the only agreement we have. And it's really a
function of Pennsylvania law. CareScience is a
Pennsylvania corporation. And we really didn't approach
any other shareholders. We didn't want to go over it with
this 20% figure, which is very important in the state of
Pennsylvania.
(Ben Cubit): Okay, and you mentioned that you expect the offer to begin
next week some time?
Gary Scherping: Yes, that's our expectation.
(Ben Cubit): And it will be open for about a month or something?
Gary Scherping: I'm not sure about the exact time. I believe it's four or
five weeks, though.
(Ben Cubit): Oh, great. Okay. Thank you very much, then.
Operator: Your next question comes from the line of (Edward
Guinness) with Tiedemann.
QUOVADX, INC.
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(Edward Guinness): Yes. I wanted to ask a question. The terms of the offer
0.1818 and the $1.40 in cash partially stresses what the
acquisition is net of cash, how much it costs. Are those
terms changed at all if the cash or working capital or
options outstanding or anything else changes? Or are they
fixed?
Gary Scherping: They're fixed.
(Edward Guinness): Is there any walk-away price if QV stock goes down or up
as the terms change?
Gary Scherping: No, there isn't.
(Edward Guinness): Okay. Thank you.
Operator: Again, in order to ask a question, please press star then
the number 1 on your telephone keypad. You have a
follow-up question from (William Haus) of Advest.
(William Haus): Hi, Lorine. I was wondering if you could talk maybe about
what products you're excited about and might lead with
into the client base of CareScience? Are there any
products that you might sell to them?
I know there's a huge opportunity of, you know, maybe
introducing them to some of your stuff and doing cross
sell. And clearly, a huge opportunity in selling theirs
into your much bigger base. But maybe you could talk about
sell to them.
Lorine Sweeney: Yeah. We're really very, very excited, as Ron mentioned,
about the prospect of selling the real time data
integration technology into their customer base.
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You know, we think that that's a very near term
opportunity as people are looking forward to getting the
real time data access versus the way they do it today.
We're also excited about the fact that CareScience brings
the Care Management knowledge. As you know, we view our
Medical Management suite of products to be probably one of
our most exciting areas.
And being able to bring that clinical expertise into the
Quovadx family, we just think is just going to be a
tremendous benefit to our prospects. And, you know, just
enhance our overall credibility and knowledge in this
area. We definitely see, both on the hospital side and on
the payer side, that clinical quality and medical
management are just two very, very leading areas.
And as you know, our whole approach is to focus our
technology for solving real business problems with
measurable return on investment.
(William Haus): And would medical management be, as Ron was saying,
effectuating the change - you would use that to effectuate
the change on the care delivery side, I guess? And then
maybe to improve quality? Is that what you'd look to lead
with there?
Lorine Sweeney: Yeah. Well I think that, you know, obviously Ron has -
that's where the CareScience focus has been, is on the
delivery side. And our focus has really been from the
payer side.
So, you know, I think what we can do here is, using this
expertise with the Quovadx customer base and customer
prospect base on the medical management side is really
begin to integrate, you know, the payer aspects with what
is going on in the delivery side.
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And I think that's what large payer organizations are
looking to do today is, you know, to be able to look more
deeply into the whole quality of care issue. And be able
to incorporate and integrate what they've been doing
previously in utilization management, disease management
and case management.
Clearly, that's where we've been focusing on, is this
integration. And that's what we think CareScience can help
us with.
(William Haus): Thank you.
Ron Paulus: If I could just add one comment to that, another
opportunity for synergy here relates to the growing
linkages and interests on the payer side of the market.
And sort of, measuring and documenting quality and linking
that to payer for performance metrics.
We actually had examples already within our client base
where organizations have negotiated with payers to use the
Care Management system as a quality metric that can then
lead to incremental payments to that organization if they
can document improved quality.
So I believe that there really are a whole myriad of
synergy opportunities here. And we're just beginning to
scratch the surface of what all those might be.
(William Haus): Yeah, Ron, I've heard of the pay performance plans. And I
know that even the HHS has some pay performance type
stuff. Also there seems to be greater emphasis around the
publication quality for these different provider
organizations and hospitals.
Are you seeing that happening? And is that driving, you
know, the providers to maybe look at this stuff and
realize the ROI but more in terms of it could
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actually affect their reimbursement and certainly could
drive customers away if they were to be looked at poorly
on a quality rating?
Ron Paulus: Yes. I think there are four converging forces that are
bringing this together. The first is that payers are
increasingly preferring quality organizations.
And they have to be able to decipher in some manner, which
those are. And it can't just be reputation-based, even
though that's a part. They're increasingly looking for
documentation and that's where the quality measurement
piece comes in.
Second, consumers also are increasingly preferring quality
organizations although it's hard for them to determine.
That is another driving factor because consumers are loyal
to organizations that they perceive as having quality
care.
The third and fourth areas relate to higher revenue and
lower cost, not surprisingly. On the higher revenue side
we've got significant capacity utilization issues within
the inpatient sector. And every day that a patient stays
in a bed is a missed opportunity since there's a big chunk
of fixed cost reimbursement for that bed.
So improving patient through-put is one of the core areas
where we focus upon. And that can be dramatically expanded
with the real time data and care coordination. Also, from
a cost standpoint, medical errors and complications - the
typical medical complication costs about $4,500, which is
a big piece of the overall profit margin for that patient.
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That all comes together in a final piece, which is the
medical malpractice, which probably everybody must have
read about in the lay press at some point or another.
And so we have also been increasingly looking at the
linkages between medical malpractice liability and claims
paid to the same care process errors or problems that can
be potentially avoided, not only to realize those
immediate savings but the downstream prevention of, you
know, unfortunate patient outcomes as well as malpractice
liability.
So I really see a tremendous convergence around this
business case for quality, not people doing it because
it's nice or just mission-based. Those are great because
it delivers bottom line value.
(William Haus): Thank you. That's real helpful. Appreciate it.
Operator: You have a follow-up question from (Mark Dishop) with The
Boston Company.
(Mark Dishop): Hi. Yeah. I was just wondering if you're expecting to save
any working capital or if you need to inject any working
capital?
Gary Scherping: We don't think that there's a big need to invest working
capital in this company. They have - they do a very good
job of collecting their receivables. Their payables are
very low.
There's $325,000 worth of debt, which we'll probably look
into paying off as soon as we can. But other than that
$325,000 in debt, you know, their balance sheet is really
in great shape.
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(Mark Dishop): Thank you.
Operator: You have a follow-up question from (Edward Guinness) of
Tiedemann.
(Edward Guinness): Yes. I wonder - you might have already discussed this but
how did the transaction come about? What was the process?
Was it an auction or was it just the two of you getting
together? And how long has it been going on?
Lorine Sweeney: CareScience was actually brought to us. And we
were informed of this process. And over the past several
months I believe, they've been looking at other possible
opportunities, of which we were one of the people in the
process. And we believed our synergies and CareScience
believed our offer was the most competitive.
(Edward Guinness): And what synergies do you see in terms of dollars?
Lorine Sweeney: You know, we haven't specifically outlined the dollar
amount yet. But we are looking at a 5 cents accretive
earnings for 2004.
(Edward Guinness): Okay. Thank you very much.
Operator: At this time there are no further questions.
Lorine Sweeney: Well I'd like to thank everyone this morning for spending
time on the call. We continue to be extremely excited
about this CareScience transaction. I think that this is
one more demonstration of our differentiation in our
technology space.
As you can see, particularly from Ron's comments this
morning, we are really spending a lot of our efforts at
Quovadx with our customers in terms of really
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trying to bring them value for their technology. And
understanding what the real issues are versus just a
technology solution.
So we look forward to speaking with you further about the
results of this transaction. Thank you, again.
Operator: This concludes today's conference. You may now disconnect.
END