Copyright 2000 Chicago Sun-Times, Inc.
Chicago
Sun-Times
July 14, 2000, FRIDAY, Late Sports
Final Edition
SECTION: FINANCIAL; Pg. 55
LENGTH: 513 words
HEADLINE:
Market skeptical over Allscripts' latest deal ;
Stock drops 21% on
purchase news
SOURCE: JOHN H. WHITE
BYLINE: BY ROBERT MANOR
BODY:
Allscripts Inc. of Libertyville announced a major acquisition Thursday that
it says will greatly increase sales -- and the company's stock
promptly cratered, dropping more than 21 percent by the end of the day.
Industry analysts say the day's events are a classic example of
investors doubting the wisdom of a company's management.
Allscripts
makes software that lets doctors send prescriptions directly to
pharmacists via the Internet and a handheld computer. More
importantly, the software allows doctors to act as pharmacists themselves,
earning thousands of dollars a year. On Thursday, Allscripts announced it would
buy IDX Systems Corp.'s ChannelHealth unit for about $ 250 million in stock to
expand its customer base. ChannelHealth offers software to about 118,000
physicians, and its sales staff will offer Allscripts' direct prescription
service.
Investors voted with their money and began selling Allscripts'
stock. It closed at $ 22.93 3/4, down $ 6.18 3/4.
Institutional
investors may be thinking "they paid too high a price to purchase a sales
channel," said James Ackerman, an analyst with Friedman, Billings, Ramsey.
Allscripts Chairman Glen Tullman said investors should hold on because
the ChannelHealth acquisition will increase sales.
Tullman said the
acquisition will add $ 30 million in revenues next year, $ 80 million in 2002.
That is a huge jump from last year's total $ 27.6 million.
"Independent
of what the stock was doing today, we know this was the right decision for the
company," Tullman said.
Direct transmission of prescriptions to
pharmacists offers significant advantages for doctors and their patients.
The pharmacist need not decipher the doctor's handwriting, and
physicians avoid calls from pharmacists asking for clarification. The chance of
making prescription errors is greatly reduced. Patients get their medication
faster.
But what attracts many doctors to Allscripts' system is money.
It allows physicians to prescribe medication they have on hand and bill the
insurer.
"The doctor can make $ 5 or $ 7 a prescription," said Charles
Trafton, an analyst with investment bank Adams Harkness. That is especially
attractive to clinics with a handful of doctors, where each can earn $ 5,000 or
$ 15,000 extra.
But Trafton said ChannelHealth's doctors typically work
at big, academic medical centers with hundreds of other physicians. Medical
centers often have their own pharmacies and may have little use for Allscripts'
product.
Trafton also said investors may be unnerved by Allscripts'
aggressive growth. The company is not profitable, yet has issued stock worth $
400 million to make three acquisitions this year.
Each time Allscripts
issues new stock, it dilutes the equity of the existing shareholders.
"We downgraded the stock . . . immediately after the acquisition was
announced," Trafton said.
Some analysts showed perfectly terrible timing
in their recommendations about Allscripts. Just a day before the acquisition was
announced, CIBC World Markets gave the stock a "strong buy" recommendation.
GRAPHIC: Allscripts Chairman Glen Tullman said his
company's acquisition of IDX Systems' ChannelHealth unit will add $ 30 million
in revenues next year.
LOAD-DATE: July 14, 2000
