VMD.TO - Viemed Healthcare Inc.

[writser]

Writser - I think you might be comparing a USD valuation with a CAD market cap number.  Also, how did you get to your EBITDA number, by end Q3 2018 they are showing AEBITDA USD 12.2m YTD already.

 

Heh, I was using eur/usd insteady by accident. You are correct, mcap in USD is roughly $160m. Adjusted EBITDA adds back ~2.3m in stock compensation which I think is a real cost and should not be 'adjusted' away.

[Cigarbutt]

VMD recently released some preliminary results for 2018 and expect an adjusted EBITDA at 17.2 to 17.3M (USD). The « consensus » view would (eventually) apply a 10 to 12 factor to this adjusted measure (EV/EBITDA).

 

FWIW did some work and here are some thoughts.

 

There is a lot to like about VMD but the major fundamental problem continues to be that they rely on payment policies based on devices (equipment) rather than services given to a specific patient population. Ventilator technology and related industry practices have evolved a lot over the last few years. Many studies (mostly industry-sponsored) tend to show potential benefits from the use of specific ventilator settings in the COPD population outpatient setting (VMD’s most important “market”). However, in the context of a larger and balanced review, the evidence for the advantages (clinical parameters, readmission rates, mortality) of home non-invasive ventilation (NIV) is weak or inconclusive. Probably, there is some value for segments of the COPD population when some or all of the following are combined: severe presentation, history of exacerbations, obesity comorbidity, overlap syndrome (COPD and sleep apnea). So, there is a market, of which VMD occupies only a small part, but IMO the end market for the "vents" that will eventually be defined is much smaller than what is presented. In the medical world, what is actually prescribed and practiced (especially in the US) can have a very weak correlation with clinical value as long as the “product” sold has medical acceptance in the community and as long as opinion leaders maintain support. So there are various factors at play and the momentum now is for greater use of home NIV in the COPD population. A potential “problem” here, which may tend to converge the cost and value curves, has to do with the payer. In various scenarios, when private insurance payers are the main players, the incentives to keep costs down and to reward “products” in correlation to clinical value tend to be low. In the COPD population, for various reasons including age, the main payer is Medicare which defines the code of payment. CMS has developed a growing focus on the clinical value provided and on cost containment. They see statistics showing the evolution of home NIV use and how it has evolved to include the COPD population and this rising cost line has become significant. For those interested in this dynamic and how it may play out going forward, read the documents surrounding the CMS early 2016 decision on ventilator codes and the formal contemporary request for reconsideration written by relevant clinical authorities.

 

VMD may mitigate the above to some extent because of the service aspect that they provide which is “included” but not recognized to its full value in the reimbursement Medicare codes. The big thing that has caught on and that will become central to most healthcare decisions is the cost bending that will occur with the alternative payment models. All along the spectrum (clinicians, administrators, payers, CMS and research), there has been an increasing interest in bundled payment arrangements. Especially since 2013, the CMS has pushed for initiatives (they now seem to be ready to spend funds in order to define the potential value from these initiatives) that have worked rather well for payments revolving around procedures (specific heart and orthopedic procedures, dialysis etc, especially when the procedures can be planned in advance). However, favorable cost-value results have remained, so far, mostly elusive in the chronic medical condition category (such as COPD, hospital and outpatient care). Specifically, for the COPD segment, from a literature review, it appears that there is real value which however, at this point, remains to be defined. It does seem that one of the major reasons that bundled care has not been found to be successful, in terms of readmissions and mortality, is because the principles applied during the hospitalizations were not carried through after hospital discharge, an area where the VMD integrated care model with care coordinators (resp techs) could play a significant role. The KPMG study that VMD refers to is one example of this phenomenon, when the study suggests that the clinical relevance of their interventions may be more related to their service component than the equipment that they distribute. The trouble here is that the value remains to be defined and some institutions are coming up with in-house low-cost alternatives that use the integrated out-patient model for COPD patients.

 

https://www.nejm.org/doi/full/10.1056/NEJMsa1801569

https://www.viemed.com/wp-content/uploads/2018/10/KPMG-Study-2018.pdf

https://journal.chestnet.org/article/S0012-3692(18)32211-6/pdf

 

So, VMD has a good overall “product” whose value will become more clearly defined over time. It’s kind of hard to come up with precise IV numbers or narrow ranges since a lower revenue (based on Medicare codes) will have a disproportionate effect on their adjusted EBITDA number because of the intrinsic inability to reduce costs to the same extent as revenue curtailment. VMD has tended to maintain a 25% margin on their adjusted EBITDA numbers. The value I come up with is the same core value that can be adjusted upwards with an option component based on the value that will ultimately be defined by the market and regulatory bodies and this personal assessment happens to be less than what the market is expecting, at this point.