A "Cure" for Medical Mistakes

06/04/2004 12:00 am EST

Focus:

Alexander Green

Chief Investment Strategist, The Oxford Club

"It's been estimated that as many 98,000 people die each year of medical mistakes," says Alexander Green, of The Oxford Club. "Fortunately, a dynamic young medical company-Alaris Medical-is now providing an effective solution to this serious problem." Here's his review.

"Medical errors do occur, thanks to busy schedules, inattention, miscalculation, carelessness, or some other human factor. The result can be seriously damaging to patients or, in some cases, fatal. This brings anguish to families, shame to reputable medical institutions, and ultimately the threat of multi-million-dollar lawsuits. It also jacks up malpractice insurance for doctors and health insurance rates for consumers. No one comes out unscathed (with the possible exception of the tort attorneys who take the cases).

"Alaris Medical Systems (AMI NYSE) is a worldwide leader in developing 'smart' technology for the healthcare industry. The company makes a line of products designed to cut medication errors and deliver drugs more safely. Its leading safety product is the Medley medical computer system and accompanying Guardrails Safety software. The system allows a nurse or clinician to enter instructions to the system, telling it to deliver a specific drug intravenously. The program has pre-programmed dosages that the Guardrails Safety software monitors. If the dose is too large or too small, the system locks up. It also enables hospitals to track programming errors and near misses that have been averted. Hospitals can then use the data to conduct risk analysis and improve their practices.

"Needless to say, there is a tremendous appetite for this product. And Alaris is rapidly capitalizing on it. In the first quarter alone, sales rose 11%, to $134.2 million. And earnings skyrocketed 364%, from $2.5 million to $11.6 million. Management cited higher sales volume, bigger gross margins and decreased interest expense, too. These terrific results are becoming the norm at the company. The company has turned in eight consecutive quarters of growing profitability. And there's plenty more ahead. There is growing regulatory and consumer pressure to cut medical errors. And right now, Alaris has the only electronic system that gives hospitals and other health facilities the ability to monitor practices, track errors and conduct proper risk analysis. The company's products offer clear economic benefits to the buyers. In essence, Alaris is giving plenty of doctors-and their patients- what they want.

"The best is yet to come. Last fall, Alaris signed a number of major contracts to provide its system to new healthcare providers. Alaris has always had a strong presence internationally, too, generating a third of its sales in foreign markets. But until recently, it only sold syringe pumps and other miscellaneous items there. That changed last fall when Alaris debuted its first product using the Guardrails Safety software. Importantly, Alaris is still innovating. As the company's products grow in sophistication and ease of use, it assures us of continued top-line growth for many quarters to come. And that means the bottom line will be fattening too. In short, shares of Alaris look awfully attractive right now. The company has double-digit sales growth, blockbuster earnings, a cutting-edge product, and an enormous untapped world market. Alaris has a very bright future."

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