This healthtech company is expected to grow at 30% annually for the next five years.
Catasys, Inc. (CATS)
From Nate’s Notes
Catasys, Inc. (CATS) is an up-and-coming company that has created a comprehensive program (called OnTrak) that is designed to help health insurers reduce claims costs associated with members who have behavioral health disorders that also cause or exacerbate other co-existing medical conditions.
In a nutshell, Catasys has developed a proprietary data analysis platform that it combines with predictive modeling techniques to identify individuals in a healthcare plan who suffer from chronic conditions, but, because they may not be receiving the support they need to successfully manage these underlying conditions, end up costing the plan a great deal of money on other “secondary” items like ambulance transports and visits to the ER that can be prevented (or minimized) with even a small increase in the amount of support that is provided to the patient.
Once the individuals in a plan have been identified, the OnTrak program kicks in and a 52-week
intensive outpatient program begins in which the patients are engaged and provided with nurses
(or other appropriately qualified “coaches,” depending on the underlying situation), sometimes in person, sometimes via video conferencing (or perhaps both), and this coach proactively works with the patient to gain better control of their underlying condition (which, in turn, leads to fewer “secondary” events in the patient’s life).
Initially, the company was focused primarily on patients who suffered from behavioral or mental health related illnesses such as substance abuse, anxiety, and depression, but as its data analysis platform has grown, it has also begun to tackle patients with other co-morbid (“more than one chronic illness”) conditions such as diabetes, hypertension, coronary artery disease, COPD, and congestive heart failure. And with the massive amounts of data that are becoming available for analysis, thanks to the digitizing of health records over the past several years, it is becoming possible to sift through this data with ever increasing accuracy to identify patients that are strong candidates to find success with a program like OnTrak.
Though the numbers will obviously vary from patient to patient, Catasys claims that it is reducing claims cost by roughly 50% for the health plans it is currently working with across the country, and though other companies will undoubtedly be joining the fray, Catasys appears to be establishing itself as an early leader in being able to provide this service to insurers (and once its plan is in place and generating results, it will be that much harder for competitors to come in and knock it out that position).
Along with being at the forefront of the sort of data analysis that is becoming possible in this era
of digital medical records, Catasys also benefits from the fact that its Founder and CEO is Terren
Peizer. He has had a long and successful career that started in finance but has gone on to involve the starting, buying, and/or selling of a number of companies along the way, and, given his still quite large stake in Catasys (more on this below), it would not surprise me if the goal here won’t be to eventually sell the company as well.
As just mentioned, though his stake is technically held by Acuitas Holding Group, LLC (his personal holding company), and Mr. Peizer is the largest shareholder in Catasys. Of the 15.9 million shares outstanding, he still own 10.4 million of them! On the one hand, this is a good thing, as he’s clearly in a position to do well if the company does well, but, on the other hand, I want to make sure you understand that because he owns so much of the stock, there are very few other shares available for trading, and, frankly, this extreme lack of liquidity is one of the biggest risks I see in recommending the stock at this point in the company’s history (simply because even the slightest amount of buying—or selling—pressure has the potential to cause large swings in the stock price).
Given where things currently stand in the race to digitize everything, I think the odds are good that Catasys will be a quite bit larger company in five years than it is today.
I want to remind you of a couple of things that are worth keeping mind before you make a decision about adding Catasys to your own portfolio, especially if you are someone who likes to watch stocks on a daily basis and may sometimes “get sucked into the action:”
First, as mentioned above, the float (i.e. the stock available to be traded on the open market) is extremely small, and thus, you are encouraged to be especially disciplined about not “chasing” the stock if it starts to head higher in a hurry (and, likewise, not be too quick to panic if suddenly takes a large tumble “on almost no volume”), and Second, given Mr. Peizer’s large position and the typical path to growth for a company like Catasys, there will almost certainly be at least one secondary offering along the way, so that Mr.
Peizer can liquidate a portion of his holdings and the company can raise additional capital, and I
just want to make sure you know ahead of time that “dilution” will almost certainly be taking place at some point along the way.
CATS is considered a strong buy under $10 and a buy under $15.
Nate Pile, Nate’s Notes, www.NotWallStreet.com, 707-433-7903, September 14, 2018