Vague Patient Numbers Roil MIM Claims

Vague Patient Numbers Roil MIM Claims

Two days ago my colleague, Brian Harris, started making calls to MIM Corp. (MIMS:Nasdaq) and other sources about some of the company’s claims. Lo and behold on Wednesday MIM’s stock tumbled. The slide was attributed to a clerical error by one of the stock’s market makers. And indeed, that may have been all or part of the reason for the fall. But whenever a stock starts falling after we start making calls, we worry that word is spreading, so here’s what we’ve got.

ataGLANCE

MIM: The company is a pharmacy benefit management, specialty pharmaceutical and fulfillment and e-commerce organization.

52-Week Range: / $1.43 - $21.59
P/E: / N/A
Market Cap: / $408.1 million
Float: / 15.5 million shares
Short Interest: / 2.95%
Institutional Ownership: / 47%
2001 Revenue: / $369.7 million
2001 EPS / $(0.07)
2000 Revenue: / $377.4 million
2000 earnings per share: / $(0.20)

MIM, a pharmacy benefit management (PBM) company, was Nasdaq’s No. 2-performing stock last year. That strong performance landed CEO Richard Friedman on CNBC Jan. 2, where he claimed that the company managed 9 million lives. But that figure may have been inflated, and at the very least, was misleading.

The real number here is critical, because MIM’s repeated message to Wall Street is that it’s moving into the high-margin specialty pharmaceutical management business, which it has claimed is needed by “1% of the population.” Analysts have taken that comment to mean that MIM will be able to convert up to 1% of its membership base to its specialty pharmaceutical business, where industry-average margins tend to be in the 8% to 9% range, a healthy difference when compared with the industry-average margins of 1% to 3% for a traditional PBM business. Hence the concern on the real numbers.

One percent of 9 million, after all, is a heck of a lot more impressive than 1% of 1.47 million to 2.4 million, which is what the real number looks like based on a calculation we did using MIM’s own numbers and an important multiplier provided by an industry insider. (The multiplier -- 7 -- is the average number of prescriptions per year, in the PBM industry, for a non-Medicaid individual.)

As it turns out, as of Jan. 2, MIM said it had only 5,500 lives in its specialty pharmaceutical business, which is considerably less than 1% of 1.47 million and significantly less than 1% of 9 million. If nothing else, that represents the opportunity to the bulls. But for the opportunity to be as big as the bulls hope, there have to be 9 million members.

In an April press release the company said that it had 5.9 million lives under management. Two months later the number jumped to 7 million, and the company never provided details of where the new members came from. Then, on the CNBC spot in January, Friedman bragged that in the New Year MIM picked up an additional 800,000 members -- again, without providing details.

So where does MIM get its numbers? One place, it appears, is by counting people who are not part of exclusive contracts with managed-care organizations. For example, last October, MIM announced an agreement with Fortis Health, and said it would make its products available to Fortis’ “1.2 million members.” As part of that announcement, MIM claimed, “We estimate that up to 12,000 Fortis Health customers will be able to take advantage of the quality and convenience of specialty pharmaceutical management.” (That’s that 1% going to the high-margin business.)

However, a Fortis spokesman told Brian that its contract with MIM isn’t exclusive and that MIM is one of four preferred providers, and one of a total of eight providers used by Fortis. That prompted Brian to read the Fortis spokesman MIM’s comment about how 12,000 Fortis members are likely to convert to the MIM’s specialty pharmaceutical management

business. “It doesn't sound like all these potential 12,000 customers would be choosing MIM since there are 7 other providers," Brian said.

The spokesman responded, "I think your assumption is probably right."

MIM’s response? We tried calling MIM starting Tuesday. Brian called back Wednesday and got spokesman Barry Posner, who told him “lives” are individuals in the PBM and/or mail order businesses only. (If they're in both, an individual is only counted once.) But, he also said there are “non-utilizing” mail lives and “cash-card” lives in the mix as well. What does that mean? After talking to Posner, Brian fired off a list of follow-up questions. Posner said he’d try to get back to him with answers. He never did. If he does, we’ll pass them along to you.