'Aggressive' PHM sees opportunity in HME

LOS ANGELES - Patient Home Monitoring has been looking to grow its core Coumadin business and boost its stock price by rolling up HME companies.

“My understanding is PHM feels that oxygen and respiratory patients have comorbidities with the Coumadin patients so they think there's some opportunity there,” said Patrick Clifford, managing director, home medical equipment, for The Braff Group.

Its most recent acquisition: Louisiana-based Sleep Services, which serves 19 states and focuses on providing vents to COPD patients. Other buys include Maine-based Black Bear Medical, Kentucky-based Legacy Oxygen, and Georgia-based Care Medical Partners.

The Canadian company, which has U.S. headquarters in California, is offering a mix of cash and stock, a deal that always raises red flags with analysts.

“If you want to sell to a company, take the cash and buy the stock,” says Jonathan Sadock, managing partner/CEO of Paragon Ventures.

So far, the company's stock is doing well, say analysts. On July 2, it was trading at $1.51 on the Toronto Venture Stock Exchange, compared to about 32 cents one year ago.

The question is whether PHM can maintain its aggressive pace of growth.

“The stock price is moving primarily because the company is making acquisitions that are significant to its current size,” said Don Davis, president of Duckridge Advisors. “As the company gets larger, it will need to make more or larger acquisitions to push the growth rates they are currently showing to investors.”

In an industry that's been battered by years of reimbursement cuts and increased regulations, it's not unusual for an outside buyer to start rolling up companies, say analysts.

“I've been doing this for 20 years and I see it all the time,” said Rick Glass, president of Steven Richards & Associates. “They make a big splash and six or eight months later it's all falling apart. Maybe the Coumadin business gives them enough to make it work.”