Author Topic: FONR- Fonar  (Read 3954 times)

Cigarbutt

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Re: FONR- Fonar
« Reply #10 on: April 13, 2018, 12:04:28 PM »
More data points.

Last night, I participated in a webcast whose central issue was not the use of MRI but the topic was touched upon.
There were presentations by "experts"' and discussions. The experts had boots-on-the-ground experience and reported on recent interactions with payers (insurers and government). Reviewed some stuff.

Bottom line: medical imaging and MRIs represent now a low-hanging fruit in terms of cost containment.

Why?

-There are enough studies now showing MRIs are often done when not indicated or necessary.
https://www.usherbrooke.ca/dep-radiologie/fileadmin/sites/dep-radiologie/Public/Club_de_lecture/2012_01_12_Analysis_of_appropriateness_of.pdf

-There are enough studies now showing that an application of clinical guidelines results in better utilization of imaging studies.
https://pdfs.semanticscholar.org/e32d/902eeb9c7870a576da87ea91021d029a58c0.pdf

-Medicare (which will likely play an increasing role), through CMS, is aggressively pushing for "bundled payments".

There appears to be a growing momentum that looks different from previous cost containment efforts. What this will eventually mean for MRIs is that primary care physicians and patients will have skin in the game. Over time, the radiologist lost the gate-keeper role as there was a free lunch environment and as the prescriber was typically getting paid directly or indirectly when ordering the test. There can be obviously unintended consequences and maybe even major backlash but with the newer bundled payments, it is likely that physicians will order less imaging studies and, if tests are ordered outside of the guidelines, patients will likely end up with higher co-payments. So, many factors could combine to significantly impact demand.

IMO, this time around, the value-based imaging thing over volume-based is for real.
If you can't beat them, join them.
http://n2value.com/blog/value-and-risk-the-radiologists-perspective-value-as-risk-series-4/





Cigarbutt

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Re: FONR- Fonar
« Reply #11 on: April 26, 2019, 08:31:02 PM »
The stock is down 25 to 30% since the initial discussion. On a P/B , P/E and P/FCF basis, the stock looks appealing and the trend in operating results is still good although moderating. With no material debt, significant tax-deferred assets and 3.43$ cash per share and with the recent swoon affecting healthcare-related stocks, is this an opportunity, especially with the projected growth within a fragmented landscape?

-The MRI medical equipment side is declining with stronger competitors, the "upright" MRI technology offers little advantage and is unlikely to gain significant traction outside their network.

-They are achieving very high margins both from the collection of imaging fees and clinic management fees but both sources of revenue are derived from referenced reimbursement rates. The moat is in correlation to the fact that they were at the right place at the right time but the environment is changing. So far, they have been able to compensate for lower reimbursement rates by increasing volume but this may be coming to an end with continued pressure on rates. Bundled payments with refined indications to prescribe MRIs and tighter rules around MD-owned imaging centers are to be expected so there may be an overcapacity issue.

-Also, related party transactions are impossible to validate.

I expect margins to come down and the path to profitable growth appears to be muted.
So the idea has been put in the value trap category.


 

cameronfen

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Re: FONR- Fonar
« Reply #12 on: April 26, 2019, 10:29:45 PM »
The stock is down 25 to 30% since the initial discussion. On a P/B , P/E and P/FCF basis, the stock looks appealing and the trend in operating results is still good although moderating. With no material debt, significant tax-deferred assets and 3.43$ cash per share and with the recent swoon affecting healthcare-related stocks, is this an opportunity, especially with the projected growth within a fragmented landscape?

-The MRI medical equipment side is declining with stronger competitors, the "upright" MRI technology offers little advantage and is unlikely to gain significant traction outside their network.

-They are achieving very high margins both from the collection of imaging fees and clinic management fees but both sources of revenue are derived from referenced reimbursement rates. The moat is in correlation to the fact that they were at the right place at the right time but the environment is changing. So far, they have been able to compensate for lower reimbursement rates by increasing volume but this may be coming to an end with continued pressure on rates. Bundled payments with refined indications to prescribe MRIs and tighter rules around MD-owned imaging centers are to be expected so there may be an overcapacity issue.

-Also, related party transactions are impossible to validate.

I expect margins to come down and the path to profitable growth appears to be muted.
So the idea has been put in the value trap category.

I started this thread and you aren't going to hear any complaints from me.  Sold a while ago. 

constructive

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Re: FONR- Fonar
« Reply #13 on: June 11, 2019, 01:23:33 PM »
This is one of my larger positions now - it trades at a cheap multiple and is really piling up cash.

The claims in this thread that management are corrupt and that itís impossible to verify related party transactions are bizarre to me. The big related party transaction was 6 years ago, and it has obviously contributed to growing profits and share price.

It seems like everyone is missing the fact that margins are high and growth has been good because the upright MRI technology positively differentiates their clinics from their competitors.

cameronfen

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Re: FONR- Fonar
« Reply #14 on: June 11, 2019, 01:38:37 PM »
I'm foggy on this one, but doesnt Fonar pay the ceo and his son a management fee to manage the radiology clinics?  I'm pretty sure they pay licensing fees for the upright technology although they could (?) expire at some point I vaguely remember.  Anyway the same people were at the helm 6 years ago as now.  They obviously are a lot richer now and less likely to screw the minority shareholders but I assume they havent done anything super positive governence-wise?

constructive

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Re: FONR- Fonar
« Reply #15 on: June 11, 2019, 02:17:30 PM »
The son (Tim) is actually CEO now, and rightly so since he developed and executed the successful business plan of running diagnostic centers. The father, although a great scientist, is a bit of a crank and wasnít suited to running a public company.

Compensation is reasonable. Tim actually takes 0 base salary and a modest performance bonus. The Damadians still have a minority interest in HMCA - it would be cleaner if Fonar bought them out completely. But minority interest is not conflict of interest.

Cigarbutt

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Re: FONR- Fonar
« Reply #16 on: June 11, 2019, 05:10:16 PM »
Constructive criticism here:
1-The "upright" technology has been around for quite a while and seemingly has not gained much traction outside of related party entities. In some selected cases, the upright advantage can potentially add value but I would be glad to be educated. The equipment segment which is behind the upright scans is on the decline.
2-Revenue and increased margins since 2013 have come mostly from more volume per facility (23 to 26 facilities) and further growth and margins will have to come with geographic expansion and acquisitions.
3-The potential moat is from the practice management segment (services) which basically is dealing with running an imaging clinic, equipment acquisition and maintenance, recruiting referring doctors and keeping overhead down through efficiency and scale. Their model rests on the idea of finding a radiologist (or a group of) who wants to (and needs to, because of the law) maintain control but at the same time wants to outsource basic management operations in states that promote the corporate practice of medicine. Opinion: there is a moat but it's relatively weak and will be difficult to scale.
4-Expectations of further profitable growth imply no change in this very imperfect and non-transparent market.
5-Rates of MRIs per capita are too high in the US. I'm not saying the rates of MRIs will decline but should decline.
« Last Edit: June 11, 2019, 05:31:07 PM by Cigarbutt »