Quantum Slowdown : Revenue: Orange-based provider of in-home health services is used to big spurts in yearly growth. But a state audit, dearth of new products and falling stock price have tarnished the shine.
Quantum Health Resources Inc., one of the nation’s fastest-growing companies, is slowing down these days as it looks for new business and tries to mend fences with the state over its Medi-Cal billings.
The high-flying health-care company, a specialized pharmacy that provides in-home therapies and services to people with lifelong disorders like hemophilia, will likely maintain healthy gains in revenue this year.
But its days of annual growth rates of 30% or more--rates that put it on Fortune magazine’s list of the top 100 U.S. growth companies for the past three years--may be over.
“With our core businesses, with no additions or changes, it will take a very significant effort on our part to grow in excess of 30%” this year, said John M. DeStefanis, its president.
Wall Street already has reacted. The company’s stock has been trading around $18 a share for the past two weeks, less than half its $42.75 high last fall. It closed Thursday at $18.50 a share in Nasdaq trading.
“I thought it was a good company . . . but a lot of small and medium-sized problems are coming together,” said Thomas Snow, an industry analyst at Buckingham Research Group in New York.
Its most highly visible problem is the State of California’s contention, aired publicly last week, that Quantum had overbilled it $2.3 million for Medi-Cal payments on a drug that people with hemophilia need. The state’s action came as part of a partial audit of $27.5 million in payments made to the company on Medi-Cal claims during a four-year period. The audit is continuing.
Analysts, though, see other cloudy areas as well that are forcing the company to fly a little lower while it has been quietly moving its headquarters from Orange to Indianapolis:
* To maintain its high level of sales, the company must find new products it can offer to people with rare lifelong diseases--or find other chronic ailments that its products can alleviate. The company’s growth has relied on new products and patients.
* To keep its customers, it also must reassure patients who have concerns about the safety of certain blood-derived products it obtains from drug manufacturers and sells through its pharmacies.
* To help maintain its rapid growth, it must prove it can make money in its effort to build a line of business as a specialized managed-care provider for chronically ill patients.
Analysts are looking for signs that the company can regain momentum.
“There are some red flags that suggest their growth is decelerating,” said Dorothy Ryan, an analyst with Robertson Stephens & Co. in San Francisco. “They need to turn it around and accelerate it again.”
Lori Singer, an analyst at Oppenheimer & Co. in New York, said it’s harder to predict the company’s future sales and earnings growth than six months ago. “We’ll have to wait and see,” she said.
While Quantum concedes that it will be hard-pressed to match annual revenue growth of more than 30%, DeStefanis hinted that the company might announce a new product this summer that could help to spur sales. But he wouldn’t elaborate.
Founded only in 1988, Quantum earned a hot-stock image by targeting the special needs of patients with hemophilia, cystic fibrosis, hereditary emphysema, immune deficiencies and other rare chronic disorders. Through its nationwide network of pharmacies, it delivers therapies and counseling to patients in their homes.
It has appeared to do its job well. In the past five years, Quantum’s earnings shot up 18-fold to $21.6 million on sales that increased 12-fold to $275 million.
But Quantum’s Medi-Cal problems with the state put part of its performance, as well as its future, in doubt.
Quantum is reimbursed through state Medicaid programs for blood-based products it supplies to people with hemophilia. In late February, the company said that as a result of a California state controller’s audit, the state determined that it had overpaid the company for Monoclate P, a blood-coagulating product, and questioned $27.5 million in revenue for the four years that ended last June.
Last week, the controller’s office surprised Quantum officials by issuing a news release about its formal demand that the company repay $2.3 million in past claims. In a letter, officials also threatened not to pay an additional $1 million in current claims and any future claims until the company resolves the past ones.
Quantum officials had expected the letter, which gives them the opportunity to appeal the demand. But they hadn’t expected the controller’s office to publicize billing issues that they thought were being quietly resolved through the state Department of Health Services, which runs the Medi-Cal programs.
Quantum officials want to resolve the controversy and keep the state business. “We are still working on a proposal to take back to the Department of Health Services in the next couple of weeks,” DeStefanis said.
Meantime, Quantum’s executives have dealt with an issue seemingly beyond their control: a spate of recalls that brought into question the safety of certain lots of blood-derived products the company gets from manufacturers and dispenses.
Early last year, Quantum removed from its shelves certain lots of intravenous immune globulin products that manufacturer Baxter Healthcare Corp. in Glendale had recalled. The recall came after an outbreak of the highly contagious liver disease hepatitis C among people who had received the Baxter product, government officials said.
In the past six months, other Quantum suppliers have voluntarily withdrawn other blood-derived products as a precaution against possible contamination by hepatitis C or other viruses. Quantum’s officials said the company’s sales slowed on those products in the fourth quarter last year and the first quarter this year as patients went off those therapies.
DeStefanis said that since he joined Quantum 14 months ago, the company has faced four recalls of various blood-derived products. “I’d be naive to think we weren’t going to have another one,” he said. “I just don’t know when.”
Analyst Dorothy Ryan in San Francisco believes the problem will blow over within months.
Looking to expand its services, Quantum has turned to the managed-care industry. It invested $2 million last year and expects to spend even more this year to add staff, develop services and create monitoring systems so it can offer specialized managed care for chronically ill patients in the hospital, the physician’s office and at home.
It signed a contract earlier this year with a Florida insurer to oversee care of individuals with hemophilia. Though patients are few--15 have signed up so far--DeStefanis said the contract gives Quantum a chance to develop the business. He said he hopes the company can start making money by next year on its push into managed-care services.
Quantum isn’t forsaking the physicians who refer business to it, nor is it forsaking the formula that has propelled its early growth. DeStefanis said it will continue to work with drug companies to find intravenous therapies for an expanding number of chronic lifelong diseases.
Because Quantum targets rare diseases, analysts said, the company faces a limited number of patients it can serve and it must keep looking for other diseases to treat.
DeStefanis said the company hopes to line up a new therapy by the end of June and is searching for the right disease and the right drug supplier, a task that has never been easy. You have to try on a lot of shoes, he said, to find the one that fits.
Quantum’s Rapid Rise
Quantum health Resources’ revenue and net income both increased spectacularly during the past five years. Amounts in millions:
Revenue: 1994, $275
Net income: 1994, $22.0
* Source: Quantum Health Resources, Dow Jones.
Researched by JANICE L. JONES / Los Angeles Times
Stock, Surge, Slide
Quantum’s stock topped $40 per share last fall, its highest level since the company went public April 30, 1991. Since then it has skidded to less than half that value. Monthly closing stock prices:
1995: Thursday’s close: $18.50
* Source: Quantum Health Resources, DowJones.
Researched by JANICE JONES / Los Angeles Times
