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Warming Up to Cold Turkey
By Michael Brush
Exclusively for InvestorIdeas.com
April 17, 2008
A running gag in Hollywood has press agents putting celebrity clients into rehab to shift the spot light off an embarrassing public gaff – whether or not the faux pas had anything to do with substance abuse.
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It’s a good joke. But alcohol and drug abuse in our society are no laughing matter – among celebrities or regular people – because they can lead to serious consequences. Consider these stats.
- About 22.6 million Americans over twelve abuse alcohol or drugs, or are dependant, according to a recent government survey.
- Alcohol causes more than 75,000 deaths a year. It’s the third preventable cause of death, according to the Centers for Disease Control and Prevention. As many as 25% of all injuries that send people to the hospital are related to alcohol abuse.
- Alcohol and drug abuse costs the U.S. over $365 billion a year, including $42 billion in healthcare costs and $245 billion in productivity losses.
- About 10.4 million Americans over twelve have tried methamphetamine, a highly addictive stimulant that can lead to memory loss, psychotic behavior and brain damage similar to that caused by Alzheimer’s or stroke.
Despite the obvious problems associated with alcohol or drug addiction, only about 18% of people who need treatment actually get it, by some estimates.
There are at least two reasons for this. First, detox programs can require lengthy absences of a month or so from work, and who has time for that? Next, relapse rates are high for these treatment programs based on traditional psychological counseling.
Hythiam (HYTM)
This is where a tiny business called Hythiam (HYTM) may come in. It’s a $97 million market cap addiction treatment company where insiders have been snapping up shares after they tanked to $1.80 a piece, from $9 last October.
Chief executive Terren Peizer and a director have recently purchased about $541,000 worth of stock.
They’re basically betting that publication of a series of medical studies this year -- studies which were recently finished or about to wind up -- will present strong evidence that its approach to addiction treatment works. Evidence so strong, that insurance companies will start reimbursing for use of its system.
Prometa
What is Hythiam’s magic bullet? It claims to have a system – which it calls Prometa -- that can treat addiction and reduce cravings through a combination of tactics:
- Oral or intravenous “off label” doses of pharmaceuticals approved for other uses, which may help reprogram the brain to break addiction
- Psychological counseling
- Adjustment to diet and use of nutritional supplements
Hythiam’s program requires a time commitment of just a few days, plus some follow up counseling, and it can be done on an outpatient basis. That’s an advantage over traditional programs which will make Prometa popular once insurance companies reimburse for it, says the company.
“Steep ramp” in revenue ahead
Treatment costs around $6,000, and insurance doesn’t cover it now. So it’s no surprise that Hythiam’s system was used to help just 922 patients last year. The company has licensed only about 100 doctors to use Prometa, nationwide. This helps explain why Hythiam keeps producing steep losses. It lost 99 cents a share last year and 96 cents a share in 2006.
But insiders say you shouldn’t let that fool you. They expect the publication of studies this year to prove that their Prometa system works – and then spark a “steep ramp” in revenue.
“The Company is in a strong position, with a healthy balance sheet, scientific validation, and established clinical relevance across the country,” Peizer recently told investors in a conference call. He believes his company will start producing cash flow within the next two years. “The benefits of our patented Prometa treatment program are becoming increasingly clear,” says Peizer.
Since insurance companies can be notoriously slow in reimbursing for new treatments, anyone who bets along with insiders should find it reassuring that the company has about 80 cents a share in cash, or $47 million. Hythiam doesn’t produce profits, and it burns up cash at a rate of $4 million per month.
The bottom line: The bulletin board is filled with companies that claim to have an effective cure for one ailment or another, only to lose out because important players in public and private health insurance fail to go along. So while the insider buying here is convincing, and the company has the financial strength to wait out signs of acceptance this year, I’d only place a conservative bet on this one.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in any of the companies listed in this column. Mr. Brush is an independent columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About Insiders Corner: http://www.investorideas.com/insiderscorner/. InvestorIdeas.com Disclaimer: www.InvestorIdeas.com/About/Disclaimer.asp. InvestorIdeas is not affiliated or compensated by the companies mentioned in this article.
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