Is VISICU Making Music or About to Face It?

ANALYSIS: A new star's emergence meets with wild success. Then problems emerge and it looks like the dream is over, until he or she makes a storming comeback. VH1 fans will recognize the Behind the Music format, but this might be the story of VISICU.

VISICU's technology creates a remote control room--the eICU--with video links and feeds from equipment in physical intensive care units (ICUs) and hospital IT systems. All this information goes through a rules engine that delivers alerts to the doctors and nurses staffing the eICU. VISICU says its solution of remote perpetual management, based on the alerts, leads to better patient outcomes compared to traditional ICU management in an era of intensivist shortages.

Despite some challenges from Cerner and iMedsoft to VISICU's patents defending its process, VISICU essentially created this market. Therein lies part of the tale. VISICU had a lucrative IPO in April, featured in BusinessWeek, and saw its stock top out at nearly $26. But soon Wall Street noticed that selling a new type of IT system to hospitals meant a long sales cycle.

mid-September the stock was well below its IPO price, yet the company was still valued at over $240 million -- pretty high considering its revenues for 2007 will only be about $40 million. Worse news was to come. Kaleida Health, a hospital in Buffalo, N.Y., was giving up its eICU, claiming that it hadn't seen the hoped-for results. Maybe the bubble had burst?

CMO and co-founder Brian Rosenfeld agrees that client hospitals need to have a medical director and operations director in place to "feed and water the program" and suggests the lack of those functions may have caused the problems at Kaleida. VISICU now helps clients to set up the system, and can even help find eICU directors -- a position that Rosenfeld says is "becoming a plum job."

Recently VISICU released studies showing dramatic reductions in mortality and morbidity for patients in the ICUs of its current 67 clients. It has seen more beds added to its contracts by existing clients, and has expanded its services to other parts of the hospital. It has also revised up its 2007 revenue forecast. But VISICU still needs to persuade Wall Street; analysts on the recent conference call were clearly looking for greater velocity of sales. Rosenfeld foresees the inflection point for eICUs arriving "in the next two years," and says the data its clients are now generating will make it "glaringly apparent this is very effective."

He also believes the model is very scalable. He talks of one location with one intensivist and  five critical-care nurses already overseeing 180 beds. He also thinks that the more hospitals install  electronic medical records and computerized physician order entry, the more easily monitoring and orders from remote intensivists will integrate into their workflow. Rosenfeld also suggests that eventually remote monitoring will be commonplace for all medical-surgery floors and even in the operating room and nursing homes.

To justify its lofty valuation, VISICU will soon need to see that inflection point. But if Rosenfeld is correct, then perhaps it'll be more than just a one-hit wonder.

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