Bad rap on $ZYXI from Seeking Alpha
I sold my shares this morning.
Abusive Pricing Model Unsustainable
Oct 22, 2019 < >
Summary
Zynex shares are up ~100x since late 2016 as retail investors buy into a story of rapid revenue and earnings growth.
However, we believe Zynex is dependent on an abusive pricing strategy - reselling regular consumer batteries and electrodes at ~90% margins.
Even slightly lower margins on these commodities would eliminate net income, suggesting how vulnerable the stock is here.
We find it difficult to back into Zynex’s stated revenue per device.
We've reported our concerns to Centers for Medicare and Medicaid Services, private insurers, and publications.
On the surface, Zynex’s (NASDAQ:ZYXI) model of selling electrical stimulation devices and supplies at high margins with technically little direct competition appears to be an attractive opportunity. However, the company’s revenues reveal a business model increasingly vulnerable to competition and/or regulatory scrutiny. We don’t know of another public medical device company generating the vast majority of its revenue by reselling non-proprietary consumables (simple 9-volt batteries and electrodes in this case) at egregious ~90% margins. And after looking at the implied dollar amounts of supplies sold per device, we find it difficult to come up with scenarios in which Zynex isn’t engaged in overly aggressive and/or abusive pricing. In our opinion, the model is unsustainable and a major risk unaccounted for in Zynex’s premium valuation.
Specifically, we calculate that, on each device, Zynex is collecting an average of $1,200 for non-proprietary batteries and electrodes, over the average 6 to 9-month life of a device. Using the standard Medicare fee schedule and allowing for higher rates from commercial insurers, we can't approximate this figure.
We notified Zynex of our concern that its billing practices are abusive as the company is overcharging healthcare payers for device supplies. We asked for comment and also for detail regarding its reimbursement levels, but have not heard back. Since we believe Zynex is a prime example of potential waste and abuse contributing to rising costs in our healthcare system, we’ve reported our findings and questions to numerous groups and press outlets, including: members of US Senate Committee on Health, Education, Labor, and Pensions; US Department of Health and Human Services; Centers for Medicare and Medicaid Services (CMS); commercial insurers, including CVS (NYSE:CVS), Cigna (NYSE:CI), Anthem (NYSE:ANTM), UnitedHealthcare (NYSE:UNH); and publications such as Wall Street Journal and Bloomberg. We alerted the Office of Inspector General (OIG), which has investigated and found wrongdoing at other TENS device companies, RS Medical and Empi.
I sold my shares this morning.
Abusive Pricing Model Unsustainable
Oct 22, 2019 < >
Summary
Zynex shares are up ~100x since late 2016 as retail investors buy into a story of rapid revenue and earnings growth.
However, we believe Zynex is dependent on an abusive pricing strategy - reselling regular consumer batteries and electrodes at ~90% margins.
Even slightly lower margins on these commodities would eliminate net income, suggesting how vulnerable the stock is here.
We find it difficult to back into Zynex’s stated revenue per device.
We've reported our concerns to Centers for Medicare and Medicaid Services, private insurers, and publications.
On the surface, Zynex’s (NASDAQ:ZYXI) model of selling electrical stimulation devices and supplies at high margins with technically little direct competition appears to be an attractive opportunity. However, the company’s revenues reveal a business model increasingly vulnerable to competition and/or regulatory scrutiny. We don’t know of another public medical device company generating the vast majority of its revenue by reselling non-proprietary consumables (simple 9-volt batteries and electrodes in this case) at egregious ~90% margins. And after looking at the implied dollar amounts of supplies sold per device, we find it difficult to come up with scenarios in which Zynex isn’t engaged in overly aggressive and/or abusive pricing. In our opinion, the model is unsustainable and a major risk unaccounted for in Zynex’s premium valuation.
Specifically, we calculate that, on each device, Zynex is collecting an average of $1,200 for non-proprietary batteries and electrodes, over the average 6 to 9-month life of a device. Using the standard Medicare fee schedule and allowing for higher rates from commercial insurers, we can't approximate this figure.
We notified Zynex of our concern that its billing practices are abusive as the company is overcharging healthcare payers for device supplies. We asked for comment and also for detail regarding its reimbursement levels, but have not heard back. Since we believe Zynex is a prime example of potential waste and abuse contributing to rising costs in our healthcare system, we’ve reported our findings and questions to numerous groups and press outlets, including: members of US Senate Committee on Health, Education, Labor, and Pensions; US Department of Health and Human Services; Centers for Medicare and Medicaid Services (CMS); commercial insurers, including CVS (NYSE:CVS), Cigna (NYSE:CI), Anthem (NYSE:ANTM), UnitedHealthcare (NYSE:UNH); and publications such as Wall Street Journal and Bloomberg. We alerted the Office of Inspector General (OIG), which has investigated and found wrongdoing at other TENS device companies, RS Medical and Empi.
