Wismer Martin’s Future In Limbo After Sale To Pcn Buyer Vows To Keep Local Operation, But Staff Cutbacks Are Anticipated

Five years ago, Physicians Computer Network Inc. was what Spokane’s Wismer Martin Corp. is today - a small, gasping software company trying desperately to carve out a niche and stay alive in the medical services market.

But PCN succeeded where Wismer Martin failed.

It made the leap from little to big, and gained the critical mass necessary for survival in an unforgivingly competitive industry.

“The key was getting the cash to build a national company by acquisition as opposed to remaining just a regional company,” says Henry Green, PCN’s chief executive officer who guided the company through that difficult transition.

Now, PCN, based in Morris Plains, N.J., has added Wismer Martin to its list of acquisitions. And with Wismer’s physician-customer base of about 4,000, PCN has a physician base of 85,000 doctors, about a quarter of the office-based physician market in the country.

As a result of the deal announced last month, Wismer’s long-suffering minority shareholders will finally see a return for their patience.

But what will become of the entity that was Wismer Martin remains to be seen.

Did PCN buy the company primarily for its 4,000 physician customers?

Or are Wismer’s products and technology valuable enough that PCN will keep Wismer’s 100 or so employees working here?

“We will keep the site open here in Spokane,” Green says. “We have no intention of closing the facility. That was never in doubt. We never close facilities.”

PCN has acquired six other companies since 1993 and, indeed, most of those companies have maintained some sort of corporate identity in the communities in which they were located.

But, the whole point of consolidation and growth through acquisition is to spread service, research and development costs over a broader customer base. Companies don’t get those savings if they absorb all the employees of the acquired company.

“I don’t know anything about the Wismer Martin deal,” points out Mike Petusky, a senior analyst who follows PCN for Richmond, Va.,-based Branch, Cabell & Co. “But I can tell you typically what’s happened. They acquire these companies for the customer base.”

The past pattern appears to be that some management people and some key employees make the transition to PCN ownership.

“But certainly they don’t keep everyone,” Petusky adds.

PCN acquired Wallaby Software Corp., a Melville, N.Y., company, at the end of 1993. Wallaby was a much bigger company than Wismer Martin, with a physician customer base of about 20,000. Wallaby still exists in Melville, but the 1995 edition of American Business Disc - a CD-ROM business reference lists it as having between one and four employees.

Green says it’s too early to know any of those details about Wismer Martin yet.

“The deal will probably close about two months from now,” Green says. “We have plenty of time to see organizationally how people will fit in with the rest of the company.

“But Wismer Martin’s strength is with the individual physicians and the excellent network they have established,” Green adds. “The people here will be a real help in establishing our networking technology in the clinical area.”

Another thing Wismer Martin may have going for it is its location. PCN could need West Coast bases of operation to support its national customer base.

Joint venture eluded Wismer Martin

Both PCN and Wismer Martin are in the business of developing, marketing and providing support for software used to manage physician practices.

Their products include software that automates physician scheduling, patient billing, insurance claims and other financial reports.

In recent years, both companies have tried to add clinical information to their computer networks. Wismer Martin tried to make the leap to health care information networks - software systems that linked hospitals, doctors, insurers and other health care providers that would include not only financial information in a single network, but medical records and images as well.

Wismer Martin struggled with that effort, and while it was able to establish a handful of networks, managed to alienate its biggest customer - Blue Cross of Washington and Alaska - during the past two years.

PCN has established HealthPoint, a joint venture with British pharmaceutical giant Glaxo Wellcome, to develop a network that will allow doctors to use hand-held computers to record patient diagnosis, treatment and progress.

Wismer Martin has tried unsuccessfully to establish the same type of joint venture relationship with major national players, including GTE and Electronic Data Systems Corp. over the past two years.

“In spite of the good products Wismer Martin had, lets face it,” Green says, “it’s had some real problems over the past two years. But that’s not untypical of many organizations trying to compete in the consolidating and nationalizing trends of recent years.”

Without a broad customer base to absorb the high costs of research and development, “A small regional company can get obsolete pretty quickly,” Green says.

Green says he realized quickly that PCN “needed to be nationally focused to stay afloat.”

PCN’s principal shareholder, Jeffry Picower, put up $15 million to help finance the initial acquisitions and begin building the momentum that carries PCN today.

Overcoming early obstacles

Founded in 1988 on the premise that it would give computers to doctors, establish a management network, and then make money by selling advertising on the network, PCN was in big trouble before Picower and Green came along.

By 1991, its cumulative losses had hit $4 million, its net worth was a negative $30 million and it defaulted on a $34 million financing agreement.

Picower gained control of the struggling company and refocused PCN’s strategy from revenue based on advertising to income based on developing and licensing software, and running the network that served physicians via that software.

When Picower hired Green in 1993, PCN had a physician base of about 2,000.

Green quickly bought a company called Calyx, and its customer base of 9,000 physicians, for $4 million. Later the same year, he acquired Wallaby for $12.5 million. In 1994, PCN acquired DOM/2 and its 9,000 physiciancustomers for $1 million and the assumption of liabilities; and Acclaim, with 6,000 physicians, for $1.2 million and the assumption of liabilities.

The acquisitions continued in 1995 with PMS and 6,000 physicians for almost $5 million, and Versyss Inc. and its 30,000 physicians for about $24 million and the assumption of $46 million in liabilities.

For Wismer Martin, PCN will pay $1,980,000 and 935,000 shares of PCN stock that will be valued somewhere in the range of $10 to $12.25 per share.

So the deal will have a total value of roughly $12 million, about half of which will go to Ron Holden, Wismer Martin’s principal shareholder.

PCN’s principal challenges are to shift 80,000 doctors from the software systems the doctors bought from the companies PCN acquired, to PCN’s own system.

Green says PCN has several years to do that. As technology makes old systems obsolete, doctors would have to convert to newer systems anyway, Green points out. That’s when the PCN system will be installed.

The other major technological challenge to PCN is the further development of its clinical computer network ability for HealthPoint.

“The real savings for doctors will come in the clinical area,” Green explains. “Clinical networking services, such as insurance eligibility checks, hospital communications, ordering treatment, those are the communications the doctors need to practice medicine.

“We believe that market could be as high as $5 billion.”

If Wismer Martin’s software engineers and technicians have a place in PCN, the clinical networking software could be that spot.

But, analyst Petusky says, technological development is a strength PCN already owns.

“PCN is probably pretty comfortable with its technology,” Petusky says. “In an industry survey related to technology, PCN was ranked No. 1 in five of six categories, and it was No. 2 in the sixth.”

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