Catasys: Buy Rating with $3.00 Price Target

Mar. 3, 2017 | RedChip Companies

There are an estimated 43.4 million adults in the U.S. afflicted with mental illness of some form, according to data from the National Institute of Health, representing 17.9% of all U.S. adults. Catasys, Inc. (OTCQB: CATS)

Substance use disorder (SUD), depression, and anxiety comprise approximately 75% of all behavioral health disorders.

More severe patients often have these diseases as co-morbid conditions of each other, and have other co-morbidities, such as cardiovascular, diabetes, renal, liver disease, and others. The average costs associated with these patients directly related to the behavioral diseases alone is $30,000, predominantly from emergency room visits and in-patient hospital stays.

The U.S. currently has a passive system whereby treatment avoidant patients (cost, denial, stigma, access) need to seek out treatment, gain access to treatment, afford said treatment, and then receive the appropriate care that addresses both the physiological and psych-social aspects ("integrative care") of these complex diseases.

Changing the Behavioral Health Landscape from Passive to Proactive

One company has brought to market a solution that effectively turns the passive system, treatment avoidant, minimal access to care, unidentified patient population to a proactive, replicable, scalable, national solution that focuses on the complete care of the patients. That company is Catasys (OTCQB: CATS).

CATS provides an integrated outpatient solution with proprietary analytics and predictive modeling, proprietary enrollment, engagement and modification of behavior techniques.

Results from CATS’ solution show patients are getting better, and the health insurance companies are consistently saving 50% of the medical costs for each patient enrolled, creating a strong incentive for health plans to pay for all the associated treatment costs.

The OnTrak Solution

CATS proprietary solution, known as OnTrak, is designed to improve member health and, at the same time, lower costs to the insurer for underserved populations where behavioral health conditions cause or exacerbate co-existing medical conditions.

The solution utilizes proprietary analytics and proprietary enrollment, engagement and behavioral modification capabilities to assist members who otherwise do not seek care through a patient-centric treatment that integrates evidence-based medical and psychosocial interventions along with care coaching in a 52-week outpatient treatment solution.

Growing Support from Major Health Plans

The healthcare industry, in particular, health insurance companies and plans, typically take many years to allow new entrants such as CATS to gain significant traction.

After proving its business model and solution over the past several years, CATS is now accepted by many national health plan providers, and we expect its acceptance will grow rapidly moving forward.

Current health plan customers include Humana, Aetna, Centene, and HAMP. And the company expects contracts with seven of the eight largest health plans by the end of 2017, which will represent in excess of 75% of the commercially covered lives in the U.S.

With increasing adoption health plans, CATS is now seeing rapid geographic expansion of its services which are already available in 18 states.

What’s driving health plan interest? The potential to save significant money while addressing patient needs. In some cases, plans using the OnTrak platform have seen the cost for treating patients drop from $30,000 to only $8,000.

These economics speak for themselves and should fuel growth for CATS for years to come.

Large Market Potential

To understand the potential for CATS, investors should track the Equivalent Lives (ELs) under contract.

At the end of 2016, CATS’ contracts with health plans represented 7.5 million ELs.

Each 10 million ELs is anticipated to equate to a cash receipts run rate 12 months from launch of $63 million.  Hence, 20 million ELs could translate to a cash receipts run rate of approximately $126 million 12 months from launch.

CATS management currently forecasts it will reach 20 million ELs by the end of 2017.

Wall Street Takes Notice

Joseph Gunnar, a leading broker-dealer, recently began coverage of CATS with a buy rating and $3 per share price target. And on March 1, Chardon Capital Markets initiated coverage with a price target of $3.50 per share.

With the stock trading at just over a $1.18 as of mid-February, this represents significant upside potential for investors.

Having covered the small-cap space for years, we believe coverage from major Wall Street firms like this indicates a high probability that we’ll see CATS shares uplist from the OTCQB to NASDAQ in the near-term. This could create even further upside for the shares as it opens up the company to additional buying from professional investors.

Contact a RedChip Specialist today to learn more about CATS and to sign up for first access to our soon-to-be published research on the company.

To view research reports, CEO interviews, corporate presentations, public filings, and to sign up to receive FREE e-mail alerts on Catasys, Inc., please visit the CATS Client Page.


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