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DailyTrends.com Small-Cap Company of the Week: Hythiam (HYTM)

Chris Lahiji
Chris Lahiji
Daily Trends.com
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We are leaving the realm of value investing this week, and finding a growth story I have been following for two years now. The first time I recommended it for DT, the stock doubled.

One local company has its "hands" on something very interesting and potentially profitable that all the members here should know about.

Hythiam (HYTM) is a Los Angeles, California based company that specializes in researching, developing, and licensing medical protocols for the treatment of alcohol and drug addiction.

The company's HANDS Treatment Protocol utilizes a series of FDA approved drugs (used off-label) as well as nutritional supplements to treat drug and alcohol addiction. Hythiam went public in 2003 by acquiring trucking firm Alaska Freightways in a reverse merger.

What I find very interesting is the guy who is running the show, Terren Peizer, also owns almost 50% of the company outright. It's very hard to doubt his skills, for he has had an amazing track record, both on Wall Street and with companies that he has been with. This is the third public company that he has been the primary force behind.

The others include Hollis Eden Pharmaceuticals and Cray Supercomputers which he acquired from Silicon Graphics.

Terren is still one of the largest shareholders at both of these companies.

I think he's one of a kind.

Hythiam's goal is to lessen substance abuse and addiction in the United States, and boy, it's a bigger problem than I originally thought.

Consider the facts. The Substance Abuse and Mental Health Services Administration (SAMHSA), an agency of the U.S. Department of Health and Human Services, reports an estimated 22 million Americans suffered from substance dependence or abuse of drugs, alcohol, or both in 2002.

Of all these people, only 3.5 million aged 12 and over received some kind of treatment, with 2 million treated at self-help groups offering psychological therapy. Of all the types of treatment sought, alcohol remains America's largest addiction problem.

Many don't see how addiction correlates with economic loss, but there is a major connection between the two.

Since the headquarters are within close proximity to DailyTrends offices, I met up with the company firsthand, and got to know management a little bit better.

I met up with Sanjay Sabnani who is the Vice President of Strategic Development and Terren Peizer, the Chairman and Chief Executive Officer of the company.

Here is the interview I conducted with them.


INTERVIEW

Lahiji (DailyTrends.com): Terren, how was Hythiam originated? Who had the original concept for starting the company?

Terren Peizer (CEO of Hythiam): My focus on building healthcare companies led me to discover that addiction was not only one of the biggest in terms of market size, but it was also very poorly addressed by a primarily behavioral approach.

We are a healthcare services management company focused on a protocol for treatment of alcoholism and substance dependence, which is approximately a $40 billion industry today with only 16 percent of those that need treatment acquiring treatment for a variety of reasons.

The industry is comprised of approximately 50 percent private-pay, which is probably the largest segment in healthcare that caters to private-pay. In such, the market for addiction treatment size is predicated on an approach that seems somewhat antiquated by scientific fact and thought and that is the $40 billion industry is focused on treating addiction as a psychological and sociological personality disorder where scientific and clinical fact dictate that this is a physiological disease. Hythiam is focused on the obvious and necessitated transition from the way the treatment worldis approaching disease to the scientific fact, and we expect to be a leader in that transition.

Lahiji: Please describe what the "HANDS" protocol is? How is it different and more effective than just traditional treatment? What is the step-by-step process?

Terren Peizer: The protocol is comprised of four physiological inputs: three pharmacological and one nutritional. For alcoholism, a patient is treated with a combination of oral and intravenous (IV) medications. The IV lasts only 30 minutes and is non-sedating. The total process takes 24 hours with two IV infusions, one each day. By contrast, the current standard of care for alcoholism involves 3 to 7 days of detoxification where a patient is given sedatives in order to mitigate the withdrawal symptoms and risk of seizure. After that is completed, these people usually check into a sober living or rehabilitative facility for some period of time. Many also go to weekly meetings in order to reinforce their commitment to stay sober. HANDS" represents a much simpler paradigm, one that is fundamentally different form anything else that is out there today.

Lahiji: How does Hythiam make money?

Terren: Our licensees typically will charge $12,000 for the HANDS Protocol for Alcohol and $15,000 for the HANDS Protocol for Stimulants. Hythiam receives $6400 a treatment for alcohol and $7450 per treatment for stimulants.

Lahiji: Which hospitals are currently using the "HANDS" system?

Terren: While we have recently announced several new licensee, our pipeline of potential facilities has increased three-fold in the past 90 or so days. Currently HANDS is available at: Little Company of Mary Hospital in Southern California; Lake Chelan Hospital in Washington; Pain Management Associates in Central California; and Memorial Hermann Hospital in Houston. Additionally we have entered into an agreement to offer our service to the Drug Court System for the state of Louisiana through Addiction Recovery Services. We will continue to make announcements as we convert our growing pipeline into licensees.

Lahiji: What studies have been conducted to show that your process works?

Terren: As of now we have data from actual patient treatment from our beta site at Little Company of Mary Hospital. Going forward in the very near future, we intend to enter into clinical studies in order to validate the efficacy that has been observed in our initial patients by their physicians. We have invited potential licensees to actually visit Little Company of
Mary and view treatments. Several of them have brought in their own long-term patients in order to assess HANDS for their practice.


END OF INTERVIEW

Conclusion

I believe that Hythiam has found a unique way in treating addiction in this country. Substance abuse for both alcohol and illicit drug use (cocaine, methamphetamines, crack, etc.) is a serious issue in this country, and it needs to be addressed.

It is a fact that there are "more deaths, illnesses, and disabilities from substance abuse than from any other preventable health condition." What is even more tragic, is that out of 23.5 million people in the U.S. that suffer from alcoholism and drug addiction, only 16% seek treatment. Even fewer are successful in overcoming their cravings.

HANDS in my opinion, happens to be an effective and new model of help that the healthcare industry desperately needs.

What fascinates and excites me the most is that HANDS only takes 2-3 days to administer versus the current month and a half of rehabilitation it takes using the prevalent and often useless traditional treatment.

The company intends to generate controlled clinical data from academic and medical institutions to validate the effectiveness of its product. HANDS is not a placebo with false magical powers.

I believe Hythiam will have tremendous growth in licensing its protocol within the next 12-16 months, and will gain significant traction and attention from hospitals and treatment centers worldwide. I shall be focusing my attention on earnings as they come out next week. As time goes by, more and more hospitals should be administering their procedure.

Chris Lahiji will be available to take your questions until Monday, November 21. Please use the form below to submit your questions.

 
 
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