MITI: Primary care that puts patients first - Initiating coverage

By Beth Senko, CFA

OTC:MITI

READ THE FULL MITI RESEARCH REPORT

Healthcare delivery in the US was undergoing a revolution well before COVID-19, driven by an influx of newly-insured patients from the Affordable Care Act, a shortage of primary care providers, the need for investments in technology to battle ever-rising administrative burdens, and changing reimbursement structures.

Barriers to access, and lack of continuity of care, particularly for those without chronic conditions, have been a long-standing hurdle to reduced disparities and better outcomes in healthcare. Over the past 25 years, many efforts have been made to improve access to medical care, and primary care in particular, such as mandatory insurance coverage for preventative care, rural healthcare initiatives and the expansion of Medicaid in many states. However, primary care in the US remains transactional and under-funded.

Improved access to high-quality primary care is a multi-factorial challenge in the US; however, a team of clinical and business physician practice industry veterans is working to address this issue by opening primary care clinics focused on improving access and continuity of care to the 70% of the population that who use < $2,000 in care each year, and therefore are less likely to have a strong primary care relationship.

Mitesco, Inc. MITI is building a better model for primary care. Headed by veteran physician practice clinical and business leaders, Mitesco's "The Good Clinic" seeks to improve health disparities through a nurse-practitioner driven model emphasizing patient engagement and activation, frequent communication, continuity of care, an emphasis on wellness and convenience. The Company opened first clinic in February 2021, and by the end of the year had six clinics operating around Minneapolis. In 2022, the Company expects to open an additional 12 clinics in three states – Minnesota, Colorado and Arizona. By 2023, Mitesco plans to have 50 clinics in operation.

Importantly, the Company doesn't seek to be everything to everyone. The strategy simply to build new clinics, attract a panel of patients who want primary care that emphasizes prevention and wellness, and repeat the process again and again. Longer-term, the Company may diversify its core strategy, but in our view, it will differentiate itself from the competition by sticking to basics.

We believe that Mitesco's business plan is solid and straightforward. It addresses important deficiencies healthcare delivery, while hitting on the 4 "Cs" of primary care: first-contact care that is comprehensive, continuous, and coordinated. It is building out a platform for delivering care in a convenient, patient-focused way, that encourages patients to be active participants in their health. If successfully executed, it's an elegant solution to a long-standing challenge to improving healthcare delivery.

Our model is based on Mitesco opening 31 clinics by the end of 2023 and 98 by 2026. For 2023, we forecast sales of $36.7 million, growing to $124.9 million in 2026. We estimate average clinic-level operating margins of 19% in 2023, growing to 28% by 2026. Including corporate overhead, we look for operating margins of 5% in 2023 and 23% in 2026. We expect the company to reach breakeven in 2023, with earnings per share of $0.10 by 2026.

Mitesco, Inc. is at an early point of a vast market opportunity, in our view. Management has a very specific business plan, one built on collective wisdom and experience – which we believe will mitigate many of the risks typically associated with a startup. Mitesco owns and operates its clinics; practitioners are employees. Success comes from basic blocking-and-tackling. Importantly, as an owner-operator, Mitesco's interests are aligned with those of its practitioners. While results may be somewhat volatile in the next year or two, we expect this to stabilize as the business grows. Factors that may affect our forecasts and valuations include:

• Addressable market size/competition for patients

• Competition for labor

• Reimbursement changes

• Move to value-based model

• Regulatory developments

• Financing needs.

We value Mitesco at $0.53/share based on ten-year DCF for 300 clinics by 2031. Our model builds to $400 million in sales by 2031, with a terminal revenue growth rate of 2%. We model a terminal EBIT margin of 22%, 25% tax rate, and a 12% discount rate. Several factors provide upside to our valuation including: more modest working investment needs at the clinic level, faster time to cash flow breakeven at new clinics, reimbursement from insurers with risk-sharing upside for keeping patients healthy, and robust sales of ancillary products and services.

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