How one company is cashing in on the trend toward computerized medicine. December 31, 2006 Ask Glen Tullman why he thinks he can convert technophobic physicians into techies, and he'll relate an important lesson he learned from his mother: "No was not in her vocabulary, so you got the sense you could do anything if you could just figure out how." As the chief executive officer of Allscripts Healthcare Solutions, Tullman, a veteran of the information-services industry, believes he's figured out how to make every physician's office paperless. Through acquisitions, he has transformed Allscripts, once a stodgy packager of bulk drugs, into a fast-growing company that sells software for checking medical records, prescribing drugs and managing patients -- all electronically. "Our vision is to become indispensable to physicians," says Tullman, 45. Boost from the Feds By all accounts, Allscripts is succeeding, with help from the Bush administration. The federal government, which accounts for nearly half of the $1.7 trillion spent annually on health care in the U.S., wants to eliminate paper medical records nationwide by 2014. Going paper-free could shave as much as 10% off the government's health-care bill. In October, federal officials took a step toward the goal by proposing rules to promote the use of electronic prescriptions and medical records by physicians. Allscripts turned profitable in 2004, earning $3.1 million, or 7 cents per share, on sales of $101 million. It expects to make 22 cents to 24 cents a share in 2005 on estimated revenues of $120 million. Analysts see a profit of 47 cents a share in '06, according to Thomson First Call. Cumulative operating losses of $149 million should shield Allscripts from paying income taxes through 2008. Advertisement All this is just the right prescription for shareholders. Since the end of 2002, the stock (symbol MDRX) has climbed sevenfold, to $16 in mid November (giving it a market value of $677 million). Behind the run-up is the recognition by investors of the untapped potential for computerizing doctors' records, including electronic prescriptions -- a business estimated to be worth from $1.2 billion to $5 billion annually. The electronic-prescriptions part of the market is especially profitable. For every dollar of revenue generated by routing a prescription electronically to a drugstore or pharmacy-benefit manager, Allscripts earns about 80 cents in operating profits, estimates William Blair analyst Corey Tobin, who rates the stock "outperform" (Blair's highest rating). Moreover, the Medical Group Management Association says that 12% of physicians' practices already use electronic records and that an additional 24% will use them in the coming year. Smiley and sad faces Savvy marketing is further fueling sales. Allscripts teaches doctors how its software can reduce the number of data-entry errors and trim costs. And the software is easy to use: A green smiley face on the screen tells physicians that a patient's insurance covers the drug prescribed; a sad face in red tells them that the insurer does not cover it. Allscripts shareholders should see smiley faces, too. The stock, at 25 times next year's profit estimates, does not seem overly expensive in light of expected long-term earnings growth of 30% a year. Allscripts holds $136 million in cash and marketable securities, which it could use for acquisitions. Or it could become a takeover target itself. (Note that General Electric is buying information-service provider IDX Systems, which, in turn, holds 19% of Allscripts.) "The company is not for sale," says Tullman. "But having been the CEO of two other companies that were sold, it is always a possibility."