Dear Shareholder,
We live in a world today that is battling a disease that impacts everyone. This disease deprives its victims of their dignity, health, minds, jobs, careers, friends and families. The substance abuse population in the United States stands at over 22 million individuals, with fewer than 18% seeking treatment. The impact of this group on direct medical costs is staggering—$42.1 billion dollars annually—with frequent ER visits, increased in-patient hospital utilization and long hospital stays, in addition to co-morbidities or other chronic disease states that are not being addressed. The indirect costs on employers and unions are also overwhelming, including absenteeism, presenteeism, lack of productivity and frequent job injuries. Match this with the human cost of pain and suffering on patients, families and loved ones and you have what has been described as a pandemic healthcare problem.
For years, healthcare providers have sought a solution to cope with addiction but no effective options have been available. The reason is that the substance- and addiction-treatment community was valiantly struggling to solve a puzzle without having all of the necessary pieces. Addiction is a complex disease with multiple factors involved in its progression. Effective treatment requires a multifaceted approach that addresses all aspects of the patient’s disease.
At Hythiam, we bring innovative solutions to healthcare providers seeking new approaches to solve this multibillion-dollar health issue. By focusing on the biologic components of our integrated program during 2007 and into early 2008, we fashioned the final pieces to help complete our approach to solving this complicated puzzle known more commonly as addiction. We now offer a comprehensive suite of treatment product services for our patients, and for our contracting partners. This year also saw us complete our transition to becoming a comprehensive provider of disease management services for treating substance-dependent individuals. The development of predictive modeling solutions, the anticipated launch of our proprietary information technology (IT) platform, and our first contracts with managed care providers—all of these pieces comprise a comprehensive treatment program that delivers on the promise made to our shareholders last year. Consequently, we believe that Hythiam is emerging as a significant player and part of the paradigm shift being recognized by the healthcare and medical community to treat addiction.
The stigma of substance abuse, with its lack of effective treatment options and high cost, has meant that few if any healthcare plans, third-party payors or employers know how to grapple with this significant health issue. This leaves a largely untreated or under-treated substance-dependent population for a payor. Impediments to treatment are often the result of behavioral health units being carved out of the medical division of commercial plans, thereby creating a non-integrated treatment approach. While some large payors are trending toward carving in behavioral health to achieve greater operating efficiency, there still remains little integration of behavioral and medical approaches to treatment for substance abuse populations because of a lack of effective treatment options.
Hythiam is in a unique position to respond to this largely unmet need in the healthcare industry by offering a comprehensive substance dependence treatment solution in an effort to reduce overall medical costs, improve clinical outcomes and improve quality of care for patients. Our proprietary PROMETA® Treatment Program combines a medical treatment approach—addressing the physiological aspects of addiction—with a behavioral treatment program, including wellness and psychosocial support, and also includes nutritional aspects. This unique regimen allows Hythiam to offer a more rigorous way to manage all aspects of substance dependence and achieve higher success rates than traditional approaches.
Under the Hythiam value proposition, we work with the provider using our model to develop a value offering in accordance with a plan’s specification—either a case rate per patient or a per-member, per-month (PMPM) fee. The result is a reduction in costs for health plans and better health outcomes for the plan’s members. Our disease management programs are designed for increased enrollment, longer retention and better health outcomes so we can help payors achieve lower costs, and help employers and organized labor reduce medical costs, absenteeism and job-related injuries in the workplace, thereby improving productivity. All of these key elements offer an optimistic new solution to substance abuse and dependence.
Steady accumulation of study data and pilot outcomes during the past year have increasingly demonstrated the benefits of and validated our PROMETA Treatment Program. In 2007, three studies by industry thought leaders were completed. Dr. Harold C. Urschel III conducted a randomized, double-blind, placebo-controlled methamphetamine study, preceded by an open-label methamphetamine study, the results of which were peer-reviewed and published in July. Dr. Urschel’s double-blind placebo-controlled study showed that the pharmacological component of the PROMETA Treatment Program versus placebo had a statistically significant reduction of cravings for methamphetamine. This data further validates that our program reduces cravings and improves retention by also allowing recipients to engage more actively in psychosocial counseling, thereby improving treatment outcomes.
At the Cedars-Sinai Medical Center in Los Angeles, Dr. Jeffrey Wilkins concluded a 30-subject, open-label, single-site alcohol study with a 16-week follow-up that showed a substantial reduction in cravings and use among subjects treated with the medical portion and nutritional elements of the PROMETA Treatment Program. The study also showed that subjects with measurable neurocognitive deficits at baseline showed significant improvement by week 2, and all but one of the subjects tested normal at week 16.
At the beginning of 2008, a commercial pilot was conducted by the Methamphetamine Treatment Center of Excellence at Community Bridges, a behavioral health services provider in Mesa, Ariz. The purpose was to assess the PROMETA Treatment Program as part of a treatment approach for methamphetamine addiction in the Medicaid-eligible population that it serves in Arizona. The group receiving the medical portion of the PROMETA Treatment Program with manualized, intensive outpatient counseling remained in the program at a significantly higher level of retention than the current industry gold standard of care and showed a meaningful reduction in cravings over the 16-week pilot period.
Other placebo-controlled studies are ongoing, including Dr. Walter Ling’s study out of UCLA on methamphetamine-dependent individuals and Dr. Raymond Anton’s study out of the Medical University of South Carolina on alcohol-dependent individuals. The study being conducted by Dr. Anton is completed and will be presented at a prominent industry conference in the summer of 2008. Dr. Ling’s study is nearing completion and we expect his release of top-line data in the third quarter.
With the anticipated results from our remaining double-blind placebo-controlled studies, which we expect will be completed in the second half of 2008 and beyond, and as our pioneering treatment protocol continues to demonstrate better clinical outcomes, we believe we are well-positioned to execute our business-development initiatives, translating traction into revenue.
Additionally, Hythiam is a pioneering company in exploring and identifying the role GABA dysregulation plays in addiction as well as in generalizable anxiety disorders, and the use of our PROMETA Treatment Program is in the forefront of this approach. We believe that in the wake of many articles recently published about the association between addiction and anxiety, as well as the growing recognition by the scientific community of the GABA system’s part in it, this essential and pioneering premise is being affirmed. With this mounting body of evidence and our growing intellectual property estate, we firmly believe that Hythiam will bring substantial and increasing value to the life sciences and pharmaceutical fields. Our entirely distinct applications for composition of matter and use patents for various treatment approaches for multiple CNS indications, in which GABA receptor dysregulation may serve as the critical pathology, are very meaningful. Currently, there are 64 active licensees, both for-profit and non-profit, two company-managed PROMETA Centers and 95 patent issuances pending. Each validating set of data, whether top-line or published, will result in adoption by yet another set of customers. However, at Hythiam, the most important metric is our impact on the recovering individual. To date, 2,800 patients have been treated, and we expect to reach many more in the coming year.
We believe that in 2007 we assembled the final components of our strategic business model. Integrating its various pieces allows us to offer a complete behavioral health treatment solution to the managed care industry—an underlying treatment program, an IT platform, supporting data and a psychosocial course of therapy.
It is important to realize that substance abuse and dependence are very personal issues with both public and private consequences. This past year saw the passing of my brother, who suffered throughout his life from addiction. It is my sincere belief that had all of the treatment offerings that we now have with Hythiam been available earlier, his life would have been dramatically different and the suffering experienced by our family and his friends and loved ones would have been alleviated. It is our commitment at Hythiam to ensure that this type of suffering becomes something for the history books as families are reunited and patients become healthy and productive members of society again.
I would like to thank our employees for sharing the vision of a better treatment program, and our shareholders for their continued investment and confidence in our treatment program. We are and remain a key part of the response to this mounting economic and healthcare system burden and look forward to continued progress as we meet the needs and challenges of substance dependence—a solution in which we provide the remaining pieces in this puzzle of addiction.
Sincerely,
