New York Health Care, Inc. History

Company Perspectives:

Our mission is to provide comprehensive, cost-effective and competitively-priced quality home care services, that can allow patients to remain at home, in their communities.

Key Dates:

1983:

Jerry Braun forms the company as a nursing staffing agency.

1988:

The company switches to the home healthcare business.

1996:

An initial public offering of stock is made.

2001:

Bio Balance is incorporated.

2003:

Bio Balance and the company merge.

2005:

New Jersey Health Care assets are sold.

Company History:

New York Health Care, Inc. derives all of its income by providing home healthcare services to New York City and surrounding counties in New York State and New Jersey. Since 2004, however, the company has embarked on a course that would divest this business in favor of concentrating on the activities of a wholly owned subsidiary, Bio Balance, developer of treatments for chronic gastrointestinal disorders in an effort to create a pure-play pharmaceutical company. New York Health Care is a public company, trading on a Pink Sheet basis since being delisted by the NASDAQ in 2004.

Company Founding in 1983

New York Health Care was founded in Brooklyn, New York, in 1983 by Jerry Braun. He was originally employed in the garment industry but turned his attention to the healthcare field where he believed there were greater opportunities. He launched the company as a staffing agency, providing nursing staff to area nursing homes. It proved to be a prosperous line of work, as the demand for nurses, especially quality ones, grew, and hospitals were forced to pay increasingly higher salaries. Later in the 1980s, however, the healthcare model began to change, with patient stays curtailed, resulting in the reduction of hospital staffs. In 1988 Braun transformed his business by acquiring National Medical Home Care, Inc., provider of home healthcare support services, with offices in Brooklyn, Queens Village, Rockville Centre, and Mount Vernon, New York. Braun bought the fixtures and equipment, but more important, he picked up National Medical's paraprofessional aide lists and roster of clients. New York Health Care was now in the home nursing business, operating out of three offices: Brooklyn, Hempstead in Westchester County, and Mount Vernon on Long Island.

By the early 1990s, after achieving steady growth, Braun was ready to expand the company. In 1992 New York Health Care opened a fourth office in Spring Valley, located in New York's Rockland County. A year later an office was opened in New York's Orange County in the town of Newburgh. Each of New York Health Care's five offices operated essentially as separate entities, with each responsible for its own recruitment, training, scheduling, and quality assurance programs. Also in 1993 New York Health Care broadened its business by adding a specialty division called "Special Deliveries," which provided home nursing services to women during pregnancy and after childbirth to both mother and newborn. For this unit the company recruited Neonatal Intensive Care Unit Nurses, Maternal/Newborn Registered Nurses, and Registered Nurses with at least two years of experience in maternal childcare. In other ways, New York Health Care adapted to the needs of the communities it served. For instance, it recruited Russian-speaking staff to serve Brooklyn's growing Russian neighborhoods, where many patients spoke little or no English. The company also recruited nurses and paraprofessionals fluent in Spanish and Yiddish and who were knowledgeable about the practices and requirements of keeping a Kosher home. Revenues approached $9 million in 1994 and reached $11.8 million in 1995, while net income during this period improved from $771,000 to more than $1.1 million.

In 1995 Braun and four other directors of New York Health Care formed and became the sole stockholders of a new company, Heart to Heart Health Care Services, Inc., to provide home healthcare services to northern New Jersey. Although technically a separate company, Heart to Heart relied on New York Health Care's personnel to provide payroll, data processing, and benefits management services, for which the start-up paid about $15,000 a year.

Going Public in the Mid-1990s

Braun took New York Health Care public in 1996 to raise money to fuel further growth. With H.J. Meyers & Co. Inc. serving as underwriter, the company completed the offering in December 1996, raising $5 million. According to the company's prospectus, the money was earmarked for acquisitions, the opening of additional offices, expansion and upgrading of computer systems, and expansion of the pediatric services division, as well as for marketing and working capital. Revenues grew to $11.9 million in 1996, and the company recorded net income of $571,000.

The Special Deliveries Division added services in 1997 following the renewal and expansion of its contract with a major area HMO. Special Deliveries now offered home uterine monitoring and terbutaline pump therapy. Moveover, the division now packaged its perinatal support program for hypertension, diabetes, and preterm self-palpation, charging per episode rather than on an individual cost basis. This bundling approach saved money for the HMO and served to attract the business of other managed care companies, healthcare institutions, as well as traditional insurance companies. In 1997 Special Deliveries also reached an agreement with Biomedical Systems Corporation (BMS), a St. Louis-based medical monitoring and telecommunications company. Special Deliveries would supply the personnel trained to use the BMS equipment for managed care organizations and other providers who contracted with BMS. On another front, New York Health Care expanded its Westchester business, landing a contract with Hospice of Westchester to work jointly with White Plains Hospital Center and Visiting Nurse in Westchester to provide healthcare services to terminally ill hospice clients at home or in nursing homes.

New York Health Care flirted with expansion outside of the New York City metropolitan area in 1997. It announced in May that it had signed a letter of intent to acquire a Florida home health agency to gain a toehold in the growing market of the Southeast. But two months later, following the completion of due diligence, management scuttled the deal, electing instead to focus on the New York market. In keeping with this approach, New York Health Care formed another subsidiary in December 1997, NYHC Newco Paxxon, Inc., to purchase New Jersey-based Metro Healthcare Services, Inc., operator of paraprofessional home healthcare services in West Orange, Budd Lake, and Jersey City, New Jersey. Two months later, in February 1998, NYHC Newco acquired three additional Metro Health Care offices, located in Edison, Toms River, and Shrewsbury, New Jersey. At this point, New York Health Care elected to bring Heart to Heart into the fold to combine all of the New Jersey assets within the NYHC Newco subsidiary. One March 26, 1998, Heart to Heart was acquired from Braun and the other stockholders for $1.15 million in the form of a promissory note, to be paid off in installments over the next two years. Primarily due to the addition of the New Jersey operations, New York Health Care's revenues grew from $13.2 million in 1997 to $20.2 million in 1998. Net income totaled $184,000 in 1997 and $341,000 in 1998.

During 1999 New York Health Care continued to add offices. In February NYHC Newco acquired the Shrewsbury, New Jersey, office of Staff Builders Services, Inc., primarily providing home healthcare services in central New Jersey. Then, in June 1999, NYHC Newco bought another Staff Builder office, this one located in Hackensack, serving Northern New Jersey. Finally, in October 1999, New York Health Care bought the Staff Builder operation in Manhattan, and the business was transferred to the established New York Health Care offices in the city.

Turning to Pharmaceuticals in the 2000s

Revenues totaled $23.8 million in 1999 and grew to $29.4 million in 2000. It was at this point that New York Health Care began to look in an entirely different direction, from home healthcare to dabbling in the pharmaceutical industry. In October 2001, it agreed to acquire a start-up company, The Bio Balance Corporation. It was incorporated as "The Zig Zag Corp." in May 2001 and changed its name to Bio Balance shortly before the acquisition overture from New York Health Care. The company was engaged in research in Israel to develop "probiotic" technology for use in treating gastrointestinal diseases such as irritable bowel syndrome and forms of chronic diarrhea and inflammatory bowel disease in both animals and humans. Probiotics are live microorganisms or microbial mixtures that have the potential of stimulating the growth of healthy bacteria inside a host and restoring the microbial balance to address gastrointestinal disorders. Bio Balance was already working on its first product in Israel, an oral liquid called Bactrix, later renamed Probactrix. It consisted of a nontoxic strain of E.coli preserved in a vegetable extract formulation. The plan was to market it as a medical food, rather than a drug. In this way, the company avoided the more stringent requirements facing a drug. Classifying the product as a food ingredient, Bio Balance could self-determine that Probactrix was "generally recognized as safe." A potential major use for the product was in treating AIDS-related diarrhea caused by a reaction to antibiotics and irritable bowel syndrome suffered by AIDS patients. Company researchers also would pursue the development of a prescription drug for AIDS-related diarrhea. The upside for the technology was tremendous, with the company estimating that the market for an effective irritable bowel syndrome treatment could top $1 billion a year. For a small company like New York Health Care, which posted sales of $34.3 million in 2001, the allure proved irresistible.

The Bio Balance transaction was not consummated until January 2003, in what became a reverse merger. Technically, although New York Health Care acquired Bio Balance, it was the start-up business that was the key player in the deal, as revealed by the company's new ticker symbol, BBAL. Following a reverse stock split the pre-merger shareholders of Bio Balance owned about 90 percent of the company. In conjunction with the merger, Bio Balance privately placed more than $6 million in stock, the proceeds of which were earmarked for its operations. In essence, New York Health Care's function was to provide cash flow to support Bio Balance while it developed a revenue-generating business.

Although it had been in operation for 20 years, New York Health Care was little known on Wall Street until the summer of 2003. Priced at $2 in early July, the company's stock topped $3.25 a month later, prompting a notice in Business Week. The company attributed investor interest to excellent trial results on AIDS patients at The Moscow Center of HIV. That reasoning was thrown into doubt a few months later when a former Bio Balance director, Paul Stark, and a company consultant were indicted by the U.S. Attorney's Office, accused of trying to inflate the price of New York Health Care stock by bribing a hedge fund manager to buy 500,000 shares. In reality the manager was an undercover FBI agent. The company emphasized that the indictment made no mention that the price of the stock had actually been manipulated and following an internal investigation concluded that none of its current officers, directors, or employees were involved in or knew about the scheme.

In 2003 New York Health Care recorded revenues of more than $45 million, but because of the cash requirements of Bio Balance, the company lost $22 million. The company took the next step in its transition from healthcare provider to biotech in August 2004 when Jerry Braun stepped down as CEO, replaced by Bio Balance's president Dennis O'Donnell, a 20-year veteran of the pharmaceutical industry. At the same time, the company announced that it would sell off its home healthcare business in order to become a dedicated pharmaceutical company, and it intended to change its name to Bio Balance Holdings Inc. Three weeks later, the company reached an agreement with Braun and Jacob Rosenberg, a New York Health Care director since 1983, to acquire the healthcare business for $4 million. Yet, several months later the pair had still not raised the necessary money. Instead, in April 2005, New York Health Care divested its New Jersey healthcare business to Accredited Health Services, Inc. It was a significant step in restructuring the company as a dedicated pharmaceutical company. When New York Health Care would sell off its remaining home healthcare assets and whether Bio Balance would ever achieve the kind of growth and profitability management envisioned remained open questions.

Principal Subsidiaries: Bio Balance Corporation.

Principal Competitors: Apria Healthcare Group Inc.; Gentiva Health Service, Inc.; North Shore-Long Island Jewish Health System.

Further Reading:

• Citrano, Virginia, "Facing Pataki Budget Cuts, Home-Health Firm Checks Vital Sings," Crain's New York Business, May 8, 1995, p. 28.
• Marcial, Gene G., "Good Test Results at New York Health Care," Business Week, August 25, 2003, p. 154.
• "New York Health Care Divest Home Heathcare Business," Health & Medicine Week, August 9, 2004, p. 168.

Source: International Directory of Company Histories, Vol.72. St. James Press, 2005.

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