Welcome back from the Labor day break. I’m still working on re-establishing my site, so please keep your browser pointed at thehealthcareblog.com and in the meantime I’ll keep posting! When it’s safe to go back to matthewholt.net I’ll let you know here!
So a funny thing has been happening in the small and medium cap Biotech market. (And by that I’m lumping in virtually any company that is developing pharma products but doesn’t sell them yet). After getting somewhat swept up in the dotcom fever of 1999 and early 2000. Biotech’s woes grew over the next two years, and by the time of the Iraq war several small biotech companies were selling for close to the value of their cash on hand. Now the Burrils Biotech Indicies have all shot skywards for this year. In particular their Select biotech index is up over 55% (to end July) compared to the NASDAQ’s 33% improvement so far in 2003. The small cap biotech market which tracked by the Burrils index was 84 at the end of 2002 and fell to 68 (down 18%) by the end of February as war loomed. It was 113 at the end of July, up 34% on the year and up roughly 66% since its war-induced lows. Finally we are beginning to see possible signs of life in the Biotech IPO market. For instance Cancervax filed for an IPO in mid-July, albeit selling some insurance stock to current investors in case it doesn’t get out the door.
This tells you a couple of things. Given that the science hasn’t changed too much in 7 short months, this market remains very, very volatile. After all , we’re talking about a market for drugs that usually have several years of testing to go through before they are ready for the nod from the FDA. But it also tells you that at least some investors believe that there will be a market for these new and usually very expensive drugs in the medium-term future. So while the major pharmaceutical companies continue to have their problems, the pipeline of new biotech offerings looks to be in good enough financial shape that the rest of the healthcare system will be getting the benefits, and of course the costs, of these drugs in years to come!
And in the interests of full disclosure, I own stock in one small-cap biotech company Pain Therapeutics (PTIE). I just wish I’d bought a hell of a lot more back in March!
I have had a very bad experience with domain theft from a terrible company called primesource-hosting.com. So until I can get my domain back, the blog will appear here. This should be sorted out in a week or so. Please keep coming back! Matthew
So the NYT reports today that the Medicare bill compromise discussions between the teams from the house and the senate are being held up by a dispute on payments to rural hospitals. A dispute between different republicans! (Bill Thomas in the House and Chuck Grassley in the Senate). This bill is supposed to be about getting prescription drugs to seniors, but instead is getting bogged down in electoral politics. So don’t expect any news any time soon, because the Democrats haven’t even put their oar in yet concerning the ‘ "privatization" of Medicare’ part of the House bill. And they certainly don’t want the Republicans to be able to run on "we gave seniors drug coverage" for 2004.
In the midst of the e-health boom, there were a huge raft of companies hoping to profit from e-prescribing and e-detailing, and there were some very odd business plans about how to pay doctors to receive these "e-details". Well some recent research seems to be indicating that this is starting to take off. Manhattan Research’s ePhysician service (the old CyberDialogue) reports that 50% of doctors seeing more than 50 patients a week and writing more than 50 Rx a week, use or want to use e-detailing, eCME, a PDA or online Rx information–in other words are ripe for e-detailing and interested in e-prescribing. Jupiter reports that of those doctors who use the Internet at least once a week for work (which is most of them) 58% have taken part in at least one e-Detailing session. And of course 85% said that they’d use it more if they got paid to use it. In a related data byte, Harris Interactive reported back in April that by the end of 2002 16% of doctors were using online prescribing and another 21% plan to use it within 18 months.
So the argument I was making back in 1998 and 1999 seems to be coming to pass–the use of information tools by doctors is starting in this country (even if it lags behind those rates of adoption abroad). There’s now a sizable minority using more than just a pen. Partly in response to that Pharma companies are now getting very interested in e-detailing, mostly because they want to cut the costs of sending the nice detail people out to hassle the doctors. So perhaps those odd business plans weren’t so odd.
Looks like the PBM stocks are now taking a downward move . Express Scripts’ stock (ESRX) is under pressure partly following some comments from a short-seller in Barrons. Meanwhile, Medco (MHS)continues upwards. Some of this is probably caused by institutions re-allocating their PBM portfolio. Medco has added about a billion in market cap since it started trading last week, and is now finally worth a little more than what Merck paid for it back in 1994–not bad when you condsider that PCS (ADVP) has still not come close to being worth the $4 billion Eli Lilly paid McKesson for it back then!
Tenet changed management at its Redding, CA hospital on Friday. As discussed in an earlier blog, that hospital is where significant amounts of unnecessary surgery took place. This article from thestreet.com even goes as far as to suggest that Tenet might get the death penalty of being kicked out of the Medicare and Medicaid programs. If that’s true, they would have to give up and go home, but bear in mind that they’ve already settled the worst of the charges, and that thestreet.com is a haven of short-sellers.
So Medco has officially split off from Merck as of this week, and is trading separately on NYSE, ticker is MHS. The stock actually rose 10% its first day adding over $600m to Medco’s market cap and (after accounting for the value of Medco shares issued to shareholders) Merck rose too! This indicates partially that institutions like the future of the PBMS, all of which have rallied slightly along with Medco. It’s worth noting that Medco’s market cap is 80% greater than that of AdvancePCS.
Meanwhile Medco has been at pains to say that it will be totally separate from Merck, and the market may be taking this to mean that it will be able to get the best deal, rather than the best deal after Merck’s need have been considered. It may also be indicative that the market believes that Medicare reform will be good for PBMs. As I mentioned in an earlier post, that is likely but by no means certain.
When I got into health care one of the big fusses was whether Genentech’s Activase (TPA) was more effective than Streptokinase in clot-busting immediately after heart attacks. You may recall that in the late 1980s Genetech made its name and fortune on the back of the fact that a huge clinical trial evidenced that Activase saved 2 more lives per thousand incidentsat a cost of ten times the amount. While the health service researchers amongst us thought that this was a huge price to pay for a few incremental lives saved, a combination of aggressive marketing by Genentech, ER docs wanting the best outcomes (and being fearful of malpractice lawyers, some of whom showed up on briefings from Genentech detailers) and insurers OKing the bills mean that it became the treatment of choice and a $250m drug by the early 1990s. It’s still around that level of sales ten years later.
NEJM has a danish study this morning that shows that acute angioplasty has better outcomes than clot-busting drugs by a factor of more than 2:1 and nearly 4:1 for stopping repeat MIs within 30 days. So can we expect a massive increase in angioplasty and a decrease in clot-buster use? And if not, can we not also expect an increase in suits against hospitals using clot-busters instead of angioplasty?
And on the "lighter" side, this news from Brazil shows that mistakes in health care can be made anywhere. but if you were this patient, wouldn’t you notice?
Today’s NYT has an article (Reg Reqd) pointing out how vulnerable the PPI (ant–ulcer/anti-heartburn) drug market is to the oncoming generic versions of Prilosec. Prilosec has been about the most successful drug in history (somewhere around $6 bn a year at its height) and catapulted Astra-Zeneca into the first rank of pharma companies. They’ve also successfully switched their marketing focus to consumers and doctors over to its successor drug, Nexium, including moving the "purplepill" website. The Times reports that generic makers including division of Novartis and of P&G are going to come after the markets of Nexium, Protonix and the rest with generic Prilosec, and it’ll cost 1/5th the price. Wellpoint, the health plan which successfully got the FDA to agree to move Claritin and its allergy competitors to OTC status, is already planning to move as many of its members as it can to the generic Prilosec.
This is beginning to remind me of the early 1990s when there were few new blockbusters, and many old ones, including the first PPIs Zantac and Tagamet, were coming off patent. Some companies then tried to manage a "brand to OTC" strategy, such as Syntex with the brand (Naproxen) that is now the OTC drug Alleve. Syntex found that the sales for the brand fell off a cliff rather than rolled down a slope (and part of the result was their being swallowed by Roche). Then as now drug companies were concerned about the impact of a big new government program, and their stock prices were at bigtime lows. Look at this chart of Merck’s historic price and compare the 1992-94 dip to the one in the last 2 years)
However, overall drug companies have continued to be remarkably successful in both delaying the introduction of generics, albeit by using loopholes that have been partially closed, and at convincing doctors not to bite the hand that feeds them, even though some say they want to. What really will make the difference in their future is the next set of blockbusters.
You can historically look at parts of health care where drugs have replaced hospitalization. For instance anti-biotics replaced TB Sanatoriums, which represented some 30% of health care spending in the 1920s and 1930s, and indeed the first PPIs essentially replaced ulcer surgery. You can also argue that the statins are doing a pre-emptive strike on heart surgery rates in 10-20 years time. But with no imminent blockbuster class on the near horizon, big pharma is scrambling to discover which part of today’s health care system they’re going to replace with a pill, or which unrecognized "disease" they can convince people they can cure (think Viagra). Because that’s the road to another stock run-up as we saw in the late 1990s. I don’t think it will be as easy for them this time, but don’t write this industry off!