Today’s New York Times confirms what I said yesterday. Caremark is paying a bit too much for AdvancePCS, but is doing so to get into the Medicare scrum as in the NYT’s words "large drug benefit managers jockey for position in hopes of handling the potentially huge Medicare drug program that a House-Senate conference in Congress is drafting for 40 million elderly and disabled Americans." Meanwhile, Express Scripts shares have headed down to meet the percentage loss in Caremark’s since yesterday (Sept 3) morning’s deal, although there’s no clear reason why and ESRX already has a lower PE ratio than the other two. Caremark has gone down because a) they are paying too much (especially as they are debt-free and Advance still has $400m debt left over from its purchase of PCS a while ago) and b) they were growing revenues at 30% per year (and profits more so) and won’t be able to do that if they merge with as big a player as AdvancePCS — unless of course:
a) they convert many of Advance’s customers onto their mail-order pharmacy sooner than you’d expect, and/or
b) all PBMs get an amazing deal out of the Medicare Rx coverage negotiations. I’d say that’s unlikely unless the entire bill is held up and we get an even more Republican-leaning Senate in 2005 and they don’t notice that we have a eensy teensy problem with a thing called a deficit.
OK. My site is up and hopefully you are reading this by getting here via matthewholt.net or via thehealthcareblog.com, (or via .org and .net both of which get you here. (I describe the experience later when I’ve calmed down a bit). I have also fixed a way via bloglet of having you give your email address to get new postings emailed to you. I’m still figuring out whether it’s most useful for you to get, via email, the whole post, just the first few words as a teaser, or just the fact that there is a post. I’m also figuring out RSS and comments (and am nearly there with those). So please email me and let me know if you have any opinions about how you want to see this blog and what you want to see here. Thanks and please keep coming back. Matthew
For serveral weeks the odd rumor that PBM Caremark was going to buy AdvancePCS showed up in the Yahoo ADVP message board. While you shouldn’t usually trust what those boards say, this time they were right. Caremark announced a roughly $5 billion agreed bid for AdvancePCS, which sent Advance stock up from $40 to $47 and Caremark’s down from $24 to $22. On the face of it, with a newly freed Medco the big gorilla in the marketplace, this is a decent consolidation move. Caremark is stronger in mail-order and more profitable, AdvancePCS has more lives, especialy in the health plan world, and has probably made a little more progress in the eHealth and DSM world. However, the price thay are paying is some 35% higher than AdvancePCS has ever traded on the open market, which is quite a premium — hence the decline in Caremark’s stock. Longer term it leaves three big PBM players for whatever role for PBMs comes out of the Medicare Rx bill, now in negotiations between the house and the Senate.
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.