'Health Care' Archive
Consolidation is a practical solution when the competitive squeeze gets put on an industry, and large pharmaceutical companies are predictably falling into the acquisitive suitor role in an effort to solve their woes, despite their quarry’s occasional reluctance to fall into line.
Prescription drugmaker King Pharmaceuticals has made public its $1.4 billion offer to purchase rival pain medication maker Alpharma. Though Alpharma has apparently rejected King’s proposal several times this summer, King is relentlessly bringing its offer into the limelight in an attempt to rally shareholder support for the deal.
Two other hostile takeover attempts have surfaced this summer — Roche’s bid for Genentech and BMS’ bid for ImClone. All three target companies — Alpharma, Genentech, and ImClone — have taken the role of the coy maiden, rejecting their suitors’ initial proposals but hinting that they may be available if the wooing is increased.
Despite Genentech’s initial rejection of Roche’s bid, the company is obviously looking for a higher offer and has outlined a new retention plan for its employees to ease tensions over the merger speculation. ImClone has stated that BMS’ offer is undervalued and is hemming over its pursual of other options. In the most recent case, Alpharma has stated that King’s offer is not in its best interest but that it would look at a higher proposal.
The synergies in this case are clear — King Pharmaceuticals and Alpharma have similar abuse-resistant pain medications up for FDA approval, as well as other compatible substances on the market and under development. King is likely hoping to head off future competition, in addition to solidifying its current operations, by buying Alpharma outright.
Alpharma has taken the tone of refusal over the deal, but with the Genentech and ImClone deals still up in the air, one has to wonder if Alpharma is also playing hard-to-get. In all three cases, there is a real possibility that the suitors could become more agressive in their takeover attempts, despite the receiving companies’ wishes. There is also the possibility that new acquisitive gents will step onto the scene.
ER docs and vampires take note: Scientists have figured out how to turn embryonic stem cells into human blood.
In a study published in the (aptly named) journal Blood last week, researchers at a company called Advanced Cell Technology tell how exposing developing stem cells to a combination of proteins coaxed them into becoming red blood cells. The process is not ready for prime time: It’s way too expensive for mass production, for one thing, and it’s also not clear that the blood produced with the current process would be transfusable. But the breakthrough — which could potentially eliminate the prospect of blood shortages (not to mention the unpleasantness of donating blood) — nevertheless represents a significant technical success in the beleaguered field of US stem cell research.
US researchers have largely been denied federal funding for embryonic stem cell research since President Bush’s 2001 executive order limited funding to existing stem cell lines. And though state and private funding have taken up some of the slack by bankrolling laboratory and animal research in the field, very few are willing to take the next risky step of funding clinical research (that is, research in human subjects).
Nobody knows that trouble better than Advanced Cell Technology, which despite its recent success with the blood study and others in the area of age-related macular degeneration, is just about broke. Its first-quarter report for 2008 included a financial warning indicating it would require additional cash from somewhere to keep operating. Perhaps the company will find it, or at least be able to hold on until a new president lifts the ban that is impeding medical advancement in the field.
It seems that this company may never see an end to its cardiovascular stent troubles. Leading medical device maker Boston Scientific looks to be facing renewed strife in overcoming the controversies that surround its interventional cardiology products, which are used to prevent clogged arteries.
Two stories published yesterday — a Wall Street Journal article questioning the reliability of Boston Scientific’s study data on stent pipeline candidate Taxus Liberte and a New England Journal of Medicine study re-examining the advantage of stents over traditional cardiovascular treatment methods — have caused a bobble in the company’s stock and may prompt future challenges for the company’s interventional cardiology product sales.
Last year Boston Scientific and rival Johnson & Johnson faced significant sales losses due to widespread criticism of their respective drug-eluting stents, which are touted by the companies to be improved versions of uncoated stents but have also been said to increase the risk of blood clots. Boston Scientific’s overall stent sales have yet to recover from the ongoing medical debate surrounding the use of drug-coated stents and stents altogether.
The Liberte stent, which is awaiting FDA approval, is part of Boston Scientific’s vigorous efforts to rejuvenate earnings in that product segment and fight off competition from Medtronic and Abbott. The company received FDA approval for another drug-eluting product line, the PROMUS stent system, just last month. Boston Scientific has also sold off some noncore operating divisions to battle the effects of lagging sales (as well as to pay down debts incurred mainly through its huge 2006 acquisition of Guidant, which brought on additional product controversies that I’m not even going to touch right now).
Adding insult to injury, news also surfaced yesterday that Boston Scientific has recalled a batch of non-cardiovascular stent products. While it’s rather typical for new medical devices to raise questions in the medical community, I can’t help but wonder whether Boston Scientific should abandon the stent ship altogether and focus on its other less-controversial products.
While the big for-profit hospital operators continue their long-term turnarounds (HMA, Tenet, and LifePoint have all posted financial improvements this quarter) and politicians of all stripes debate the merits of expanded health insurance coverage, the nation’s health care safety net — the US’s patchwork system for caring for the poor and uninsured — continues to adapt to industry realities in order to survive. Problem is, surviving may have led them to abandon their main mission: serving as the last resort for indigent patients needing health care.
A new report in the journal Health Affairs (via the Wall Street Journal Health Blog) chronicles the ways in which safety net providers have adapted to competitive pressures in an increasingly profit-hungry health care world. And the upshot is that the doctors, community health centers, and public and not-for-profit hospitals that make up the safety net are, in some cases, turning their backs on Medicaid patients and the uninsured and focusing their attention on more profitable service offerings (heart surgery, anyone?) and populations (i.e., those with insurance).
The Health Affairs article lists a number of factors involved in the shifting strategies of safety-net providers. Among them are:
- the continuing rise in the number of uninsured patients, leading to increased demand for services and higher levels of uncompensated care
- greater competition between hospitals and doctors, who are increasingly providing outpatient services that were formerly the purview of hospitals
- a decreasing number of doctors, especially specialists, who are willing to serve Medicaid and indigent patients, and
- competition from non-safety-net providers for patients with insurance
In response to these pressures, providers have taken a number of steps, including expanding into more affluent areas, marketing their services to insured patients, and restricting access to charity care for non-emergency cases. These steps effectively refocus safety-net providers’ attention away from the patients who already have incredibly tenuous access to health care and make it well nigh impossible for them to get care before their situations become emergencies.
It’s a problem that’s been noted before, of course. Senator Chuck Grassley has, for some time, been investigating not-for-profit hospitals and whether they are living up to their mandate to provide charity care. And increased regulatory scrutiny is one of the policy recommendations that the Health Affairs authors make. They also contend that raising government subsidies for safety-net providers — such as the Medicaid disproportionate-share payments that go to the hospitals treating the lion’s share of poor patients — would help the situation. But, as I think everybody ought to know by now, they point out that the most direct way of fixing the problem is to expand insurance coverage. The best way to accomplish that is up for debate, I suppose, but whether we have to is no longer a question.
In The New Yorker recently, an article discussed antibiotic-resistant bacteria, strains that are so resistant they make an MRSA infection look like a walk in the park. So what does this have to do with quarterly earning reports? Well, drug companies have, by and large, pulled out of antibiotic research because it’s not where the money is. When you have shareholders to mollify, you direct your research platform toward blockbuster drugs. No matter how much we are going to need new antibiotics, they will never be profitable for drug companies (especially since overuse is what got us into this mess in the first place).
Richard Syron, the CEO of Freddie Mac, recently allowed that even if he had acted on 2004 warnings that the company was underwriting very high risk loans, there was little he could have done about it.
“This company has to answer to shareholders, to our regulator and to Congress, and those groups often demand completely contradictory things,” Mr. Syron said in an interview. But if Freddie and its sister, Fannie, had kept their underwriting standards tight, fewer bad loans would have been made and the subprime crisis could have been partially averted.
Never really healthy, the auto industry has been bleeding cash over the years, interspersed with short periods of remission. Now the cure — trucks and SUVs — has become the disease. Automakers grew too comfortable building for the “cheap gas” economy, even when interest was rising in hybrids and electric cars, and they marginalized their research in these new technologies. And that was before gas prices soared. Now they are playing catch up, but don’t expect changes any time soon. Gas prices have dropped a little, and the short-term mentality (i.e., quarterly earning reports) will come back into play.
The oil companies have been reaping record (some say windfall) profits. Each quarter as gas prices rise, so have their profits. Nice, huh? A port in the storm? But their business model is built on a non-renewable resource. Oil sands, offshore drilling, Arctic drilling … it doesn’t matter. The oil is going to run out. Instead of quarterly earnings, shouldn’t we be asking ExxonMobil and its ilk what their long-term plans are?
As Syron points out, companies answer to shareholders. At what point do we require companies to answer to the rest of us? As long as a company’s success is measured in quarters, can our industries build the products and provide the economic stability that the we need for the long term?