Healthcare Reform, M&A Likely to Focus on Preventative Medicine

by: Mike Havrilla

One of the major reasons behind Pfizer's (NYSE:PFE) interest in acquiring Wyeth (WYE) is the latter's focus on products outside of traditional pharmaceuticals – with 60% of Wyeth's revenue from last year derived from biological therapeutics and vaccines. It remains to be seen what happens to Wyeth's proposed deal to acquire Dutch vaccine maker Crucell (NASDAQ:CRXL); however since it is much smaller (around $1B) and focuses on the development of vaccines, Pfizer would likely be interested in both companies together.

With the focus on preventive medicine likely continue in the form of continued M&A, healthcare reform to emphasize cancer screening tests, and a trend toward personalized medicine; the two tables included below highlight about 100 U.S.-listed companies involved in a variety of preventive medicine businesses. The first includes 67 companies in the ETF Innovators Preventive Medicine Index, which is comprised of the following healthcare business segments:

  1. Vaccine makers such as Crucell, Emergent BioSolutions (NYSE:EBS), Novavax (NASDAQ:NVAX), Vical (NASDAQ:VICL), and Nabi Biopharma (NASDAQ:NABI)
  2. Diagnostics and lab services – with 33 companies highlighted in my article from last week, in addition to Celera (NASDAQ:CRA) which was not mentioned
  3. Diabetes care companies such as Novo Nordisk (NYSE:NVO) and Insulet (NASDAQ:PODD)
  4. Preventive health and wellness program administrators such as Healthways (NASDAQ:HWAY)
  5. Safety and sterilization companies such as Stericycle (NASDAQ:SRCL), Ecolab (NYSE:ECL), Steris (NYSE:STE)
  6. Outpatient medical centers which perform diagnostic screening tests such as AmSurg (NASDAQ:AMSG)
  7. Research tool companies which supply equipment, systems, and supplies to the diagnostics industry such as Life Technologies (NASDAQ:LIFE), Illumina (NASDAQ:ILMN), and Affymetrix (NASDAQ:AFFX)

The table below includes 39 companies in the Emerging Diagnostics Index, which represents smaller companies with market caps below $150M.

Electro-Optical Sciences (MELA) – MELA has pending clinical trial results for MelaFind diagnostic screening test for melanoma, which will support a FDA application if positive.

EXACT Sciences (NASDAQ:EXAS) – EXAS has an all-stock $1.50 per share exchange offer on the table from Sequenom (NASDAQ:SQNM), which was turned down by EXACT's Board on the grounds of pursuing a more lucrative deal for shareholders – who eagerly anticipate more details as there have been none since the refusal was announced nearly two weeks ago.

CombiMatrix (NASDAQ:CBMX) – CBMX is a molecular diagnostics company with 12 tests on the market which is developing a comprehensive cancer array that is designed to be an early warning detection system for a broad range of cancers. The blood test would be given at annual physicals and CBMX hopes to launch by mid-2010.

Home Diagnostics (HDIX) HDIX has increased by about 25% since I profiled the stock in mid-December as a value buy and the Company recently announced a new $5M share repurchase program, which should help establish a higher stock price base around the $6 level as it progresses through short-term challenges associated with new product launches.