Wall Street Prepares for Public Healthcare Reforms

Ultimately, the unknown results of U.S. healthcare reforms is like shooting dice in Las Vegas as tax-payers and small companies that employ 62% of Americans wonder just how it will effect their wallets. Still most agree, with healthcare costs almost 17% of U.S. GDP, industry reform must happen particularly in light of the Obama administration’s unwavering political gamble that now must produce some measure of reform.

Monday, preparation for the coming reform is already underway on Wall Street with drugmaker Eli Lilly & Co. (LLY) announcing it will eliminate over 5,500 jobs and reorganize into five business units in an effort to slash costs and speed up development of potential new drugs. Lilly hopes to cut annual costs by $1 billion per year over the same time, and will organize itself into five units: cancer, diabetes, established markets, emerging markets, and Elanco, its animal health business. Key Lilly products like the anti-psychotic drug Zyprexa will lose patent protection starting in 2011.

Bristol-Myers Squibb Co. (BMY) announced the completion of the $2.4 billion acquisition of Medarex, Inc. The deal was funded by Bristol-Myers from available cash. Medarex is set to become a wholly-owned subsidiary of Bristol-Myers.

A growing number of deals now involve foreign companies such as Japanese pharmaceutical company Dainippon Sumitomo Pharma Co., Ltd. reporting that it signed a definitive agreement to buy U.S. pharmaceutical company Sepracor Inc. (SEPR). The deal has been valued at $23 per share or $2.6 billion. Recent, takeover rumors led to a 26.46% increase in Sepracor’s stock price shares.

The Sepracor acquisition is the latest in a series of deals conducted by Japanese companies that are looking to tap the U.S. pharmaceutical market including Eisai’s acquisition of MGI Pharma, Takeda’s acquisition of Millennium Pharma and Shionogi’s acquisition of Sciele. Finally, Daiichi-Sankyo acquired a stake in India’s Ranbaxy Labs.

The trend of foreign healthcare ventures continued with Amylin Pharmaceuticals, Inc. (AMLN) announcing an exclusive agreement with Indian biotech company Biocon Limited for the development, commercialization and manufacture of a novel peptide therapeutic for the potential treatment of diabetes.

On the political front, the Obama administration is preparing to pass its alleged cost-saving universal healthcare reform which promises to impose a new set of rules and restrictions on the industry’s players. Already, the U.S. pharmaceutical industry has been coerced into offering billions in cost reductions over the next ten years. They may also be forced to compete with generic imports, which would effectively put a cap on domestic drug prices. Obama also sketched out a vision for the plan to make it illegal for insurers to drop sick people or deny them coverage for pre-existing conditions, and every American would be required to carry health coverage similar to a driver’s license or auto insurance.

The U.S. Senate version would expand coverage by requiring individuals to get insurance and employers to contribute to the cost. In the House, the Democrat bill would cost between $1 trillion and $1.5 trillion over 10 years and raise taxes by $540 billion for couples earning more than $350,000 a year. Critics charge the plan is inefficient, creates unnecessary bureaucracy, and imposes mandates and tax hikes on small businesses to pay for it.

Despite all its risks and drawbacks, though, healthcare is still a very good business. Aside from helping people and saving lives (no small feat), there are notable benefits to being part of the industry as healthcare is a quintessential defensive sector. People still get sick during recessions and they will often continue paying for medicine and treatment even when they cut back on other things.

The number of people without insurance coverage rose from 45.7 million in 2007 to 46.3 million in 2008. Despite that increase, the percentage of uninsured in the population remained unchanged at 15.4 percent. But with growing unemployment, it’s likely that it jumped again this year. [Source: U.S. Census Bureau]

A new study in Health Affairs concludes that CMS‘ decision to stop paying for hospital-acquired conditions, such as infections and bedsores, will reduce program costs very little. Based on California data, the researchers estimated that Medicare would save less than $3 million per year. This is pretty amazing, considering that each year, about 1.7 million people catch infections in the hospital and that 99,000 of them die as a result. [Source: Wall Street Journal]

During the past year, hospital associations promised President Obama that their members would lower Medicare costs by $155 billion over 10 years to help fund healthcare reform. Now the 5,700 hospitals across the country are looking at how they will do that. Each of them will have to cut $2.6 million annually, on average. While this is going to be difficult for some-especially with half of the hospitals said to be losing money-hospital executives admit that their organizations are rife with inefficiency and waste. [Source: USA Today]

Convenient care clinics, which started out treating only minor acute problems, are starting to expand into chronic disease care. Walgreens’ Take Care (WAG) chain has begun offering asthma and osteoporosis treatment on a pilot basis in Tampa and Orlando. And at some of CVS’ Minute Clinics (CVS), nurse practitioners are offering teenagers advice on acne. While this is just the proverbial camel’s nose under the tent, and retail clinics have not expanded to the extent that was predicted, primary-care physicians will watch this development warily. [Source: Wall Street Journal]

Further, research shows the market for medical automation technology will grow from $13.1 billion this year to $23.2 billion in 2014. Medical automation technology includes therapeutic processes, diagnostics and monitoring, and logistics and training. Examples include patient monitoring kiosks, surgical robots, and automated lab testing and analysis. The therapy segment is currently the largest, with $9.5 billion in sales. The diagnostic and monitoring segment is currently worth $3.3 billion, and the logistic and training market, $272 million. Hospitals are the most important customers for medical automation technology. [Source: Healthcare Finance News]

The 2009 Healthcare Industry Study, released by the Milliken Institute found that 109 million Americans suffered from one or more of the most common, chronic diseases, including cancer, diabetes, heart disease, pulmonary conditions, mental disorders, stroke or hypertension. This means that more than one-third of all Americans have these conditions to one degree or another. The study estimated that one year's cost of treatment of these conditions at $277 billion, but estimated lost economic productivity to be vastly higher at $1 trillion. In other words, lost work and lost output due to these illnesses is reducing the nation's GDP by about 10%. These burdens could be vastly reduced through better consumer practices and better preventative medicine. For example, obesity, lack of exercise and cigarette smoking are immense contributors to these diseases. The U.S. Surgeon General estimates that obesity alone results in 300,000 American deaths and $117 billion in health care costs each year.

Conclusion
The healthcare sector in the U.S. over the next 12-months will continue to consolidate with budget pressures driving political policy and cost effective medical solutions. The market as a whole will see growth of 7% or more annually as 98 million baby boomers retire within five years. The fragmented medical diagnostic lab sector, digital medical records technologies and medical imaging niche markets remain ripe for M&A activity.

As shown in the chart below, every size category of U.S. small business except for 100 to 499 employees, a smaller share of the labor force was employed in 2006 than in 1988. And even the 100 to 499 employee category increased its share of the labor force by only 0.1 percent. Today, over 15 million Americans are unemployed at a rising rate of 9.8%.

The focus is now on how the Obama administrations healthcare reforms will impact the ability of small business owners to hire employees and reduced large company profits reflected on Wall Street with subsidized government competition, mandatory coverage requirements and price regulations. If it mandates every American must have coverage, it may in fact increase the number of paying patients. However, at best we can hope the impact of reforms that contain profits will be minimal on Wall Street stock prices.

DISCLOSURE: NONE

Comments

[Daniel Mark...:]

Eli Lilly has received a huge criminal fine over their Zyprexa cash cow,add it all up comes to $4.6 billion, in Zyprexa settlements,fines,liti...
We put Lilly products in our babies they really need to clean up their act and quit with the white wash.
Eli Lilly Zyprexa can cause diabetes
I took Zyprexa a powerful Lilly schizophrenic drug for 4 years it was prescribed to me off-label for post traumatic stress disorder was ineffective costly and gave me diabetes.
This is a powerful drug that can damage a young person physiologically for life.
Please take with caution and learn as much as you can about side effects.
Daniel Haszard www.zyprexa-victims.com

Sep 15 09:30 AM

[Joe Duggins:]

Preventing disease is quite different from creating health. The term preventive medicine is an oxymoron that is accepted as normal. Medicine was never designed to create health and wellness, yet it also never allowed any other type of practicioners to focus in this area. Medical education is one spoke in the wheel of the healthcare system and has attempted to dominate the market place for over a century by assuming that the term medicine is all encompassing. There are many healthcare providers that are extremely well trained in the healing arts and science, that do not go through the traditional medical model of education. That lack of awareness of this in the statement shows that Senator Kennedy may not have a complete grasp of why the system is broken in the first place.

Early and possibly free tests are nothing new and usually are code words for someone else paying. It also usually means that the treatments options will be increases in dispensing medicine and surgeries. Using words like wellness but not understanding them become buzz terms for marketing firms yet do nothing to actually help right the ship.

Big pharma, which has destroyed any idea of Americans taking responsibility for their own outcomes, our corrupt agricultural businesses and stock price driven insurance companies are too powerful and insidious for any reform to add up to much. As we watch oil prices rise and fall, Americans are having their attention diverted as hundreds of thousands of people die because of medical mistakes every year in this country. The miracle of modern medicine brings back memories from The Wizard Of Oz with the man behind the curtain. At this point in our history it is imperative that we make it a Health Revolution.

We need to join together as health providers of all disciplines, consumers and leaders to go through the most difficult challenge we will face in our lifetimes. Empowering people to realize that they can create health largely by the decisions they make day to day. A large part of the Revolution should include a spoke of the wheel being in charge of the wellness arena that is separate and distinct from medicine yet working for the ultimate benefit of the patient.
------------------
Money without intelligence is like a car without a road.
www.intelligentinvesti...

Sep 15 05:49 PM

[YoYoMama:]

Here, here. Round of applause.

"Alternative medicine" is really nothing more than healthy diet, exercise, relaxation techniques, and applying natural solutions to health issues.

The medical community has given alternative medicine a bad name out of ignorance and deception. The truth is, if all Americans would simply eat healthier, exercise, relax/meditate/pray, and look for a natural solution to their ailments, doctors and drug companies would suffer mightily.

We still need the medical community to tackle non-elective illnesses. We will always have cancer, tumors, blood clots, etc. But these extremes are not what ails our country. It is ELECTIVE illnesses stemming from obesity and body abuse (smoking, drinking).

We do not need more doctors. We need more access to what is currently called "alternative medicine", which is simply a derogatory term for simple common sense and what previous generations used for general health care.

On Sep 15 05:49 PM Joe Duggins wrote:

> Preventing disease is quite different from creating health. The term
> preventive medicine is an oxymoron that is accepted as normal. Medicine
> was never designed to create health and wellness, yet it also never
> allowed any other type of practicioners to focus in this area. Medical
> education is one spoke in the wheel of the healthcare system and
> has attempted to dominate the market place for over a century by
> assuming that the term medicine is all encompassing. There are many
> healthcare providers that are extremely well trained in the healing
> arts and science, that do not go through the traditional medical
> model of education. That lack of awareness of this in the statement
> shows that Senator Kennedy may not have a complete grasp of why the
> system is broken in the first place.
>
> Early and possibly free tests are nothing new and usually are code
> words for someone else paying. It also usually means that the treatments
> options will be increases in dispensing medicine and surgeries. Using
> words like wellness but not understanding them become buzz terms
> for marketing firms yet do nothing to actually help right the ship.
>
>
> Big pharma, which has destroyed any idea of Americans taking responsibility
> for their own outcomes, our corrupt agricultural businesses and stock
> price driven insurance companies are too powerful and insidious for
> any reform to add up to much. As we watch oil prices rise and fall,
> Americans are having their attention diverted as hundreds of thousands
> of people die because of medical mistakes every year in this country.
> The miracle of modern medicine brings back memories from The Wizard
> Of Oz with the man behind the curtain. At this point in our history
> it is imperative that we make it a Health Revolution.
>
> We need to join together as health providers of all disciplines,
> consumers and leaders to go through the most difficult challenge
> we will face in our lifetimes. Empowering people to realize that
> they can create health largely by the decisions they make day to
> day. A large part of the Revolution should include a spoke of the
> wheel being in charge of the wellness arena that is separate and
> distinct from medicine yet working for the ultimate benefit of the
> patient.
> ------------------
> Money without intelligence is like a car without a road.
> www.intelligentinvesti...

Sep 16 10:22 AM