Humana Tax Repeal, And Other News: The Good, Bad, And Ugly Of Healthcare

Jan. 07, 2020 9:44 AM ETHumana Inc. (HUM)ASXC, CLRB1 Like


  • Humana will benefit from Trump's tax repeal.
  • Cellectar receives an orphan drug designation.
  • TransEnterix tanks on some corporate updates.
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Humana (NYSE:HUM) had a pretty decent 2019 as its stock rallied over 30 percent, delivering solid returns to investors. I don't generally cover non-pharma stocks, but this rally, coupled with some interesting news lately, has made HUM an interesting stock to watch. While the company made strides in the market, a recent development with regard to health insurance fee repeal is likely to have a significant impact on the company's performance. The repeal is scheduled to come in force on January 1, 2021.

This repeal is a major Trump era change from the previous administration, with which, philosophically and in practice, the present regime has been at loggerheads. The scheduled to be repealed tax was imposed by the Obama administration on providers to subsidize the cost of insurance for uninsured individuals and families. However, it made business difficult for providers as their margins were hit by higher charges on account of this tax. While technically the repeal of the tax needs to be confirmed by the Senate as well, there is a very low likelihood of the repeal meeting any such obstacle there.

While Humana was not at the top of the list of companies hit by health insurance tax, it still ended up paying $1.04 billion in 2018. With the tax on its way out, the company can look forward to pad up its bottom line. The insurer had reported $1.2 billion in net income for the year 2018, so it is quite simple to do the maths and understand the implications of the tax repeal. The company had quoted the tax expense as one of the reasons behind its decision to lay off 2 percent of its national workforce late last year.

While commercial health insurers generally passed on a big chunk of the tax to their members by hiking their premiums; ultimately, they also paid the price in the lowering of demand for their products. Since Humana is quite active in the Medicare Advantage segment, it is expected to be one of the biggest beneficiaries of the repeal. Some analysts expect the company's earnings to jump by as much as 10 percent.

The repeal of the tax is expected to give a lift to Medicare Advantage enrollment. Currently, about 22 million, constituting nearly a third of Medicare beneficiaries, are a part of Medicare Advantages plans. Once the tax is repealed, it is likely that the providers may use the savings for offering benefits for the enrollees. According to a report by Oliver Wyman Actuarial Consulting commissioned by UnitedHealth Group (UNH), health insurers padded up their premiums by nearly 2 percent to compensate the increased expenditure on the tax.

Healthcare industry has been marred by high federal income tax rates. The repeal of Health Insurance Tax, along with Cadillac tax is expected to bring some breather to the ailing industry.

The Good

Cellectar Biosciences (CLRB) stock shot up as the company announced receiving Orphan Drug tag in the United States for its lead drug candidate CLR 131. The drug candidate is being developed for treating a slow growing type of non-Hodgkin lymphoma called lymphoplasmacytic lymphoma.

The company is currently carrying out a Phase 2 study CLOVER-1 for evaluating the potential of the phospholipid ether-drug conjugate in a range of blood cancers, including lymphoplasmacytic lymphoma. Its primary endpoint is clinical benefit response (CBR), with additional endpoints of overall response rate (ORR), progression free survival (PFS), median overall survival (OS) and other markers of efficacy following a fractionated dose of 37.5mCi/m2 of CLR 131 administered in two 30-minute infusions

The ODD is given to the therapies which target conditions that affect fewer than 200,000 people in the U.S. Among various benefits provided by the tag are seven years of market exclusivity, tax credits for certain research, a waiver of the New Drug Application user fee, and increased engagement and assistance from the FDA.

CLR131 already has Orphan Drug designation for the treatment of multiple myeloma by both the U.S. and the European Commission. It also has Orphan Drug and Rare Pediatric Disease designations for the treatments of neuroblastoma, osteosarcoma, rhabdomyosarcoma, and Ewing's sarcoma.

The Bad

TransEnterix (TRXC) tanked as the company provided year end corporate update. It reported obtaining regulatory approval for the Senhance System and reimbursement for 98 procedures. The company also started a European limited market release of 5mm articulating instruments. TransEnterix disposed of its AutoLap laparoscope positioning system and related assets for $17 million.

During the quarter ending December 31, 2019, the Company expects to report preliminary unaudited revenue of nearly $0.6 million. For the full year, preliminary unaudited 2019 revenue is expected to be in the range of $8.3-8.5 million, representing revenues from the sale of a total of three Senhance Systems and related revenues from consumables and service contracts.

Anthony Fernando, President and CEO of TransEnterix said, "The challenges we faced in 2019 shouldn't overshadow the significant progress we made in putting the pieces in place to make 2020 a transformative year for TransEnterix." The company stated that in 2019, 1,600 procedures were carried out using the Senhance System, representing a 194% increase over the previous year.

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