Healthcare Update
by Tim Meyer (TMF Attila)

McLean, VA (June 2, 1997) --

OUR POLITICAL HEALTH

IT TAKES A VILLAGE TO BAN A CAMEL

Fools may recall that last month a federal judge in North Carolina ruled that the Food and Drug Administration (FDA) did have the right to regulate tobacco but struck down its restrictions on tobacco advertising. This week in bureaucratic piling-on, the Federal Trade Commission (FTC) filed an unfair advertising complaint against RJR Nabsco Holdings Corp.'s R.J. Reynolds Tobacco unit, alleging that Joe Camel illegally gets children to smoke Camels. The FTC assures us that it has taken this action in order to protect "our children." I'm concerned with the village people going after Joe Camel not because I'm a Joe Camel fan but because I wonder who or what could be next (Budweiser frogs, Smokey the Bear, Bud Ice penguins, Garfield?).

This week also saw New Mexico's attorney general became the thirty-second to file suit against the tobacco companies. The Wall Street Journal ran an article that, among other things, reported on a "national summit of hundreds of antismoking activists near Chicago" (how does one make a living as an antismoking activist?) and that attorneys general in Iowa, Connecticut, Maryland, Wisconsin and Minnesota are not happy with a possible settlement. The discord within the anti-tobacco forces over whether to give tobacco companies immunity from punitive damages has stalled the talks. Shockingly, another reported sticking point is, who gets the money? Evidently, state officials want two-thirds of any industry payout and the plaintiffs' lawyers want half of the loot. Plaintiffs' lawyers include Hugh Rodham, brother of First Lady Hillary Rodham Clinton, and Richard F. Scruggs, brother-in-law of Senate Majority Leader Trent Lott. What a coincidence!

HAVE YOU DONE YOUR FAIR SHARE? GUESS NOT.

The Clinton administration has officially proposed that payments be frozen to hospitals in the Medicare program next year to help meet the goal of balancing the federal budget. In making the announcement, Health and Human Services Secretary Donna E. Shalala (village medicine woman) said in a statement, "Medicare must become an increasingly prudent purchaser of health care services, and those who provide services to Medicare beneficiaries must do their fair share toward a balanced federal budget by increasing their efficiency and effectiveness" (trial lawyers' fair share toward a balanced federal budget were not addressed). The proposal requires congressional action, otherwise a 2.8% increase in Medicare payment rates will go into effect October 1.

IF AT FIRST YOU DON'T SUCCEED...

Health Care Financing Administration (HCFA) Administrator Bruce Vladeck says his agency will continue to support the proposed competitive bidding demonstration project for Medicare HMOs. He said HCFA plans to announce the third site for the project in late fall. This is the program that never got off the ground last year in Baltimore and this year's test in Denver is being held up by a temporary court order.

HEALTHCARE STOCKS IN THE NEWS

Swiss pharmaceuticals company Roche Holding Ltd. announced it will acquire Corange Ltd., the privately-held parent company of Boehringer Mannheim Group and the American DEPUY INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: DPU)") else Response.Write("(NYSE: DPU)") end if %> for about $11 billion. Corange Ltd. controls the shares of the German diagnostics company Boehringer Mannheim and holds 84.2% of the shares of DePuy, which makes artificial joint and orthopedic products. The acquisition would move Roche past ABBOTT LABORATORIES <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: ABT)") else Response.Write("(NYSE: ABT)") end if %> as the world's leader in medical diagnostics. The merger requires regulatory approval. For the week, DePuy was up $5/8 (2.7%) closing Monday at $24 1/8, while Abbott was down $1 3/8 (2.1%) closing at $62 5/8.

UROHEALTH SYSTEMS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UROH)") else Response.Write("(Nasdaq: UROH)") end if %> and HEALTHSOUTH CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HRC)") else Response.Write("(NYSE: HRC)") end if %> have agreed to participate in an agreement in which UROHEALTH, through its Surgical Division, will provide disposable and multi-use minimally invasive surgical instruments to Health South's 145 surgery centers. The three-year agreement began June 1, 1997 and includes two one-year extensions. For the week, UROHEALTH was down $1/4 (2.9%), closing Monday at $8 1/2, while HealthSouth was up $1 7/8 (8.5%), closing at $23 7/8.

VISX INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VISX)") else Response.Write("(Nasdaq: VISX)") end if %> announced it had settled a patent lawsuit it initiated against LASERSIGHT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: LASE)") else Response.Write("(Nasdaq: LASE)") end if %> in Canada. VISX said it would drop the lawsuit and has granted LaserSight a license to use certain VISX patents for laser vision correction outside the United States. LaserSight will pay royalties to VISX on previous as well as future sale of laser vision correction systems worldwide. The amounts of the royalty payments were not disclosed. For the week, VISX was up $3 3/8 (14.1%), closing at $27 3/8, while LaserSight was down $1/4 (3.7%), closing at $6 1/2.

SUN HEALTHCARE GROUP, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SHG)") else Response.Write("(NYSE: SHG)") end if %> and RETIREMENT CARE ASSOCIATES, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RCA)") else Response.Write("(NYSE: RCA)") end if %> announced that they have amended the terms of their merger agreement. The amendment changes the number of shares of Sun common stock that will be issued for each share of Retirement Care Associates common stock from 0.6625 to 0.68265, to reflect an agreement for Sun to retain Retirement Care's ownership interest in IN-HOUSE REHAB CORPORATION (OTC: IHRB). For the week, Sun Healthcare was up $1 1/2 (9.8%), closing at $16 7/8, while Retirement Care was up $1 (11.0%), closing at $10 1/8. In-House Rehab was up $0.70 (25.5%), closing at $3.45.

Caremark International, a wholly owned subsidiary of MEDPARTNERS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MDM)") else Response.Write("(NYSE: MDM)") end if %>, and the defendant in a suit filed by CORAM HEALTHCARE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CRH)") else Response.Write("(NYSE: CRH)") end if %> has learned that Coram has reduced its $5.2 billion claim against Caremark to a maximum of $300 million. The lawsuit is based on Coram's acquisition of Caremark's home infusion business in 1995 for $309 million. For the week, MedPartners was down $1/4 (1.3%), closing at $18 3/4, while Coram was down $1/8 (4.8%), closing at $2.1/2.

COPLEY PHARMACEUTICAL, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CPLY)") else Response.Write("(Nasdaq: CPLY)") end if %> has agreed to plead guilty to a one-count criminal Information charging it with conspiring to defraud the United States and its agency, the FDA, and to pay $10.65 million as a criminal fine. If the plea is accepted by the court, this would be the largest ever paid by a generic drug manufacturer nationally. The company is revising its reserve for product-recall and litigation expenses. The impact of this adjustment will be an after-tax charge to earnings of $2 million or $0.10 a share, and will be taken in the current quarter. The fine will be paid in three installments over a period of two years. For the week, Copley was down $1/4 (3.7%), closing at $6 1/2.

HUMANA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HUM)") else Response.Write("(NYSE: HUM)") end if %> became the latest company to announce open access products that let members seek specialist care without a referral. "HumanaFreedom Plans" will contain the low out-of-pocket costs associated with HMOs without the need for a referral from the member's primary care doctor. A variation of the plan, "Humana Freedom Plus," will also provide benefits for members using doctors and hospitals outside the health plan's provider network. The HumanaFreedom plans will be offered to Humana's commercial customers. For the week, Humana was up $1 1/2 (6.9%), closing at $23 1/4.

CARDINAL HEALTH, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAH)") else Response.Write("(NYSE: CAH)") end if %> announced that it has signed a definitive agreement with privately owned MediQual Systems, Inc., a supplier of clinical information management systems and services to the healthcare industry with annual revenues of approximately $11 million. The transaction calls for MediQual shareholders to receive Cardinal common shares for all of their MediQual stock, and is valued at approximately $31 million. The merger is expected to be completed later this summer and to be accounted for as a pooling of interests. For the week, Cardinal was up $1/8, (0.2%) closing at $58 1/8.

UNITED DENTAL CARE, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UDCI)") else Response.Write("(Nasdaq: UDCI)") end if %> announced that for the month of April operating results were substantially below internal expectations even though revenues were at expected levels and will result in second quarter results significantly below current analyst estimates ($0.33 a share). The results were attributed to a substantial loss on a Medicaid contract in Arizona and a substantially greater-than-anticipated level of indemnity claims payments. Randy Befumo (TMF Templr) wrote an interesting piece on the subject in The Evening News 5/27/97 which I recommend you read. For the week, United Dental was down $7 5/8 (31.1%), closing at $16 7/8.

DURAMED PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRMD)") else Response.Write("(Nasdaq: DRMD)") end if %> was written up in the Motley Fool's Daily Trouble feature 05/27/97 and it is also worth a read. For the week, Duramed was unchanged closing at $3 5/8.

PHYSICIAN CORPORATION OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCAM)") else Response.Write("(Nasdaq: PCAM)") end if %> announced today that it is in negotiations with a third party that provides for the acquisition of all the outstanding shares of common stock for $7.00 a share in cash. The sale transaction contemplates resolution of the company's insolvent property and casualty subsidiary. The identity of the potential buyer was not disclosed. For the week, Physician was unchanged, closing Monday at $6 1/4.

INCYTE PHARMACEUTICALS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: INCY)") else Response.Write("(Nasdaq: INCY)") end if %> announced the signing of a multi-year genomic database partnership with GLAXO WELLCOME <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GLX)") else Response.Write("(NYSE: GLX)") end if %>. Details of the specific products licensed and financial terms of the agreement were not disclosed. For the week, Incyte was up $7 1/2 (12.6%), closing at $67, while Glaxo was up $3/8 (1.0%), closing at $39 3/4.

ELI LILLY AND COMPANY <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: LLY)") else Response.Write("(NYSE: LLY)") end if %> and Millennium Bio Therapeutics, Inc., a newly formed subsidiary of MILLENNIUM PHARMACEUTICALS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MLNM)") else Response.Write("(Nasdaq: MLNM)") end if %> announced that they have entered into collaboration for the discovery and development of novel therapeutic proteins. The agreement covers a three-year program with Lilly providing $8 to $10 million in research funding per year with a provision to extend up to an additional two years at the same level of funding. Lilly has also agreed to make a $20 million equity investment in exchange for approximately 18% of the issued and outstanding shares of Millennium Bio Therapeutics. For the week, Millennium Pharmaceuticals was up $2 1/8 (14.8%), closing at $16 1/2, while Lilly was down $1 3/8, (1.5%) closing at $91 5/8.

EARNINGS REPORTS

HEALTH MANAGEMENT SYSTEMS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HMSY)") else Response.Write("(Nasdaq: HMSY)") end if %> reported second quarter net income of $281,000 (including a one-time reversal of accrued taxes and interest with a positive after tax affect on net income of $1.6 million or $0.09 a share), or $0.02 a share (below estimates of $0.13 a share), on revenues of $20.1 million, compared to 1996 second quarter net income of $3.1 million, or $0.17 a share, on revenues of $25.7 million. The company pre-announced the results on May 22, 1997, and the stock fell $1 3/8 (20%) on Friday, May 23. For the week, Health Management Systems was up $1/2 (9.1%), closing Monday at $6.

That will wrap it up for this week. Please share any comments/suggestions on how to improve this feature via e-mail (TMF [email protected]). Also let me know if you would like the update forwarded to your email address. In the meantime, here is hoping your investments are healthy!

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