Healthcare Update
by Tim Meyer (TMF Attila)

McLean, VA (June 9, 1997) -- This week the Motley Fool Industry Snapshot feature looked at Large-Cap Pharmaceuticals. For those of you who do not subscribe to Industry Snapshot, you can get more information by visiting the Fool's Gold area of our site.

OUR POLITICAL HEALTH

THAT MAGIC MOMENT...

New Hampshire became the 33rd and Colorado the 34th state to sue the tobacco makers to recover the Medicaid costs of treating sick smokers. At the same time more states are jumping on the bandwagon, it appears that divisions within the anti-smoking camp may scuttle any possible settlement with the tobacco companies. Commenting on the possibility of a settlement, U.S. Senate Majority Leader Trent Lott said, "A magic moment comes, and if you don't get it, it's gone. I think they're on the edge of losing it just because they've let it drag on too long." The upcoming week could be make or break for any deal.

A SUING WE WILL GO

Every time I think I have figured out who the village idiot is, I read the paper or listen to the news and have to go refigure. Try these two. Investor's Business Daily had a little blurb on "a self-described milk-a-holic (who) sued the dairy industry, blaming whole milk for clogged arteries and a stroke." And then, there is the woman in Philadelphia who is suing her local pharmacy (and others) for false advertising and deceptive labeling (among other charges). Seems she put vaginal "jelly" on her toast and became pregnant because she didn't have time to read the directions (what was she doing while the bread was toasting?).

HEALTHCARE STOCKS IN THE NEWS

INVACARE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IVCR)") else Response.Write("(Nasdaq: IVCR)") end if %> announced that its wholly owned subsidiary I.H.H. Corp. has increased the price in its hostile tender offer for all outstanding shares of common stock of HEALTHDYNE TECHNOLOGIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HDTC)") else Response.Write("(Nasdaq: HDTC)") end if %> from $13.50 to $15.00 per share saying it was its "best and final" offer. The increased offer represents a premium of approximately 70% over Healthdyne's $8.88 stock price on the trading day before Invacare made its initial acquisition proposal. Invacare initially offered $12.50 a share that Healthdyne rejected. They then took a $13 a share offer to Healthdyne shareholders that received support from 18% of the shareholders. They then upped the offer to $13.50. For the week, Invacare was down $1/8 (0.6%) closing on Monday at $21 5/8, while Healthdyne was up $5/8 (4.2%) closing at $15 1/2.

The healthcare industry posted first quarter 1997 adjusted earnings growth of 11.4% on revenue gains of 15.0%, according to analysis released by WDI Capital Markets and KPMG Peat Marwick LLP's Health Ventures practice. The report looked at more than 850 public companies in three industry sectors: providers and services (earnings up 16.7%; revenues up 20%), biotechnology and pharmaceutical companies (earnings up 10.2%; revenues up 14.2%), and medical devices and supply firms (earnings up 10%; revenues up 8.6%).

Investor's Business Daily (IBD) reported nursing-home stocks, after a three-and-a-half- year plateau, moved to an all-time high this week. "Over the last three months, they've climbed from 141st to fifth in IBD's rankings of 197 industry groups based on six-month price performance."

BEVERLY ENTERPRISES, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: BEV)") else Response.Write("(NYSE: BEV)") end if %> announced the completion of the sale of its 49 skilled nursing facilities in Texas to Complete Care Services, L.P. for $142,500,000 in an all-cash transaction. Beverly said the net proceeds of the sale (approximately $115,700,000 after taxes and other costs) would be used to reduce debt. For the week, Beverly was up $5/8 (4.4%), closing on Monday at $14 3/4.

HUMANA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HUM)") else Response.Write("(NYSE: HUM)") end if %> announced that the company signed a definitive agreement to acquire PHYSICIAN CORPORATION OF AMERICA <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PCAM)") else Response.Write("(Nasdaq: PCAM)") end if %> for $7.00 a share plus the assumption of $130 million in debt, for a total consideration of approximately $400 million in cash. Physician Corp. has 1.1 million members and will result in Humana having approximately 6 million members and over $8 billion in annual premiums. The deal will assist Humana's position in Florida and Texas adding 324,000 members to Humana's 1.1 million in Florida and 337,000 members to Humana's 660,000 in Texas. Physician's membership breakdown by product type is 480,400 commercial, 597,600 Medicaid and 60,200 Medicare risk.

Most analyst comments I've seen were positive on the deal. I'm less sanguine. Last fall, SIERRA HEALTH SVCS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: SIE)") else Response.Write("(NYSE: SIE)") end if %> made an offer for Physician Corp. at about $13.00 a share but a series of negative news from Physician Corp. resulted in withdrawal of the offer. Humana has purchased troubled plans before including the 1994 purchase of Group Health Assoc., a 125,000-member HMO in Washington, D.C. Last year, Humana had "a management shakeup" after it cut its earnings forecast and sold a number of its "unprofitable" plans (including Group Health to Kaiser). While Humana already has a presence in the markets obtained from Physician Corp, this will be worth watching.

Humana also announced that it had reached a definitive agreement with ChoiceCare Corp., the largest HMO in Cincinnati, under which Humana will purchase all of ChoiceCare's outstanding shares of common stock for $16.38 a share, or a total consideration of $250 million in cash. The combined companies will have about 310,000 members in the greater Cincinnati area. ChoiceCare has 245,000 total members with about 195,000 in commercial plans and 50,000 in administrative service products. The ChoiceCare Foundation (a not-for-profit social welfare organization) owns nearly 91% of the company's outstanding shares with the remainder owned by individual shareholders, including physicians, other health care professionals and employees. ChoiceCare was identified as one of 13 health plans named to Sachs HMO Honor Roll for 1997 and was one of only two plans in the country to receive the award two years in a row. For the week, Humana was up $3/8 (1.6%), closing on Monday at $23 7/8, Physician Corp. was up $11/32 (5.5%), closing at $6 19/32, while Sierra Health was down $1 (3.1%), closing at $31 1/8.

PHARMACIA & UPJOHN <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: PNU)") else Response.Write("(NYSE: PNU)") end if %> and JOHNSON & JOHNSON <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: JNJ)") else Response.Write("(NYSE: JNJ)") end if %> agreed to an unusual product swap designed to strengthen their core drug lines. Under the agreement, Pharmacia & Upjohn will give the rights to its Motrin IB pain reliever and its antibiotic Mycitracin to Johnson & Johnson while obtaining Micatin athlete's foot preparation, PediaCare cold and allergy medication and Nasalcrom allergy medication from Johnson & Johnson. For the week, Pharmacia & Upjohn was up $1/8 (0.4%), closing on Monday at $35 1/8, while Johnson & Johnson was up $2 1/4 (3.8%), closing on Monday at $61 5/8.

FPA MEDICAL MANAGEMENT INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: FPAM)") else Response.Write("(Nasdaq: FPAM)") end if %> and HealthCap, Inc. announced that they have entered into a definitive agreement pursuant to which FPA Medical will acquire HealthCap in a stock-for-stock merger accounted for as a pooling of interests that is expected to close at the end of June. Terms of the agreement were not disclosed. HealthCap is a San Diego based company providing services to more than 297,000 capitated OB/GYN enrollees and 50,000 professional capitation enrollees in five states through a network of approximately 1,540 primary care physicians and 570 OB/GYN physicians. For the week, FPQ Medical was up $3 7/16 (17.2%), closing on Monday at $23 3/8.

PHYSICIAN SALES & SERVICES, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PSSI)") else Response.Write("(Nasdaq: PSSI)") end if %> announced a merger with Thompco Medical, Inc. and its subsidiary Medcor which distributes radiology and imaging equipment, chemicals and supplies and provides technical services to the acute and alternate site markets through two locations and serves the Arkansas, Mississippi and Tennessee markets. The agreement is a stock-for-stock transaction, to be accounted for as a pooling of interests, by issuing shares of Physician Sales' common stock with a value of $2.1 million, subject to adjustment. In addition, Physician Sales will assume approximately $1.9 million of outstanding Medcor debt. For the week, Physician Sales was unchanged, closing on Monday at $14 3/4.

ULTRAFEM, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: UFEM)") else Response.Write("(Nasdaq: UFEM)") end if %> announced it has reached agreements with three national chain drug retailers for the national distribution of INSTEAD(R). CVS CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CVS)") else Response.Write("(NYSE: CVS)") end if %>, RITE AID <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAD)") else Response.Write("(NYSE: RAD)") end if %> and REVCO <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RXR)") else Response.Write("(NYSE: RXR)") end if %> will begin distribution of INSTEAD during July-September 1997, adding 6,800 stores primarily located in the eastern half of the United States. For the week, Ultrafem was up $1 3/8 (9.5%), closing on Monday at $15 7/8, CVS was down $1/8 (0.3%), closing at $47 5/8, Rite Aid was up $1 1/8 (2.4%), closing at $47 1/4, and Revco was unchanged, closing at $42.

NOVEN PHARMACEUTICALS <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: NOVN)") else Response.Write("(Nasdaq: NOVN)") end if %> was the subject of a Motley Fool Daily Trouble feature on 6/6/97 which is worth a read. For the week, Noven was unchanged, closing at $7 3/4.

TRANSITIONAL HOSPITALS CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: THY)") else Response.Write("(NYSE: THY)") end if %> announced that the company is a target of a grand jury investigation arising from activities of the company's formerly owned dialysis business. The investigation involves purported Medicare fraud involving certain laboratory tests performed by a partnership that existed from June 1987 to June 1992 between Damon Corporation and the company. The company spun off its dialysis business, now called VIVRA INCORPORATED <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: V)") else Response.Write("(NYSE: V)") end if %>, on Sept. 1, 1989. The company is cooperating in the investigation. For the week, Transitional Hospitals was down $1/4 (1.6%), closing at $15 1/2 while Vivra was up $1/8 (0.4%), closing at $35 1/2.

BIOSOURCE INTERNATIONAL INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: BIOI)") else Response.Write("(Nasdaq: BIOI)") end if %> announced during a conference call with analysts that foreign exchange pressures may cause revenues and earnings for its second quarter to fall below analysts expectations ($0.10 a share). For the week, BioSource was down $1 5/16 (16.3%), closing at $6 3/4.

EARNINGS REPORTS

ROTECH MEDICAL CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ROTC)") else Response.Write("(Nasdaq: ROTC)") end if %> reported third quarter net income of $8.3 million, or $0.30 a share (a cent higher than estimates), on revenues of $109.4 million, compared to 1996 first quarter net income of $5.4 million, or $0.22 a share, on revenues of $73.0 million. For the week, RoTech was up $1 3/8 (8.0%), closing Monday at $18 1/2.

PHYMATRIX CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: PHMX)") else Response.Write("(Nasdaq: PHMX)") end if %> reported first quarter net income of $3.9 million, or $0.17 a share (a cent higher than estimates), on revenues of $70.2 million, compared to 1996 first quarter net income of $2.3 million, or $0.11 a share, on revenues of $37.3 million. For the week, PhyMatrix was up $1/8 (0.8%), closing Monday at $15.

MARQUETTE MEDICAL SYSTEMS, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: MARQA)") else Response.Write("(Nasdaq: MARQA)") end if %> reported fourth quarter net income of $6.8 million, or $0.40 a share (meeting estimates), on revenues of $143.9 million, compared to 1996 fourth quarter net income of $3.2 million (excluding restructuring charges), or $0.20 a share, on revenues of $140.3 million. For the year, Marquette Medical net income of $21.2 million, or $1.29 a share (meeting estimates), on revenues of $543.3 million, compared to 1996's net income of $13.3 million (excluding one time charges), or $0.82 a share, on revenues of $416.3 million. For the week, Marquette Medical was down $3/8 (1.6%), closing Monday at $22 3/8.

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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