In case you haven't gotten the memo, these are challenging economic times. Oh, and healthcare, which has traditionally been viewed as recession-proof, is feeling the pinch too. That theme was clear throughout the 4th annual Nasdaq OMX Healthcare Forum, co-sponsored by Leerink Swann, in New York early last month.
"We're not sure whether anyone has gotten the message yet that this is a challenging environment. If anyone has any doubts about that, we've stated it at least 10 or 20 times during the course of the discussion," Jonathan Gertler, MD, managing director and head of biopharma banking at Leerink Swann, said during a webcast afternoon panel he moderated called, "alternatives for creating value in a challenging time."
But that overall theme of the forum emerged much earlier in the day, with Daniel Dubin, MD, vice chairman at Leerink Swann, repeating the phrase, "These trying times" several times during his welcome and keynote address.
"When one looks at the industries where the U.S. provides true leadership, healthcare has to be at the top ... this is an area where we still lead on the development and the commercialization front," Dubin said.
"It's critical that we think about how to fund this innovation and restore some order to the capital markets that bridge these companies to points of success so we can sustain this leadership."
On the plus side: there is an aging population to consume more healthcare; the promise of expanding health coverage; better educated and more avid consumers; and a strong culture of entitlement to quality healthcare.
On the flip side: patent expiries on drugs and generic threats; FDA approval process - higher hurdles to market entry, decreased visibility into product approval standards, increased focus on safety leading to more expensive trials; biogenerics and drug reimportation; cost control measures by payors; and reimbursement pressure that may accompany healthcare reform.
"Historically, healthcare has been a defensive haven in tough capital markets, as one can see investors have relied upon the relative stability of healthcare stocks to help them weather through tough market environments, there's been relatively decreased volatility and even in tough markets some degree of absolute return," Dubin said.
But that's no longer the case. "In today's trying times, while one can see that healthcare indexes are doing relatively better ... on an absolute basis healthcare has not been a place to hide. As one can see, there's been substantial decline even in healthcare stocks," he said, pointing to another slide. "The tough capital markets have created a difficult situation."
Despite this, "it's absolutely critical that we find ways to help fund these companies," Dubin said.
During the discussion Gertler moderated, panel member Arthur Klausner, a partner at Pappas Ventures, said his firm is starting to ask its portfolio companies to focus on one lead product or program, rather than trying to manage a diversified product offering.
"If you look at the stock market and you look at what's happened when the lead program fails and a company goes down below cash that's the market saying, 'yeah, yeah, yeah, it'd be great if you have a diverse product offering and we'll pay attention to that if your lead product seems to be working, but if your lead product goes we're really not interested'," Klausner said.
"We're really asking our companies to slim down the number of projects that they're doing to work in a virtual or semi-virtual mode in order to conserve as much cash as possible," he said. "And from our part, we're trying to work alongside likeminded deep-pocketed syndicate investors so we don't get caught in a situation where lack of cash forces us and the company to go back to the private markets sort of hat-in-hand and say 'what do you think this is worth, we don't have any other offers so please put something on the table'."
But for some companies, focusing on one development program may be easier said than done, as panelist Ken Zuerblis, CFO of ImClone Systems (New York), pointed out.
"It's very hard to be a one-product company out there," Zuerblis said. "This is a very difficult business and I understand focus ... as you start to get larger, to attract the kind of talent you need you have to have something for those scientists to fall on as you get further."
Another member of that panel, Randall Mills, CEO of Osiris Therapeutics (Columbia, Maryland), offered up his company's secret to success.
"Creativity is very important for us, execution is very important to us, and doing it in a way which is non-dilutive," Mills said. "We are a company that believes very strongly in a pay-as-you-go, we're not a 'Field of Dreams' company where if you build it they'll come, we really believe in creating our own value and doing it as creative as possible."
Despite the "trying times" that were such a theme throughout the Nasdaq OMX Healthcare Forum, Klausner said that with careful consideration of the risks, the current economic environment does present some opportunities.
"We think that now is a great time to buy, so to speak, or invest, but you have to do it carefully ... you want to be paid off on that [key risk]," Klausner said.
Wheelchair maker ponders exit
A Nov. 14 warning letter to Eagle Parts & Products (Augusta, Georgia), a firm that makes wheelchairs in addition to non-medical mobility equipment, cited the firm for two deviations from the quality systems regulations that were cited in the previous inspection of June 2006. However, the agency also cites two instances of wheelchair failures that could have resulted in injuries, but which were not reported to the agency as medical device reports (MDRs).
Eagle also makes golf carts, which apparently is a better trade to ply. According to the company's president, so-so returns on its wheelchair business are forcing a review of that part of company operations.
According to FDA, company management had neither established a quality policy nor appointed a management representative to oversee the implementation of a quality system (QS), which the warning letter states "is a repeat ... from our previous inspection of your facility" in June 2006.
The company apparently had a procedure for reviews of device history records, but FDA noted that as the sole element of a quality system, it was inadequate to meet the overall QS requirements. FDA notes that this condition also is a carry-over from the June 2006 inspection.
The warning letter also cited the company for failure to report an incident to FDA in which a powered wheelchair's battery "started smoking and caught fire." The patient was not injured, but FDA states the company had no documentation "to show that the incident was investigated." Another incident, which involved "a seat that broke off" a powered wheelchair, was also described as not having been reported as an MDR.
Frank Dolan, the firm's president, told BB&T early last month, "We wrote our response to the warning letter" and are waiting to hear from the agency. Regarding the battery incident, he said, "We dropped everything we were doing and put as much attention as we could" into the incident, but they found out later "there was no fire." He said the FDA investigator "would not let that go."
Dolan said the report was filed by someone "who was three or four people removed from the end user," adding that the battery charger "got hot and smoked, and a circuit-breaker terminated the charger," as intended. Eagle returned the charger to the manufacturer.
He noted that the company has "never had an injury or a lawsuit." He also indicated that the powered wheelchair business is "not very lucrative," and when asked whether he was thinking of getting out of the powered wheelchair business, Dolan said, "Yes we are, absolutely."
GE, Philips plan job cuts
Two of the world's largest medical products companies, GE Healthcare (Waukesha, Wisconsin) and Royal Philips Electronics (Amsterdam, the Netherlands), reported in late November and early December plans for substantial job cuts in response to the world economic crisis.
Philips reported that it will lay off 5% of its workforce at its Philips Healthcare division (Best, the Netherlands/Andover, Massachusetts) as part of an accelerated cost savings push sparked by the global economic slowdown.
GE Healthcare said it plans to eliminate an unspecified number of jobs across its various locations and business units, according to the Business Journal of Milwaukee.
"To strengthen the company to better perform in the current economic environment and position it for profitable long-term growth, GE Healthcare is announcing plans to reduce costs including downsizing our work force," GE Healthcare spokesman Brian McKaig said.
McKiag blamed an overall weakness in the U.S. and a number of Western European healthcare markets for the pending cuts. Governments, insurance companies and state legislatures also are taking a number of actions aimed at reducing the amount spent on hospital procedures, he added.
GE Healthcare has about 46,000 employees in 100 countries, including about 7,000 in Wisconsin, the majority of which are in Milwaukee and Waukesha counties.
Philips spokesman Arent Jan Hesselink said in a statement that some 32,000 workers are employed at Philips' healthcare division, giving a total number of 1,600 job cuts.
Philips aims to improve its healthcare margins and streamline operations, particularly in its imaging systems business. "The 5% reduction in the workforce is one of the borders of the programs we are working on," Hesselink said.