Welcome to BioMarketing Insight's monthly newsletter.

This month's newsletter will look at the Obamacare Bill and how it will or has impacted the healthcare and life science industry in both a positive and negative way.

Read on to learn more about this topic and other current news.  On the right are quick links to the topics covered in this month's newsletter.  The next newsletter will be published on November 15th.

We encourage you to share this newsletter with your colleagues by using the social media icons at the top left, or by simply forwarding the newsletter via email.

Please email me, Regina Au, if you have any questions, comments, or suggestions.

Sincerely,

Regina Au

Principal, Strategic Marketing Consultant

BioMarketing Insight

I've been asked by a number of people who were not able to attend my breakout session "Using Systems Biology to "Fast Track" Development and Approval of Novel Therapeutics and Diagnostics," if the presentation would be available online for them to view.  The entire presentation is now available on my  website.

For those who haven't had the opportunity to view the interviews of my speakers by BIO, you can view all the interviews on my website.

Enjoy the presentation and interviews.    

The Obamacare Bill is said to be 2,000 pages, with the main premise of the bill being that everyone must have and have access to health insurance (people cannot be denied health insurance due to pre-existing disease).  However, in order for everyone to have health insurance, someone has to pay for it and it is the life science industry that is paying.

The Patient Protection and Affordable Care Act encompass a number of items that will affect both the life science industry and the healthcare providers.  Federal budget cuts in Medicare will also have a major impact on the industry and providers.

1. Patient Protection and Affordable Care Act - life science industry
   • Reimbursement for Pharma drugs will be cut in half.
   • Biosimilars allowed to enter the market earlier than the patent life of a biologic and new FDA approval guideline will be implemented.
   • A 2.3% tax levied on Medical device revenue
2. The Patient Protection and Affordable Care Act - healthcare providers
   • Accountable Care Organizations
   • Reducing healthcare cost
   • Fee for service to global payment
3. Federal budget cuts in Medicare/Medicaid
   • $2.1 trillion cuts in reimbursement for products and services over 10 years

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The PPACA bill has good intentions in that no one will be denied health insurance if you have a preexisting disease and that everyone will have access to healthcare and medication.  The pharma/biotech and device industry has been chosen to help pay for everyone to have healthcare.

If our global economy weren't going through a recession and the pharma/biotech industry experiencing a patent cliff with no robust pipeline in the near and long-term future, the industry would be OK.  However, add on Federal price cuts and shortened patent protection, you reach the tipping point that causes a negative effect on the industry.  In the last two years, the pharma/biotech industry has been laying off tens of thousands of employees, both in the US and Europe, in R&D, sales, marketing and across every department.  Recently, Merck Serono announced it will shut down its Geneva headquarters, eliminating 1,250 positions.

R&D jobs have been outsourced and if there has been any expansion or plans for expansion, it has been in the emerging markets.  Additionally, there have been many mergers and acquisitions, as reported in my monthly newsletter, with companies acquiring drugs to fill their pipelines.  As with most M&A's, reduction in the workforce is inevitable due to duplication and elimination of non- core assets.

On the positive side, pharma/biotech has tried to form partnerships or collaborations with academic institutions and other companies, to bring new products to market.  Ten of the world's largest drugmakers have joined forces to form a nonprofit organization called TransCelerate BioPharma, whose mission is to address the high costs of R&D, which are typically the roadblocks of drug development and boost the quality of clinical trials in bringing new medications to market.  TransCelerate BioPharma, based in Philadelphia, has already established a slate of early projects that could benefit the entire group of founding pharmas (Abbott, AstraZeneca, Boehringer Ingelheim, Bristol-Myers Squibb, Eli Lilly, GlaxoSmithKline, Johnson & Johnson, Pfizer, Roche's Genentech unit, and Sanofi).

Janet Woodcock, chief of drug regulation at FDA, gave her nod and replied, "We applaud the companies in TransCelerate BioPharma for joining forces to address a series of longstanding challenges in new drug development.  This collaborative approach in the pre-competitive arena, utilizing the collective experience and resources of 10 leading drug companies and others to follow, has the promise to lead to new paradigms and cost savings in drug development, all of which would strengthen the industry and its ability to develop innovative and much-needed therapies for patients."

The medical device industry has also been negatively affected by the 2.3% tax on revenue rather than profits.  This is a hefty tax for the device companies, because 1) This tax has not been incurred before; 2) It is levied before expenses are deducted; and 3) Companies have to figure out how to make up for the negative impact on their bottom line.  Unfortunately, over the last two months several companies have laid off more than 2000 people.  Here is a run down on the numbers.

• July 13: KCI cuts 300 jobs as it re-shapes after a $6.3 billion buyout by Apax Partners and a pair of Canadian pension funds.  So far in 2012, KCI has cut 425 jobs.
• August 2: Hologic reveals plans to shed 130 jobs and close a Wisconsin manufacturing plant after its $3.7 billion acquisition of Gen-Probe.
• August 7: Boston Scientific cuts 50 workers from its Galway, Ireland operation.
• August 30: St. Jude Medical says it will lay off 300 employees in an effort to reduce annual pre-tax operating expenses by about $50 million-$60 million - coincidentally the same amount it estimates the medical device tax will cost.
• August 30: Word leaks that Boston Scientific is looking to cut an unspecified number of jobs.
• September 6: Medtronic says it's halfway through a 2012 restructuring plan involving 1,000 layoffs.
• September 11: Welch Allyn announces plans to cut 275 jobs in response to the medical device tax.
• September 13: Covidien says it will move a manufacturing facility from South Carolina to Costa Rica, eliminating 600 jobs.

Going forward, the industry is set to lose more jobs as Stryker begins to execute on its previously announced 5% cut of its work force, a move that's also pegged to the medical device tax.

The device industry is also going through major consolidation or M&A as reported in my monthly newsletter, in order to acquire products that complement their current line, or enter a lucrative new market.  Their focus is also on the emerging markets as well.

This bill advocates reducing healthcare costs while still providing quality care by moving to a global payment system for healthcare provider reimbursement.  This proposed system will be similar to what hospitals experience now with Diagnostic Related Groups, except this system will put healthcare providers on annual budgets for delivering health care, rewarding them financially for better results that come in under budget.

Healthcare providers are trying to come up with a new model in caring for their patients and are teaming up with the other healthcare providers.

Steward Health Care System, the fast-growing Boston based chain of 11 hospitals and other health care facilities across eastern Massachusetts, scooped up 150 doctors from Beth Israel Deaconess Medical Center's physician group nine months ago and just lured Hawthorn Medical Group, which has more than 110 other health care providers, away from the giant Partners HealthCare System.

Mark Girard, executive vice president at Steward and head of their physician network, said that Hawthorn's philosophy is consistent with Steward's "community care model," which involves treating more patients locally rather than sending them to Boston hospitals for routine care, and offering more treatment in doctors' offices and home settings whenever possible.

"Hawthorn is a world-class provider of quality care," Girard said.  "And they, like us, want to keep care local when it's appropriate.  We know that a lot of care is leaving the community and going to high-cost centers like Boston."

Recently, Tufts Medical Center and its physicians' group, NEQCA, was reported to be in negotiations to create a new health system partnership with Vanguard Health Systems called Minuteman Health Inc.  This group is funded by an $88.5 million loan from the federal Centers for Medicare and Medicaid Services (CMS) and will eventually be governed by its members.  "The CMS loan is part of an initiative within the federal health care overhaul law that provides for the creation of 50 new health insurance co-ops designed to increase transparency and reduce costs."

Minuteman plans to serve individuals and small businesses, and expects to have products on the market by January 2014.  This group plans to sell health insurance products both through the state insurance exchange, the Commonwealth Connector, and also through health insurance brokers.

We will see a lot more consolidation for two reasons:  1) Healthcare consolidation enables smaller hospitals to establish electronic medical records and offer specialized and expanded services, thereby making it easier to comply with health reform requirements, MPR noted and 2) Merging or affiliating with a larger health system is an especially attractive option for independent hospitals struggling with weak profits and Medicaid cuts, as it can lead to savings on overhead and equipment, as well as enhanced physician recruitment, as noted in MPR.

Healthcare providers such as  Iora Health, a Cambridge startup whose goal is to "reinvent primary care" with a new model for payment and delivery of care, plans to open its first Boston area primary care practice at the start of 2013 (after opening offices in Las Vegas and Hanover, NH), its founder and CEO Rushika Fernandopulle said in an interview.

Iora's approach involves a "completely different" payment model and delivery model for primary care, said Fernandopulle, a Harvard-trained medical doctor.  "What everyone else is trying to do is improve existing practices, making incremental improvements," he said.  "We figured out that maybe what we need to do is start from scratch."

Iora is going directly to the employer.  "Employers pay a flat monthly fee for each employee who joins an Iora practice.  No claims need to be filed, saving on administrative costs.  But the costs are still about double the average for primary care - $50-$60 a month rather than $25-$30 - so that the practice can spend more time working with patients to improve their health (by pairing each patient with a health coach)", Fernandopulle said.

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Federal Budget Cuts in Medicare and Medicaid

According to the American Hospital Association (AHA), American Medical Association (AMA), and American Nurses Association (ANA), if the 2% reduction of Medicare payments goes into effect, it could eliminate more than three-quarters of a million jobs.  The budget cuts are aimed at saving $2.1 trillion in federal spending over the next 10 years (starting January 1, 2013) Kaiser Health News reported.

"Hospitals' ability to maintain the kind of access to services that their communities need is being threatened," AHA President and CEO Rich Umbdenstock said in AHA News Now.  "Cuts to hospital services could create devastating job losses in communities where hospitals have long been an economic mainstay."

It is predicted that in 2013, the first year of Medicare cuts could eliminate as many as half a million jobs, with nearly 93,000 of them at hospitals.  By 2021, the total number of lost jobs would go up to 766,000, including 144,000 jobs at hospitals.

According to C. Duane Dauner, President and CEO of California Hospital Association (CHA), California will be the hardest hit state.  With more than one-third of hospitals in the state already operating in the red and a 10.7 percent unemployment rate (compared to the 8.1 percent national rate), California's healthcare, and economy would be severely affected.

Closing Thoughts

As mentioned above, a report by the Institute of medicine, the U.S. health care system squanders $750 billion a year, roughly 30 cents of every medical dollar - through unneeded care, Byzantine paperwork, fraud and other waste.  The report identified six major areas of waste: unnecessary services ($210 billion annually); inefficient delivery of care ($130 billion); excess administrative costs ($190 billion); inflated prices ($105 billion); prevention failures ($55 billion), and fraud ($75 billion).  Adjusting for some overlap among the categories, the panel settled on an estimate of $750 billion.

How much is $750 billion?  The report stated that one-year estimate of health care waste is equal to more than ten years of Medicare cuts in Obama's health care law.  It's more than the Pentagon budget.  It's more than enough to care for the uninsured.  By just eliminating inefficiencies, we wouldn't have to make cuts in Medicare and the elimination of 766,000 would not be an issue.

Abbott Laboratories began shipping their new Absorb™ drug-eluting bioresorbable vascular scaffold which Abbott says is safer and more effective than metallic stents to Europe, Latin America and parts of the Asia-Pacific region. 

Abbott's new Absorb™ device is a drug-eluting vascular scaffold that dissolves in the body after about two years--courtesy of Abbott Laboratories.

This first-of-its-kind technology works like a normal vascular stent in restoring blood flow to a clogged vessel and administering the drug everolimus but the stent will eventually be resorbed by the body, leaving nothing behind and the treated vessel will be free to move, flex, pulsate, and dilate, said Abbott.  Absorb is made of polylactide, a common material used in dissolvable sutures.

Fives clinical trials conducted in more than 20 countries showed that the Absorb stent was found to be equivalent to the best-in-class drug-eluting stents, Abbott said.  "We are proud to be the first company to commercialize a drug eluting bioresorbable vascular scaffold, which has the potential to revolutionize the way physicians treat their patients with coronary artery disease," John Capek, Abbott's executive VP for devices, said in a statement.

To read the full story in FierceMedicalDevice, click here  

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Twenty-two Medical Device and Seventeen Pharma/Biotech Funding Deals

To determine whether funding is picking up, I will be focusing on all types of funding that are $1 million or greater in seed investments and series A or B (or the valley of death) that are pre-IPO. Even though VCs are investing, they continue to invest in their existing portfolio companies and less in start-ups. Incubators, state funding, and business competitions are great for initial seed money but not enough to keep the company going long-term.  These are worldwide funding deals. 

Partnerships and licensing deals with upfront payments and milestones will not be included.

Funding deals are in chronological order by date.

$0 = No financial terms disclosed. For more information, read  more ....

Funding deals are in chronological order by date.

$0 = No financial terms disclosed. For more information, read more...     

Mergers & Acquisitions continue to be made for both medical device (6) and pharma/biotech (8). 

A number of large companies in both medical device and pharma continue to acquire smaller companies. This month, Valeant Pharmaceuticals made the largest acquisition by purchasing Medicis Pharmaceutical Corp. for $2.6 billion.

Private Equity Firm CITIC acquired 3SBio Inc. a Chinese biotech company. 

Acquisitions are in chronological order by date with Medical Device/Diagnostics followed by Pharma/Biotech.

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We help companies de-risk their product development process by conducting the business due diligence to ensure that it is the right product for the right market and the market opportunity for the product meets the business goals of the company. We can then develop marketing strategies to drive adoption for the product.

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