HealthExtras (HLEX): Underappreciated PBM with Best Model
by Alan J. Brochstein, CFA
Analyst For Hire
When investing in Healthcare, which I believe is one of the most attractive growth industries, I am always looking to find companies that take cost out of the system. I have long believed that Pharmacy Benefits Managers (PBMs) are one of the better ways to fulfill that goal. At my former employer, we were long ESRX from 2000 until late 2005. One of the things that always disturbed me was the black-box element: How EXACTLY did these PBMs make their money. Often, they were accused by their customers or state governments of misrepresentation and other crimes. Cutting through all of the politics involved, it is clear that there were (and still are) significant “gray areas”. I always appreciated Barrett Toan, the former CEO of ESRX, for his leadership in the industry. Under his watch, the company walked away from some business that was in conflict with the best interests of the company’s clients. While almost everyone is familiar with the “Big Three”, MHS, ESRX and CVS (Caremark), I don’t think that investors appreciate the unique model of HealthExtras (HLEX) (30.50, $1.3 billion market capitalization, S&P 600 member).
I first came across HLEX in early 2006 when they won an absolutely stunning deal, taking away a client (Wellmark) from one of the Big Three. The stock ran up, as you can see in the chart below (to an unsustainable valuation), on that news and then consolidated for quite some time. The company has renewed two large contracts and won another competitive situation (Maryland) in that time. The stock has been in bull mode since Louisiana was re-awarded and Maryland’s implementation delay ended in Q1.
So, what makes HLEX different from other PBMs? First, their interests are more aligned with the customers. They don’t operate a mail-order facility for profit (though they do offer mail-order via CVS or WAG). Their transparency is quite evident in other ways as well. Second, they tend to think locally, which is very different from the Big Three. They understand well that healthcare is a local service, and they customize their products in the geographies they serve. They tend to get very large concentrations in these localities, and they, unlike the other PBMs, are able to truly offer meaningful web interaction with the plan members. Their transparency and service levels get them very high ratings from their customers relative to their larger peers. The proof, though, is in their retention and competitive take-aways. The final difference is their size. I believe that due to the superiority of its model, increasing concerns about the lack of transparency at the Big Three and its relatively small size, this company could really grow.
Financially, HLEX has expanded very rapidly, sinking a lot of up-front cost into bring new clients on board (without any hitches, I might add). Their balance sheet remains much stronger than others in the industry (and requires less capital as the company doesn’t buy drug inventory for speculative purposes). Unlike their two pure-play peers, they have some tangible capital and no debt at all. Earnings estimates were dinged primarily by the Maryland delay, but they are increasing again. EPS growth in 2008 is expected to be 25% on top of 36% growth this year. EPS growth the past 3 years has been 36%. Future growth will come from further large contract wins, geographic expansion and their entry into a few new markets (Third-Party Administrators and Brokers, Worker’s Comp and Labor Unions).
I believe that HLEX could trade to 39 later this year based upon attaining a 30 PE (on the 2008 estimate). As you can see from the chart below, valuation is at median levels despite the many changes that have taken place. First of all, the company has successfully implemented some very large contracts. Second, consolidation should bode well for this company. Finally, the market cap is now at a level that the company should command the attention of small-cap investors. In my opinion, this company is the “safest” it has ever been, with large implementations behind them, big opportunities ahead and an environment that favors their business model of transparency. A final thought is that this company should command a premium for its lack of exposure to Medicare reimbursement.
Disclosure: Author and members of his family are long HLEX
Source: AnalystForHire.com
BioHealth Investor.com
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Telemedicine Addresses Rising Healthcare Costs
by Sara Calabro
Med Tech Sentinel
A recent article in The New York Times discusses TeleStroke, a telemedicine program being offered by Brigham and Women’s and Massachusetts General Hospitals in Boston. The program is designed to help hospitals that do not have the resources to employ expensive stroke specialists and as a result, are not equipped to make decisions about administering the effective but high-risk standard-of-care medicine for stroke, tPA.
Through TeleStroke, stroke specialists can examine and diagnose patients remotely via videoconferencing and image-sharing technology. Hospitals pay an annual fee ($10,000 in the case of Martha’s Vineyard Hospital, the focus of the Times piece) for 24-hour virtual access to stroke specialists. The fee is miniscule in comparison to keeping on staff highly trained physicians who command steep salaries.
Telemedicine companies are popping up everywhere. Earlier this month, at the American Telemedicine Association’s annual meeting, more than 300 presentations took place on remote care, computer-assisted diagnoses, robotics and other telemedicine topics.
One exhibitor at the event, TeleMedDox, has a similar offering to TeleStroke’s, but on a specialty-wide basis. The privately held Sarasota, FL-based company provides contract physician services to corporations, private practices and government agencies. Through a pocket-sized key drive, credentialed physicians in TeleMedDox’s network can access and share medical records, lab results and diagnostic images. The company also offers one-on-one, real-time sessions with physicians (through videoconferencing).
In addition to rising healthcare costs, TeleMedDox’s technology may help address another systemic problem: physician frustration with long, inconvenient schedules and insurance headaches.
BioHealth Investor.com
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Thursday’s Top Biotech & Medical Stocks
by H.S. Ayoub
BioHealth Investor.com
Biotechnology
PEREGRINE PHARMA INC [PPHM] +36.27%
DENDREON CORP [DNDN] +26.86%
CRITICAL THERAPEUTIC [CRTX] +21.39%
3SBIO INC [SSRX] +18.38% $0
VION PHARM INC [VION] +10.63%
Diagnostic Substances
PONIARD PHARMA [PARD] +14.17%
REMOTEMDX INC [RMDX.OB] +6.67%
IMMUNOMEDICS INC [IMMU] +6.18%
EPICEPT CORPORATION [EPCT] +5.65%
SYNTA PHARMACEUTICAL [SNTA] +5.05%
Drug Delivery
INSITE VISION INC [ISV] +11.18%
DELCATH SYSTEMS INC [DCTH] +7.49%
BIOPROGRESS PLC [BPRG] +5.08%
NOVEN PHARMACEUTIC [NOVN] +4.64%
ELAN CP PLC ADR [ELN] +2.98%
Drug Manufacturers
PHARMACYCLICS INC [PCYC] +16.10%
ALEXZA PHARMACEUTICA [ALXA] +9.01%
PRANA BIO LTD ADS S1 [PRAN] +9.00%
DYNAVAX TECHNOLOGIES [DVAX] +8.97%
AVANIR PHARMACEUTICL [AVNR] +7.45%
Drug Related Products
IMAGENETIX INC [IAGX.OB] +8.33%
NUTRACEUTICAL INTL [NUTR] +4.01%
ARGAN INC [AGAX.OB] +4.00%
NATURAL ALTERNATIV [NAII] +2.11%
PACIFICHEALTH LABS [PHLI.OB] +1.92%
Generic Drugs
ISOLAGEN INC [ILE] +17.27%
CATALYST PHARMACEUTI [CPRX] +8.54%
CARACO PHARMA LABS [CPD] +3.34%
PHARMACUTICAL CO [PRX] +0.72%
BARR PHARMA INC [BRL] +0.66%
Medical Appliances & Equipment
LECTEC CORP [LECT.OB] +35.42%
SONTRA MEDICAL CORP [SONT.OB] +12.00%
ROCKWELL MED TECHS [RMTI] +11.23%
ENDOCARE INC [ENDO.OB] +7.46%
PATIENT SAFETY TECH [PSTX.OB] +7.14%
Medical Instruments & Supplies
ARISTOTLE CP [ARTL] +16.31%
OCCULOGIX, INC. [OCCX] +15.84%
ELECTRO-OPTICAL SCIE [MELA] +14.43%
RETRACTABLE TECH INC [RVP] +12.92%
STEN CORPORATION [STEN] +6.68%
Medical Laboratories & Research
SPHERIX INC [SPEX] +4.14%
GENOMIC HEALTH, INC. [GHDX] +2.67%
PHARM PROD DEV [PPDI] +1.53%
ERESEARCHTECHNOLOG [ERES] +0.90%
OSI PHARMACEUTIC [OSIP] +0.83%
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Dendreon Catches a Break From The FDA
by Jon C. Ogg
24/7 Wall St.
Dendreon (DNDN) is benefitting from something that become thought of as a low probability event: an FDA that buckled at least a little to peer pressure. It has received confirmation that the FDA will accept either “a positive interim or final analysis of survival” from its ongoing IMPACT study to amend the Biologics License Application for PROVENGE as a late-stage prostate cancer treatment. This information was obtained in a recent follow up meeting with the FDA to discuss the additional clinical data required to support the licensure of PROVENGE requested by the FDA in the Complete Response Letter the Company received on May 8, 2007.
Mitchell H. Gold, President/CEO: “We anticipate completing enrollment in the IMPACT study this year and anticipate interim survival results in 2008. We are committed to making PROVENGE available as rapidly as possible to help the many men with late-stage prostate cancer who currently have few appealing treatment options.” So the translation here is that this won’t yield an immediate approval, but it could move up the date of an approval considerably.
Continue article at 247WallSt.com
RELATED READING:
- Dendreon Volume and Volatility Compress Ahead of ASCO
- Dendreon Interest Remains Extremely High
- Dendreon’s New Double-Twist
- Rantasorous Rx
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Biotechs & Pharmas Bracing For ASCO Annual Meeting
by Jon C. Ogg
24/7 Wall St.
This weekend we have the mother of all future cancer treatment conferences: ASCO, or The American Society of Clinical Oncology. Cancer stocks in the last few weeks have been seeing a muted response ahead of the event that biotech investors have traditionally braced for. At various points on the website you can find a full list of contributing and presenting companies. This is only a sample of the companies presenting data and it is very possible that the dates and even the companies may have changed. Also, you’ll probably start seeing news here at this ASCO News Site either late Thursday evening or Friday. Some of these dates and presentation schedules have been compiled over a multi-week period, so it is very likely that some of these will have changed.
SATURDAY, JUNE 2
Genentech (DNA) will show data with Roche on Avastin plus a chemotherapy dual-mix cocktail for first line treatment in non-small cell lung cancer patients. Later on at ASCO, a failed Avastin study for the treatment of pancreatic cancer will be shown. Some Phase III Avastin data in kidney cancer will also be presented next week. Genentech will also be showing data with partners OSI Pharmaceuticals (OSIP) and Imclone (IMCL) in later days.
Pfizer (PFE) will present data on Sutent’s safety and efficacy in Phase II liver cancer studies.
If you forgot about Dendreon (DNDN), this will be the company’s last known data presentation on Provenge after getting the FDA delay. Investors will be looking closely at any ‘New Data’ presented because much of the ongoing study data is being treated as old data.
Arqule (ARQL) and Exelixis (EXEL) are presenting data as well on molecules that are deemed cancer targets.
Continue article at 247WallSt.com
RELATED READING:
- Dendreon Volume and Volatility Compress Ahead of ASCO
- Cancer Stocks on the Go: It’s ASCO
- BioWatch Alert: ArQule Could See 15% Gain Ahead of ASCO
- Is Early Release of Study Data to Doctors Unfair?
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BioHealth Investor Looking for Contributors & Writers
by H.S. Ayoub, DMD
BioHealth Investor.com
BioHealth Investor.com, the leading business blog for the medical and biotechnology industry is looking for writers and bloggers to contribute exclusive content.
BHI is offering contributors 50% of Google Ad revenue from their posts, and reciprocal links back to their sites of choice.
For more information please visit:
http://biohealthinvestor.com/contributor.html
Source: BioHealth Investor.com
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BioSpace.com Running BioHealth Investor’s Feed!
by H.S. Ayoub, DMD
BioHealth Investor.com
I noticed today that over the last few days traffic has been pouring in to BioHealth Investor from BioSpace.com, the leading portal for the biotechnology industry.
I visited BioSpace and noticed that BHI’s feed is now running on its homepage under the blogs section. Many thanks to BlogBurst, the blog broker for hooking that up.
BHI’s content is now featured by Yahoo!Finance, Google Finance, SeekingAlpha.com, TheStreet.com, 247WallSt.com, TheMoneyBlogs.com, and now BioSpace.com, not to mention the hundreds of other blogs and sites that link here.
Thanks to all the editors, contributors and readers that have made BHI the leading blog for the medical and biotech industry.
Source: BioHealth Investor.com
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FDA Green Lights Harvest’s Stem Cell Trial
by Sara Calabro
Med Tech Sentinel
Harvest Technologies, a Plymouth, MA, company that uses stem cells from bone marrow to treat critical limb ischemia, received the go-ahead yesterday from FDA to start a 48-patient trial for the company’s Bone Marrow Aspirate Concentrate (BMAC) System. If all goes as planned, Harvest expects the device to hit the market sometime in 2010.
The BMAC System concentrates a patient’s bone-marrow stem cells in approximately 15 minutes, then injects them into the affected limb to reduce the likelihood of amputation. Critical limb ischemia is a late-stage form of Peripheral Arterial Disease, which involves clogged arteries — commonly in the legs — that can result in toe or feet amputation. The thinking behind the BMAC device is that the injection of stem cells will arrest and possibly reverse the effects of critical limb ischemia.
In a European pilot study of BMAC, 23 patients with ischemic legs who were threatened by amputation were injected with their own bone-marrow stem cells; 16 (70 percent) were able to avoid amputation.
Following yesterday’s IDE approval, Harvest Technologies’ president, Gary Tureski, told The Patriot Ledger that BMAC’s ability to quickly identify and concentrate stem cells that aid in the creation of new blood vessels is what makes it superior to other technologies that use bone-marrow stem cells in a similar way. Harvest’s device is unique, according to Tureski, because a doctor can complete the whole process in one sitting, while other systems rely on shipping the bone marrow off-site for the concentration process, requiring a patient to make more than one trip to the doctor’s office.
“We do it right at the bedside, right at the point of care,’’ Tureski told the paper. ‘‘The whole procedure can be done in less than an hour.’’
RELATED READING:
- Key Stem Cell Patents Revoked
- Stem Cell Stocks Gain On British Study, Geron Gives Some Back
- Osiris: Promising Stem Cell Research, Questionable Management
- At Home Guide to Isolating Amniotic Stem Cells from Placentas!
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Novacea and Schering-Plough Prostate Cancer Pact
by Jon C. Ogg
24/7 Wall St.
Novacea (NOVC) is seeing its shares up more than 70% after signing a pact with Schering-Plough (SGP) over the development and commercialization of Asentar for the treatment of prostate cancer. Novacea will receive an upfront payment of $60 million, including $35 million as reimbursement for past research and development expenses, a license fee of $25 million, as well as a commitment by Schering-Plough to purchase $12 million of Novacea common stock at a predetermined price within ten days of the closing. Additionally, the agreement provides Novacea with potential pre-commercial milestone payments of up to $380 million, and tiered royalties on worldwide sales of Asentar.
Novacea is currently conducting a large international Phase 3 trial evaluating Asentar in 900 patients with androgen-independent prostate cancer.
Continue article at 247WallSt.com
RELATED READING:
- Cancer Stocks on the Go: It’s ASCO
- BioWatch Alert: ArQule Could See 15% Gain Ahead of ASCO
- Is Early Release of Study Data to Doctors Unfair?
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Mini-meds mandated in Massachusetts?
by David E. Williams
Health Business Blog
Massachusetts’ Commonwealth Health Insurance Connector is doing its best to ensure the availability of affordable, high-quality health plans. For young adults, they’ve opted for an enhanced version of the existing student health plans, which have been mandated for almost 20 years. The plans are cheap: as low as $119 per month without drug coverage.
There’s a catch, though. The plans have annual coverage caps of $50,000 or $100,000. That’s higher than the $25,000 to $50,000 caps of the student plans, but it won’t take a seriously ill young adult (or their premature baby) to run up a bigger bill than that in Beantown.
Patricia Walrath, co-chair of the Legislature’s Health Care Financing Committee told the Boston Globe:
We thought this was one place where we could be a little experimental, because they are a very low-risk population.
But the Access Project thinks differently and issued a report critical of the plans. Plan co-author Stephen D’Amato says:
[T]he main purpose of insurance is to protect people in those rare instances when you have huge costs. Allowing these caps is duplicating a mistake that was made nearly 20 years ago. It’s going to destroy some lives
In a perfect world –or actually in any other OECD country– $119 per month would be enough to pay for comprehensive coverage for a young adult. Here, though, it isn’t. As a result, there’s a tradeoff between an affordable premium, coverage for routine services, and coverage for catastrophic costs.
I’ve written before about Mini-Meds –policies that offer limited coveraged, with caps much like these new Massachusetts plans. In some ways they are odious –almost the opposite of insurance– but they do provide access to the health care system and take away the worry of being saddled with $10,000 or $20,000 in medical debts. A debt like that can seem almost as catastrophic as a $1 million debt to people of limited income.
I don’t object to the capped plans for young adults. First, keeping the premiums somewhat reasonable will increase compliance with the mandate and increase the attractiveness of living in this state. Second, if debts get too high there’s always bankruptcy protection. Young adults have time to start over and since the hospitals will have such a high percentage of insured patients they should be able to suck up some of the losses without whining too much.
Source: HealthBusinessBlog.com
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