As biotech booms, high drug costs cause worry as thousands of biotech entrepreneurs, investors, and dealmakers congregate for the 33d annual J.P. Morgan Healthcare Conference:
"Partners woos investors amid fiscal setback" by Robert Weisman, Globe Staff January 12, 2015
SAN FRANCISCO — It owns some of the world’s most famous hospitals and one of the leading medical research engines in the United States. But when executives of Partners HealthCare System appeared before investors here Monday, they sheepishly displayed a chart showing that the health care giant last year posted its first financial loss in 15 years.
“No chief financial officer likes to get up and show the line going [down] like that,” admitted Partners’ top finance executive, Peter K. Markell, drawing laughter from hundreds of investors attending the annual J.P. Morgan Healthcare Conference.
The $22 million operating loss, driven by problems at Partners’ health insurance business, may turn out to be a temporary blip. But in recent days two Wall Street investment houses have raised concerns about the finances of the renowned organization, which runs Massachusetts General, Brigham and Women’s, and eight other hospitals, as it prepares to sell $585 million in bonds next week to finance building projects and other capital needs.
Partners is also in the midst of changing its leader. Chief executive Gary L. Gottlieb is stepping down in 2015 and was not at the J.P. Morgan presentation on Monday. And its efforts to acquire three local hospitals have been hotly contested.
Markell assured bond investors that the Partners board of directors is searching for a successor who will embrace its strategy of better coordinating care between its Boston teaching hospitals and community institutions.
“The board has begun a search process,” said Markell, who is executive vice president of administration and finance at Partners. “It’s reaffirmed our strategy and it’s looking for a CEO who will execute on that strategy.”
If the board chooses an internal candidate, that person could be in place by mid-March, he said, adding that an external hire would probably take longer.
Moody’s Investors Service last week downgraded Partners’ bond rating, from Aa2 to Aa3, potentially increasing its borrowing costs marginally. The agency cited losses at Partners-owned Neighborhood Health System, but also alluded to uncertainty over its long-running campaign to acquire South Shore Hospital and two Hallmark Health hospitals outside of Boston, deals that are now before a state judge. A decision is expected in the next six weeks.
The downgrade “comes amidst sizable capital spending plans and expectations of weaker consolidated financial performance,” the Moody’s analysts wrote. “Other key factors behind the downgrade are heightened political and public scrutiny that may constrain the organization’s future strategic options, and several developments (both internal and externally generated) that are likely to limit Partners’ revenue growth to levels below what the organization has historically enjoyed.”
Another rating company, Standard & Poor’s Rating Service, affirmed its AA rating, but added a negative outlook.
“The negative outlook is based on our view of Partners’ dramatically weaker financial operating performance in fiscal 2014, driven by heavy losses at its managed-care insurance subsidiary, Neighborhood Health Plan,” the S&P analysts wrote. “We could consider a lower rating if the organization is unable to stabilize its operating results and recover its financial profile.”
A third, Fitch Ratings, affirmed its AA bond rating for Partners.
Those are all the same agencies that rated MBS garbage AAA.
Markell said the finances of Partners hospitals remain profitable. But their financial gains were more than offset last year by $110 million in losses at Neighborhood Health Plan, which Partners acquired in 2012 as part of its bid to forge an integrated health network that also would sell health insurance.
In addition to the Neighborhood Health loss, Partners was required by state insurance rules to set aside $91 million as a “premium deficiency reserve,” deepening its operating loss.
Markell said the problems at the insurance plan stemmed from the federal government’s requirement that Massachusetts replace its working health care exchange with a new one that met US standards under the Affordable Care Act. Problems implementing the new exchange contributed to thousands of new members with high medical costs flooding the Neighborhood Health rolls, he said. Making matters worse were unexpected costs from Sovaldi, the $1,000-a-day hepatitis C pill from Gilead Sciences Inc. taken by many Neighborhood Health members.
“It was kind of like us with the Red Sox,” Markell said. “We went from first to worst. It got all screwed up and people couldn’t get onto the [exchange].”
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Also see: "The measures taken by the state to control the virus — near-universal health coverage and a robust network of social services — could serve as a national model. “It’s what other states should be doing.”
Partners is considering whether to divest Neighborhood Health or find another health care player to help shore up the insurance plan’s finances. But even if it sells Neighborhood Health, Partners plans to retain its health insurance license and expand its footprint in insurance, Markell said.
“The level of risk we will take in our insurance contracts will continue to increase,” he said.
The organization also is looking at ways to expand its health care services outside of the Bay State, from scouting markets in other New England states to entering into preliminary talks about aligning with a hospital in China, Markell said.
He added that Partners expects to save $10 million to $13 million a year by consolidating more than a dozen operations at leased sites around Boston at a new headquarters tower in Somerville.
Beyond that, even if the judge approves its suburban hospital acquisitions, its prospects for expansion in Massachusetts may be limited, Markell acknowledged, suggesting that opposition from its competitors was capping Partners’ ambitions in its home state.
“I would expect us to continue expanding outside of Eastern Massachusetts and into New England,” Markell said.
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Related:
"Wall Street dealmakers are taking measure of the biopharmaceutical giants at the annual J.P. Morgan Healthcare Conference, where thousands of investors in pin-striped suits cram into ornate ballrooms, a different world, less formal and more entrepreneurial for the Biotech Showcase, one of several conferences and other events that have sprung up here this week to piggyback on the J.P. Morgan gathering. They listened to the stories spun by chief executives of companies from as far away as the Netherlands and Australia.... Several Massachusetts biotech companies announced deals as the J.P. Morgan Healthcare Conference wound down. They included not only drug makers snapping up startups but collaborations and licensing deals by companies eager to share the cost and risk of bringing new therapies to market. Moderna Therapeutics Inc., of Cambridge, struck a licensing and collaboration deal with Merck & Co. Merck will make an upfront payment of $50 million for rights to as many as five of Moderna’s drug candidates plus another $50 million for an ownership stake. Vedanta Biosciences, a Boston startup developing drugs to fight autoimmune diseases, reached a license agreement worth up to $241 million with Janssen Pharmaceutical Cos., an arm of Johnson & Johnson, to commercialize Vedanta’s drug for irritable bowel disease. And the Cambridge startup Annovation Biopharma Inc., which is developing safer therapies for anesthesia and critical care, was sold to Medicines Cos., of Parsippany, N.J., for an upfront payment of $28.4 million and additional payments of up to $26.3 million if Annovation achieves certain milestones.... Venture capitalists poured a whopping $48.3 billion into US startups last year, investing at levels that haven’t been seen since the heady days before the dot-com bubble burst in 2001. Software and biotechnology companies were the leading recipients of venture funding in 2014, which rose more than 60 percent from the previous year, according to a report issued Friday."
Also see:
Drug maker says its revenue will rise as much as 25% in 2015
What about the, you know, patient?
"In biotech, patient advocates’ voices heard; Foundations help fund drug research" by Robert Weisman, Globe Staff January 12, 2015
SAN FRANCISCO — The Cystic Fibrosis Foundation, an early investor in Boston-based Vertex Pharmaceuticals Inc.’s drugs to treat the chronic lung disease, caught the attention of other patient advocates in November, when it disclosed that it had made $3.3 billon by selling its royalty rights.
Speaking before a small group of venture capitalists and biosciences entrepreneurs here Sunday night, foundation president Robert J. Beall said his group is plowing the proceeds into new disease-fighting alliances with drug makers ranging from Pfizer Inc. to Shire PLC and expanding a Bedford, Mass., lab where scientists use cell lines from cystic fibrosis patients to test compounds that could become medicines.
“That’s what the monetizing allows us to do,” said Beall, who outlined plans to boost employment at the Bedford lab to 20 employees from 13 in the coming months. “We’re trying to create collaborations. We think the life expectancy of cystic fibrosis patients can be increased by decades.”
Related: Privy to Your Health File
The voices of patients and their advocates are growing louder at life sciences industry events like the J.P. Morgan Healthcare Conference, which opened here Monday. While curing and treating patients has always been the focus of the booming business of drug and medical device makers, the patients themselves were conspicuously absent when drug executives in suits and ties gathered in the past.
Now, with the emergence of the “venture philanthropy” model pioneered by Beall’s foundation, and the growing role of patients in lobbying companies, regulators, and lawmakers for more treatment options, patients are becoming a factor to be reckoned with in the biopharmaceutical business....
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Time to wrap it up:
"Boston was well-represented at the 33d annual JP Morgan Healthcare Conference in San Francisco this past week, where hundreds of medical companies pitched their businesses to thousands of investors over several days. Local giants Shire PLC and and Foundation Medicine Inc. both announced multibillion-dollar deals, while at least four other companies with strong presences announced deals with a combined value of more than $1.1 billion. The Boston medical giant Partners HealthCare also sought to shrug off last year’s financial losses and put on its best face for investors gathered at the conference."
Related: Though a leader in biotech, not all firms flocking to Boston
The party is over:
"Four national banks will pay the state $2.7 million to settle allegations that they violated Massachusetts laws and improperly foreclosed on homeowners during the housing crisis. Bank of America, the state’s largest bank, along with JPMorgan Chase, Citi, and Wells Fargo Bank were all part of the settlement, announced by outgoing Attorney General Martha Coakley. The state accused the banks of sloppy paperwork, including robo-signing documents, and foreclosing on homes even though they didn’t have proper title to do so under state law."
All those people will be getting their homes back, right?
