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S&P’s Big Sector Shakeup, Explained

Standard & Poor’s and Morgan Stanley Capital International are reclassifying the companies that constitute the S&P 500 Index for the first time since 1999. What makes the change more interesting is that it shifts the balance of the index.

The new communication services sector will come into being Friday after the market close, replacing the telecom services sector.

The MSCI plans to enact the changeover Dec. 3.

For the uninitiated, S&P’s Global Industry Classification Standard currently classifies S&P 500 companies into 11 industry groups, with tech, financials, health care, consumer discretionary and industrial sectors among the heavily weighted. The weightings of these sectors are roughly 25.8 percent, 14.7 percent, 13.7 percent, 12.9 percent and 9.9 percent, respectively.

The telecom services sector accounted for only 1.8 percent of the index.

Company Moves

The new communication services sector will draw about half of the companies from the tech sector, while the remaining half will comprise media and telecom companies such as Netflix, Inc. NFLX 1.14%Comcast Corporation CMCSA 0.24%CBS Corporation CBS 0.04%and AT&T Inc. T 1.38%.

Tech stalwarts such as Alphabet Inc GOOGL 1.63% GOOG 1.75% and Facebook, Inc. FB 1.86% will defect to communication services.

Consumer discretionary will now be an, Inc. AMZN 1.51%-dominant group. The online retail behemoth is likely to account for 35 percent of the group’s weighting as opposed to its current 28 percent.

Apple Inc. AAPL 1.08% is likely to dominate the tech sector, accounting for roughly one-fifth of the sector’s weighting, as Facebook and Google parent Alphabet switch allegiance to S&P’s new class. The sector will be dominated by chipmakers, hardware and software companies.

New Kid In Town

The communication services group will have a market capitalization of $2.8 trillion, according to market cap data compiled by Barron’s as of Aug. 29. The weightings of major additions to the new group are as follows:

  • Alphabet: 31.5 percent
  • Facebook: 18.3 percent
  • AT&T: 8.4 percent
  • Verizon Communications Inc. VZ 0.91%: 8.1 percent
  • Comcast: 6.1 percent
  • Disney: 6 percent
  • Netflix: 5.8 percent

The FANG group sans Amazon will account for about 55 percent of the new group’s weighting, making it top-heavy.

What It Means For Investors

The communication services sector will now be the fourth-biggest sectoral class after IT, health care and financials.

Investors may soon have to adjust their portfolios to account for the sector changeover, and funds that track the S&P 500 sectors are expected to undergo the most shifts.

In March, Vanguard said it is creating custom benchmarks for three sector funds — the Vanguard Consumer Discretionary Index Fund, the Vanguard Information Technology Index Fund and the Vanguard Telecommunication Services Index Fund — and their corresponding ETF shares in response to the GICS changes.


Loblaw unit gets medical marijuana license from Health Canada

Loblaw Cos Ltd’s drugstore chain on Friday received approval from Health Canada to be a licensed producer of cannabis for medical purposes.

“As trusted medication experts, we believe pharmacists have an important role to play in the safe and informed use of medical cannabis, and this is the first step in our journey to provide medical cannabis to our patients,” Loblaw said in an emailed statement.

Shoppers Drug Mart can now label and test associated products under the health regulator’s Access to Cannabis for Medical Purposes Regulations.

After the production license, companies require a cannabis sales license to dispense medical marijuana.

Canadian cannabis producers in the past few months have been signing up deals with distributors as the country legalizes recreational marijuana in October.

After AbbVie Suit, Feds Probe Industry-Provided Drug Educational Support

A federal investigation is underway into whether or not the nursing and other medical services provided by some pharmaceutical companies to doctor’s offices actually violate the law due to serving an illegal commercial service.

This morning the Wall Street Journal raised the question as several companies are under investigation over the notion of the services being part of a kickback scheme. This week California’s Insurance Commissioner filed a lawsuit against Illinois-based AbbVie over allegations of a kickback scheme to support sales of blockbuster rheumatoid arthritis treatment Humira in the state. Part of the charges leveled by the insurance commissioner argues that the nurses employed by AbbVie to new Humira patients are not there to benefit the patients or doctors, but to benefit AbbVie. The commissioner said that AbbVie will only provide the nurses if the doctors continue to prescribe Humira to patients.

The Journal reported that other companies such as AmgenBiogenBayerEli LillyGilead Sciences and Sanofi, all offer these kinds of services and more. The companies say the assistance they field benefits patients be helping defray copay costs and by providing disease education. However, in its report, the Journal said critics and federal prosecutors are concerned that the employees being fielded by drug companies are there to encourage the use of drugs prescribed by the companies that pay for the assistance, rather than alternative treatments. The Journal added that critics also argue the use of these extension-employees actually contributes to the high costs of healthcare because they are “pushing higher-priced drugs on people.”

There are laws on the books against this. A federal anti-kickback law “prohibits payments to induce drug prescriptions or other medical care that is reimbursed by government health programs.” The Journal reported.

AbbVie said it has complied with all state and federal laws regarding its Ambassador program. However, other programs run by different pharma companies have shut down, the Journal said. Following a probe by the U.S. Attorney’s office in New York, Sanofi shut down its certified diabetes educator program. The certified nurses in that program assisted patients with questions related to diabetes, as well as trained them on how to use Sanofi’s diabetes treatments. The Journal reported that Sanofi is cooperating with the latest investigation.

Gilead Sciences has been probed over assistance it provided to patients who were prescribed with hepatitis C drugs Sovaldi and Harvoni. Federal authorities have probed Biogen for “educational assistance” it provided for multiple sclerosis patients, the Journal added.

The nursing and medical assistance programs aren’t the only types of issues some investigators have had with the industry. Companies have also been investigated over charitable donations to 501(c)(3) organizations that provide financial assistance to Medicare patients. Pharma companies are allowed to provide philanthropic support to charities that provide patient assistance. However, companies are not allowed to use their financial influence to urge the charitable organizations to give preference to their own medications. The companies are further prohibited from providing financial assistance to people who receive their medications through government assistance programs such as Medicaid or Medicare.

Despite those rules, some companies have come under investigation for supporting those organizations. In 2016 BioSpace highlighted allegations made in court that Celgene had donated millions of dollars to charities to help patients afford high-priced cancer drugs the company manufactures and markets. The government said it was a scheme to turn a profit of billions of dollars. In August 2017 Celgene agreed to pay $280 million to settle the allegations of fraud.

Should Pharma Companies Have to Pay for Medicare? House Can’t Decide

As federal lawmakers continue to wrangle over legislation to help curb the opioid crisis in the United States, the House of Representatives is showing some division over the costs that some pharmaceutical companies may have to pay for Medicare coverage.

The issue relates to a budget bill passed earlier this year that pushes the timeline up from 2020 to 2019 for pharmaceutical companies to cover larger portions of costs for their medicines that are covered through Medicare Part D. The costs have typically been considered out of pocket expenses for individuals.

As the House addresses a number of bills aimed at curbing the opioid crisis, PhRMA, the lobbying arm of the pharmaceutical industry, is urging House members to include a provision in the opioid bill to roll back that Medicare coverage plan to its 2020 date, The Hill reported this morning. It is certainly a move that has many people up in arms and PhRMA and Republican lawmakers, who are in the House majority, are the target of their ire.

The Hill noted that Ben Wakana, executive director of Patients for Affordable Drugs, tweeted out his opposition. On his Twitter account, Wakana said “Big Pharma” is “trying to use the opioids bill as a vehicle to give themselves $4 billion windfall.” He said many of these companies are the ones that contributed to the opioid crisis in the first place, The Hill said.

Opioid addiction has become a scourge across the United States. According to the U.S.Department of Health and Human Services116 Americans die daily from opioid overdoses. The U.S. Centers for Disease Control and Prevention (CDC) released a report earlier this year that shows opioid-related emergency room visits spiked 30 percent across the states between July 2016 and September 2017. Midwestern states were particularly hard hit with spikes of 70 percent, the CDC report said.

Whatever the House does, it will have to be approved by the Senate. Earlier this week the U.S. Senate overwhelmingly passed a package of 70 bills aimed at the opioid crisis that included provisions to require carrier companies like FedEx or UPS to more carefully screen packages coming into the country for illegal opioids. The Senate plan also addresses regulatory changes that would help opioid-addicted individuals have better access to treatments. The legislation would also allow federal agencies to award grant money to state and local organizations battling the opioid crisis, The Hill reported.

The two chambers will have to hash out any differences in the legislation before passing a cohesive bill.

Taking on the opioid crisis is something that the White House has been advocating. Earlier this year President Donald Trump called on U.S. Attorney General Jeff Sessions to file lawsuits against certain drug manufacturers whose drugs have contributed to the opioid crisis. The U.S. Department of Justice has already gotten involved in the legal matters between state and local governments and opioid manufacturers. In April the Department of Justice filed a motion to participate in settlement discussions as a “friend of the court.” A friend of the court provides information and expertise in order to assist a judge in rendering a verdict. The friend of the court filing comes about a month after the DOJ formed a task force to target opioid manufacturers and distributors for the roles they have allegedly played in the increase of addiction across the country. The DOJ said it intended to use criminal and civil penalties to hold people accountable if they are convicted of adding to the crisis.

Boston Scientific Details Stent for peripheral arterial disease

Today, Boston Scientific (NYSE: BSX) announced positive 12-month data from the IMPERIAL trial, the first head-to-head drug-eluting stent trial in the superficial femoral artery (SFA). Results were presented during a late-breaking clinical trial session at the 30th Transcatheter Cardiovascular Therapeutics (TCT), the annual scientific symposium of the Cardiovascular Research Foundation, in San Diego, and at the annual Cardiovascular and Interventional Radiological Society of Europe (CIRSE) congress in Lisbon, Portugal. The clinical findings will be published in The Lancet.


The IMPERIAL trial evaluated the Eluvia Drug-Eluting Vascular Stent System versus the Zilver® PTX® Drug-Eluting Peripheral Stent in patients with symptomatic peripheral artery disease (PAD). PAD occurs when fatty or calcified atherosclerotic material, called plaque, builds up on the walls of the arteries of the legs, restricting blood flow and causing pain, swelling, ulceration and in some cases, the need for amputation of the affected limb. Stents are commonly used to restore and maintain blood flow, reducing symptoms and improving quality of life.

In the IMPERIAL trial, the Eluvia stent, which utilizes a drug-polymer combination to offer sustained release of the drug paclitaxel, exhibited superior rates of primary patency, a measure of the target vessel remaining unobstructed at 12 months, and thus able to provide sufficient blood flow to the lower limbs.1 Patients in the Eluvia arm of the study also experienced higher rates of freedom from target lesion revascularization (TLR), thus reducing their need for repeat procedures at one year, when compared to those treated with the drug-coated Zilver PTX. Key findings from the IMPERIAL trial include:

  • Patients treated with the Eluvia stent had a statistically significant difference in the primary patency rate of 88.5 percent, compared to 79.5 percent in patients treated with the Zilver PTX (p=0.0119);2
  • Data demonstrated that the Eluvia stent had half the TLR rate at 4.5 percent, in contrast to 9.0 percent observed within the Zilver PTX cohort;
  • Over 95 percent of patients who received the Eluvia stent were free of major adverse events at one year, compared to 91.0 percent of patients who received the Zilver PTX.

“These impressive clinical outcomes suggest that sustained elution of paclitaxel, delivered by the Eluvia stent, better matched the timing of restenosis in the SFA that can occur months later, thereby reducing the need for repeat interventions,” said William Gray, M.D., system chief, Division of Cardiovascular Disease at Main Line Health, president, Lankenau Heart Institute in Wynnewood, Pennsylvania, and co-principal investigator of the IMPERIAL trial. “Based on these findings, we believe that the Eluvia stent can be a preferred therapy option when treating patients with arterial blockages in the superficial femoral or proximal popliteal arteries.”

Medtronic: Shows Exceptional Safety, Efficacy Outcomes for Stent

Investigators today unveiled new
clinical data from the physician-initiated BIONYX study, representing the first
all-comers analysis in nearly 2,500 patients comparing the safety and efficacy
of the durable polymer Resolute Onyx(TM) drug-eluting stent (DP-DES) from
Medtronic plc (NYSE: MDT) to the Orsiro biodegradable polymer stent (BP-DES). At
one year, the study showed patients with coronary artery disease who were
treated with Orsiro BP-DES received no clinical advantage compared to patients
treated with the Resolute Onyx DP-DES, and Orsiro BP-DES demonstrated a higher
rate of stent thrombosis.(1) Published simultaneously in The Lancet, the results
were presented today during a Late-Breaking Clinical Trial session at the 30th
Transcatheter Cardiovascular Therapeutics conference (TCT), the annual
scientific symposium of the Cardiovascular Research Foundation.

Enrolling approximately 2,500 real-world patients (71 percent with acute
coronary syndrome), the BIONYX study had a primary composite endpoint of target
vessel failure (TVF) at one-year and showed no statistically significant
difference in outcomes for the Resolute Onyx DP-DES treated group (N=1,243) at
4.5 percent compared to 4.7 percent with the Orsiro BP-DES. However, notable
differences were observed in significantly lower rates of definite or probable
stent thrombosis (0.1 percent for Resolute Onyx compared to 0.7 percent with
Orsiro DES) at one year (p = 0.01).

Medtronic bets big on benefits of robots in operating room

Medtronic is hoping to boost its presence in the growing spinal-surgery market with the $1.6 billion acquisition of a robotics company whose system it already distributes worldwide.

Its acquisition of Mazor Robotics and its Mazor X robotic guidance system fits well with Medtronic’s much-touted “value-based” health care initiatives. Although buying one of Mazor’s advanced surgical planning and guidance systems may cost six figures upfront, the expense should be recouped over time as procedures become more precise, resulting in fewer post-surgical problems and long-term costs.

The deal announcement, published Thursday night, describes Mazor’s Mazor X and Renaissance surgical systems as transforming spinal surgery “from freehand procedures to accurate, state-of-the-art, guided procedures.”

Proponents say the systems can improve the speed and accuracy of surgical procedures, reducing margins for error and making spinal surgery outcomes more reproducible.

The system creates a three-dimensional surgical blueprint customized to each patient’s anatomy based on medical imaging, and then uses a robotic arm to position tools and implants in the right locations and trajectories over a patient’s spine.

Medtronic and Mazor first announced a limited partnership in 2016 that was intended to escalate over time, as the two companies collaborated on ways to integrate Medtronic spinal products into Mazor’s robotic guidance platform. In August 2017, Medtronic became the exclusive worldwide distributor of the Mazor X system, with more than 80 of the systems successfully installed since launch.

The global market for spinal surgery products is expected to grow at nearly 6 percent per year, reaching $16.7 billion in sales by 2025, driven by increases in spine disorders among older adults, according to market researchers.

On Thursday, Medtronic announced that it “aims to accelerate the advancement and adoption of RAS [robotic-assisted surgery] in spine to the benefit of patients, providers, and the health care system more broadly.”

Medtronic CEO Omar Ishrak has told investors that the deal to combine Medtronic’s “high value” single-use surgical components with Mazor’s durable capital equipment will be a winning combination in the long run.

“The integration of capital equipment — in this case, the robot with implants and our sort of high value consumables — is a unique competence that we are delivering. And it’s something that would set us apart and use our scale to really create these markets in a new and differentiated way that will set us completely apart from competition,” Ishrak told investors during Medtronic’s earnings call last month.

The acquisition of Mazor is expected to close by the end of January. Medtronic has agreed to acquire all outstanding shares in Israel-based Mazor in the all-cash deal. Factoring in Medtronic’s existing ownership interest in Mazor and the cash acquired through product sales, the acquisition has a net value of $1.3 billion.

Medtronic said it doesn’t have plans to disrupt the Mazor team through the deal: “We intend to further cultivate Mazor’s legacy of innovation in surgical robotics with the site and team in Israel as a base for future growth,” Medtronic restorative therapies President Geoff Martha said in the announcement.

Ori Hadomi, CEO of Mazor Robotics, said in the announcement that integrating the surgical systems and team with Medtronic would “maximize our impact globally through Medtronic’s channels, advance our systems’ leadership position in the marketplace, and drive the realization of our vision to heal through innovation.”

Bloomberg reported that Hadomi was questioned last year by the Israel Securities Authority in connection with an investigation into possible insider trading based on the company’s relationship with Medtronic. Although that investigation is still underway, Martha told Bloomberg that it is unrelated to Medtronic’s offer.

The deal to acquire Mazor will “modestly” dilute Medtronic’s adjusted earnings per share, “but given the current strength of Medtronic’s business, the company expects to absorb the dilution,” the announcement says. Medtronic projects that the deal will generate a double-digit return on invested capital by the fourth year, and increase thereafter.

Medtronic stock closed up less than a percent Friday, at $97.85, while shares in Mazor shot up more than 10 percent to $58.15.