Skip to content

Mesoblast’s delayed launches, Teva split turn Credit Suisse bearish

Mesoblast limited (ADR) MESO 0.82%, a developer of adult stem cell-based products, has struggled to meet key clinical timelines and lost a key partnership with Teva Pharmaceutical Industries Ltd (ADR) ADR TEVA 1.65% for a heart failure program, according to Credit Suisse.

The Analyst

Analyst Alethia Young downgraded shares of Mesoblast from Neutral to Underperform and lowered the price target from $11 to $6.

The Thesis

Citing a potential need for larger data sets, Credit Suisse pushed back its launch timeline estimates for Mesoblast’s chronic heart failure and back pain therapies, which are in late-stage studies, by one to three years in the U.S. and by three to four years in regions outside the U.S., Young said in a Thursday note.

The extended timelines could temper spending in the near term, the analyst said. Credit Suisse raised its 2018 and 2019 earnings per share estimates for the company by 50 percent and 25 percent, respectively.

After the separation from Teva, Young said she’s cautious on Mesoblast’s ability to find a partnership to fund future development programs.

Apart from $47 million in cash and an additional $75-million non-dilutive credit facility, Mesoblast will likely need additional capital to finance its late-stage development, the analyst said.

Credit Suisse said it is cautious on the upcoming 12-month study data for a left ventricular assist device in advanced heart failure. The data is due in the third quarter of 2018.

“We believe regulators and physicians will want primary endpoint success and key 12-month secondary endpoints, which could be a high bar.”

Going into the upcoming LVAD study, Credit Suisse said the risk-reward is balanced and the particular market is “small,” with a $120-million opportunity for the LVAD and a peak Class III opportuity of $1.9 billion.

The Price Action

Mesoblast shares are down about 35 percent over the past year.

The shares were down 1.64 percent at $6.02 at the time of publication Thursday.


Hospital prices see biggest gain in years, hiring on upswing

  • Healthcare prices grew 2.2% in February 2018 compared to the previous February. That was the highest rate increase since January 2012, according to Altarum’s latest Health Sector Economic Indicators. Year-over-year hospital prices increased even higher at 3.8%, the highest monthly increase since November 2009.
  • Looking back at 2017, national healthcare spending grew by 4.6% for the year compared to the previous year. Altarum said healthcare spending’s share of GDP has been between 17.9% and 18.1% for 22 consecutive months.
  • Hospitals are on a hiring spree, adding 9,300 jobs in February compared to the 7,200 monthly average in 2017.

February’s 2.2% healthcare price growth is compared to 1.6% full-year growth in 2016 and 2017 and the all-time lowest rate of 1.1% in 2015. Annual hospital price growth rose sharply to 3.8% — its highest pace since November 2009.

Altarum Fellow Dr. Charles Roehrig noted that differs from the trend seen in government data.​ “We are puzzling over this significant jump in hospital prices in recent months based upon the hospital (producer) price indexes from Bureau of Labor Statistics. Hospital prices averaged 1.6% growth in 2017, increasing to 3.5% during the first 2 months of 2018. Further, growth has accelerated for each of the three main payers: Medicare, Medicaid, and private health plans.”​

One major reason for the overall spending increase is prescription drug spending,which grew 5% in 2017 after increasing by only 1.3% the previous year.

“This 5.0 growth estimate does not account for possible changes in prescription drug rebates and, based upon 2016, we expect this could lead to a significant downward revision in the growth rate when CMS releases official 2017 estimates this December,” Altarum said.

The report is the latest to highlight rising healthcare costs. A recent JAMA report found the U.S. is spending about twice as much as other high-income countries on medical care. That’s despite similar utilization rates. Driving the difference is labor and goods, including pharmaceuticals and administrative costs.

In one piece of good news — hospital hiring is on an upswing. The first two months of 2018 saw modest job growth, Altarum said. Healthcare overall added 18,500 jobs in February, which was fewer than the the 2017 monthly average of 24,000. However, about half of the job growth came from hospitals, despite those facilities accounting for just one-third of health sector jobs.

The uptick in hospital hiring could be connected to the stalled Republican effort to repeal and replace the Affordable Care Act. With that policy debate largely over, hospitals now feel comfortable to resume hiring levels because they aren’t expecting major policy changes anytime soon.

While hospitals’ hiring increased, ambulatory setting jobs have slowed from last year. Ambulatory settings added 8,100 new jobs in February compared to a monthly average of 15,500 in 2017.

Also, in healthcare jobs news, the American College of Physicians recently reported that internal medicine is the largest training specialty. One-quarter of all PGY-1 positions in the 2018 Main Residency Match were in internal medicine. Internal medicine programs offered 7,542 categorical positions and 374 primary care positions, an increase of 309 categorical positions (4.3%) and 33 primary care positions (9.7%) from the 2017 Match, the American College of Physicians said.

Lifepoint to sell 3 LA hospitals to Allegiance Health Management

  • Lifepoint Health has signed a definitive agreement to sell three Louisiana hospitals to Allegiance Health Management of Shreveport, Minden Press-Herald reported.
  • The facilities in the deal include Minden Medical Center, Mercy Regional Medical Center and Acadian Medical Center. The transaction is expected to close by the end of the year. Financial details were not disclosed.
  • Once the sale is complete, Lifepoint, which now operates 71 hospitals in 22 states, will own only one hospital in Louisiana.

Many for-profit hospital systems are divesting properties to focus on profitable markets and chip away at their debt.

Tenet and Community Health Systems, both with debt loads close to $15 billion in 2017, have been selling off facilities in efforts to trim their portfolio and focus on more profitable geographies.

Lifepoint Health reported a net loss of $27 million in Q4 last year, down from a net income of $46.6 million in the quarter a year earlier.

For the full year, the system disclosed a net income of $112.9 million, down from $131.8 million the prior year. The 71-hospital system experienced a 2.7% decrease in patient admissions in 2017 and ended with a net long-term debt load of $2.8 billion.

In an earnings call, the Louisiana markets weren’t mentioned, but Lifepoint CEO Bill Carpenter called out one hospital the operator was losing to a competitor in the Georgia market over surgical volumes. Lifepoint ended up divesting its property in the market.

“Outside of that, I think the majority of this is either some slower acuity procedures moving into some physician practices within the community, but the vast majority of it is I think just the general slowdown that we are all experiencing in surgical volumes for the course of 2017,” he said on the Q4 earnings call.

As for-profit systems explore and narrow their market focus, hospital divestitures are expected to continue. But they are still looking for select opportunities.

HCA continues to add inpatient beds, for example, and while systems are exploring outpatient access points, certain inpatient services yield higher per-patient-per-service revenue.

These sales also allow other systems to grow and scale their intended target demographic. AHM currently operates 13 hospitals in Louisiana, Texas, Mississippi and Arkansas.

8 ways ‘right to try’ may affect health industry

After failing last week to pass the so-called “right to try” bill, members of the House finally approved the measure Wednesday night.

The bill would allow terminally ill patients access to unapproved drugs without federal regulatory oversight.

The bill passed 267-149 after House Democrats tried and failed to delay the final vote, citing concerns about safety.

The bill moves on to conference committee, where members of the House and Senate will work on a compromised version.

President Donald Trump has shown support for right to try in the past, advocating for it by name in his State of the Union Address last January.

So how will this affect the practice of healthcare? Here are a few points to consider. 

1. Physicians must contact drugmakers to request treatments for their patients.

2. A drug must have passed at least Phase 1 clinical trials. An estimated 11% of the drugs that pass Phase 1 ultimately get FDA approval.

3. Drugmakers and physicians are protected from liability.

4. Drug companies can refuse to provide the products.

5. Patients would be responsible for the entire cost of the experimental treatment.

6. Treatments would cost only what drugmakers pay to produce and ship the drug.

7. In 19 of the 38 states that enacted right-to-try laws, insurers can deny hospice care to patients who have used an experimental drug.

8. Insurers are not required to cover the cost of care for side effects from an experimental drug.

Enhanced privacy for substance abuse patients under debate again in Congress

House lawmakers have revived debate over the hot-button issue of enhanced privacy for substance use disorder patients. In a Thursday House Energy and Commerce Committee hearing on the opioid epidemic, advocates defended reversing the enhanced privacy policy as critical for providers who need to understand their patients’ treatment histories. But opponents blasted the measure as another hurdle for patients who fear seeking addiction treatment because of the stigma involved.

Providers have long advocated for the change, which they hoped would be included in the 21st Century Cures Act. Ultimately the measure, which was sponsored by then-Rep. Tim Murphy (R-Pa.), was dropped.

In a heated exchange, the bill’s new sponsor, Rep. Markwayne Mullin (R-Okla.), accused one of the expert witnesses of misleading the panel with overblown testimony.

The witness in question, Dr. Ken Martz, treats patients with addictions and presented lawmakers with some of the unintended consequences of cutting into the heightened HIPAA protections, known as “Part 2” protections under the Public Health Service Act, that bar any sharing of patient records relating to addiction with other providers.

Martz warned that because of the stigma involved with addiction, potential leaking of information could lead to discrimination against the patient when it comes to finding a job or housing, qualifying for loans and more. “The National Survey on Drug Use and Health continues to survey thousands, showing that shame and fear of retribution remain key reasons why people avoid treatment,” Martz said. “Their focus should be on their treatment and establishment of recovery not on politics aimed at protecting their right to privacy.”

But Mullin noted that it remains illegal for any treatment records to be shared with an employer or landlord, or in a criminal or civil court. Ultimately the question is one of protecting patients from getting prescribed medications they are addicted to, he said.

“Please be a little more factual about what you are saying. We bring you here because you are considered an expert,” Mullin told Martz. “You are misleading the panel when you don’t include facts.”

The debate for-and-against the measure largely broke down along party lines.

Rep. Doris Matsui (D-Calif.) noted that better training of physicians to work with patients on their medical history ought to be considered.

Democrats also pointed to the breaking Facebook data-sharing scandal and the heightened threat of cybersecurity breaches and threats, and how that could hurt patients who already face stigma.

Energy and Commerce ranking member Frank Pallone (D-N.J.) cited a survey that showed more than 50% of emergency department physicians at Johns Hopkins preferred not to treat substance use patients.

Pallone also noted the increased threat of records leaked through cybersecurity breaches that could release the data of a large swath of vulnerable patients, worsening the stigma.

But Rep. Larry Bucshon (R-Ind.) hit back against the idea of physician stigma, saying that as a heart surgeon he saw patients coming to the emergency department to seek narcotics in a legal way.

What is a problem, he said, is treatment of patients who have medical conditions unknown to the physicians, with unforeseen complications caused by medications the doctors were unaware of.

Dr. Eric Strain, director of the Center for Substance Abuse Treatment and Research at Johns Hopkins, testified on behalf of the Mullin bill, noting that even though providers may often know from their patients that they been through addiction treatment, they can still be hamstrung by not knowing what that treatment was.

The enhanced protection is an “artificial” distinction at this point, Strain said.

“I can know patients with substance abuse problems; they’ve told me, it’s in their records. But I still can’t get access to treatment records,” Strain said.

Along with the debate over the enhanced privacy, lawmakers homed in on expanding the prescription drug monitoring program and streamlining operations across states lines.

No fix in omnibus budget bill, insurers to up premiums, rethink individual plans

In a blow to health insurers, the House on Thursday passed a $1.3 trillion, two-year omnibus spending bill that didn’t include funding for cost-sharing reduction payments or a federal reinsurance program. Insurers had been lobbying hard to get something included in the massive spending bill. Absent that lifeline, insurers will likely be raising premiums and rethinking their participation in the individual market in 2019.

The omnibus bill, which the Senate must pass by midnight on Friday to avoid a government shutdown, marks what most feel was a final shot at passing measures to bring down premiums in the individual market before plans must decide where to sell and how to price coverage next year.

The industry’s dominant lobbying group, America’s Health Insurance Plans, and the Alliance for Community Health Plans, which represents not-for-profit insurers, are regrouping after the loss.

“We’re discouraged at the moment, but we’re not giving up quite yet,” ACHP CEO Ceci Connolly said, adding there’s still a chance that stabilization measures could be added as an amendment to the spending bill. “We are disheartened to see efforts to make this suddenly about stock prices or profits … This is a conversation about premiums for 2019, and it’s for working families.”

A $30 billion reinsurance program—health insurers’ top priority—was dropped from the spending bill along with funding for cost-sharing reduction payments on Monday. That came despite bipartisan support for the package after lawmakers on both sides disagreed over policy demands from the Trump administration, including the auto-renewal of short-term plans and applying anti-abortion language to the cost-sharing payments.

Without a federal reinsurance program that would have helped subsidize care for high-cost plan members, some health insurers could hike premiums further or exit the individual market altogether.

“Reinsurance would have been critical for counties or states that only have one plan,” said John Baackes, CEO of LA Care Health Plan, which tripled its individual market enrollment in 2018 to 76,000 paid customers. “The reinsurance fund was a safety valve. Without that, they are going to have more plans dropping out.”

Zeroing out the individual mandate penalty will cause insurers to raise rates, and funding for cost-sharing payments could have helped blunt those premium increases for some consumers, Baackes said.

Joel Ario, managing director of Manatt Health and former director of HHS’ Office of Health Insurance Exchanges, agreed that funding for a reinsurance program would have sent a positive signal to insurers participating in the individual market. But he said many plans that raised premiums for 2018 to account for the loss of the cost-sharing payments are now profitable, which means they’re more likely to keep selling plans.

“They are starting from a better position on the balance sheet, so I’m still hopeful we’ll have good participation in ACA-compliant market,” Ario said.

On the other hand, some experts insist that the individual health insurance market is better off without funding for cost-sharing reduction payments and reinsurance. They say consumers, particularly ones that receive subsidies, would have ended up paying more if the federal government resumed paying cost-sharing subsidies.

When the Trump administration halted cost-sharing reduction payments in October, insurers and state regulators in many states responded by raising premiums for silver-level exchange plans only, which in turn boosted the size of the premium tax credits that the majority of exchange enrollees received, insulating them from the premium hikes. Other consumers were about to get 2018 gold-level plans at a cost similar or lower than the silver plan, or a bronze-level plan with no premium.

Funding the cost-sharing reduction payments would reverse that trend, sending the price of gold and bronze-level plans higher and causing confusion for customers who had switched to those plans in 2018. Reinsurance funding, on the other hand, could have reduced premiums by an average of 10%, according to the Congressional Budget Office. While that would have benefited enrollees ineligible for federal financial assistance, it wouldn’t have much effect on subsidized customers.

Matthew Fiedler, a fellow at the Brookings Institution, said the stabilization package would have had little effect on whether or not health insurers chose to play ball in the individual market in 2019.

“Insurers participate when they think they can make money doing so, and this package wouldn’t have affected their ability to be profitable in this market,” Fiedler said. “Adjusting prices appropriately to reflect whether there’s a reinsurance program of CSR payments is relatively straightforward.”

Insurers already found a way to adjust their premiums to account for the absence of cost-sharing reduction payments. They hiked 2018 rates by an average of 20% strictly to account for those missing payments. Several analyses, including one published this week by the White House Council of Economic Advisers, found that though insurers struggled financially in the first few years of the ACA exchanges, most are now breaking even or making a profit in the individual market.

What may be of more concern at this point is the potential proliferation of plans that skirt ACA rules in 2019. Proposed rules would expand access to short-term health plans and association plans that don’t offer many of the consumer protections required by the ACA. Enrollment in noncompliant plans, along with the zeroing out of the individual mandate penalty at the end of last year, create uncertainty in what the risk pool will look like in 2019. It’s likely healthy people will be siphoned out of the individual market, leaving behind the sickest, costliest and most heavily subsidized consumers.

“You could see some insurers saying: I don’t know how to price for this market. I’ll come back when the dust settles,” Fiedler said.

Congress eyes curb on Chinese infiltration of US higher education

Several Republican lawmakers are backing a new bill that would further tighten the screws on Chinese “Confucius Institutes” in U.S. colleges and universities.

The bill, S.2583, was introduced by Republican Senators Marco Rubio and Tom Cotton, and is intended to amend two laws in order to make it harder for the Chinese government to infiltrate higher education.

Numerous lawmakers have expressed concerns that Confucius Institutes serve as “proxies for the Chinese Communist Party” on American campuses, pushing “manipulative propaganda campaigns” and using “strings-attached” funding to cow professors into conforming with the Chinese government’s priorities.

According to the Congressional Record published on Tuesday, the new initiative will “amend the Foreign Agents Registration Act of 1938 to limit the exemption from the registration requirements of such Act for persons engaging in activities in furtherance of bona fide religious, scholastic, academic, or scientific pursuits or the fine arts to activities which do not promote the political agenda of a foreign government…”

Likewise, the lawmakers seek to “amend the Higher Education Act of 1965 to clarify the disclosures of foreign gifts by institutions, and for other purposes.”

If passed, the bill would require Confucius Institutes to register as foreign agents and obligate universities to disclose any substantial donations received from abroad.

Earlier this month, Senate Majority Whip John Cornyn also blasted the suspicious activity of Confucius Institutes, arguing that the Foreign Investment Risk Review Modernization Act, another legislative effort that was introduced last year, will become “an important piece of our overall response” to China’s strategy.

“These institutes are proxies for the Chinese Communist Party,” the lawmaker said at the time.

“They offer schools financial benefits in exchange to set up shop in close proximity to U.S. researchers and students whose views they attempt to influence for what are essentially manipulative propaganda campaigns—ones that conveniently whitewash over the Communist regime’s less flattering attributes and their troubling history of human rights abuses and belligerence in places like the South China Sea.”

The bothersome relationship between the Chinese government and its Confucius Institutes has alarmed many lawmakers and foreign policy experts, who are now calling for colleges and universities to end their association with the China-linked groups.

According to ReutersChinese foreign ministry spokeswoman Hua Chunying dismissed U.S. concerns about the Confucius Institutes, arguing that the program is simply designed to foster educational and cultural exchanges between the two countries. 

Hua also blasted critics in Washington, urging them to “abandon these outmoded ideas and get their brains, along with their bodies, into the 21st century, and objectively and rationally view the trends of the time in global development and China’s development progress.”