Wednesday, February 16, 2011

Michael Milken warned us: The capital strike on the healthcare sector--update

In a Wall Street Journal opinion piece entitled, "Health-Care Investment--The Hidden Crisis," Michael Milken warned us that the relatively weak performance of the pharma sector was a "ominous" sign for all Americans.  After all, the health of the pharma sector has a direct bearing on all of us--for the obvious reason that we all depend on medicines.  Pharma is not just another industry creating (hopefully) jobs and wealth.  It is an industry we rely on to create health, too.   And yet now we see still more confirmation that Milken was right to raise the alarm.

The headline atop Joe Weisenthal's story in The Business Insider today is bold, and encouraging about the stock market and the overall economy:  "BofA/Merrill Issues Big, Bullish Report On Tech, And Says To Buy These 10 'Titans' Of The Industry."  The 'titans" cited include Google, Oracle, and IBM.   

Once again, that's great for those companies--the bulls are becoming bullish once again: The gray risers show the old "weighting" for stock portfolio holdings, while the blue risers show the new weighting.  In other words, the new blue risers show that tech should be up, relative to other holdings.   But now take a look at where the health sector ranks as possible stock portfolio holding--as the chart shows, it was down before and even more down now:  




That's healthcare over there in the chart, on the far right--in negative territory.   Such a negative rating for the healthcare sector may be justified on the economic fundamentals; after all, the continuing crisis of regulation and litigation--plus now Obamacare--does make prospects for the industry seem dim.  

But as Milken observed, if the economics of the business are worsening, then prospects for our own long and healthy lives are worsening, too.  

UPDATE: Ilana Mercer points me to this EE Times article from last September 17, headlined, "Regulations rise as VC's exit health care."  In other words, there's more than one way to provoke a recession in the healthcare sector.  Capital not coming in, that's one way.  But why is the capital not coming?  One big reason is the climate of regulation and litigation.  There are simply easier ways to make money. 

As reporter Rick Merritt noted in his EE Times piece, "As many as three-quarters of venture capitalists are exiting the health care field as the total pool of venture capital decreases and regulatory hurdles increase."  Here's some more from that scary article: 

Medical electronics companies face increasing hurdles getting funding and regulatory approval to bring new technologies to market, according to executives at a medical device event here.  "We're in a bit of a perfect storm right now with some of the worst things I've seen in 30 years," said Eamonn Hobbs, chief executive of DelCath Systems and chairman of the Medical Device Manufacturers Association (MDMA), host of the event.

As many as three-quarters of venture capitalists are exiting the health care field as the total pool of venture capital decreases and regulatory hurdles increase, said Kevin Wasserstein, managing director of Versant Ventures (Menlo Park, Calif.) which focuses on health care.

"Even entrepreneurs have started to retreat from pursing big ideas [in health care], and we risk as an industry evolving to incrementalism and safer projects," said Wasserstein.

Some of the about 100 medical devices executives gathered here complained about what they said was an increasingly conservative and slow-moving U.S. Food and Drug Administration. The chief executive of one medical device company said his product is approved for sale in Europe, but is still waiting on an FDA OK to begin clinical trials.

"The conversation in the hallways is about how we are off-shoring our medical innovation," said one attendee in a Q&A session with FDA principal deputy commissioner Joshua Sharfstein.






4 comments:

  1. If the FDA is killing American jobs and an American Industry; which it is, then we should kill the FDA! No?

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  2. Perhaps someone should maintain a count of the number of people dying every day on average because of the policies of the FDA, Medicare, and other government controls over our medical care, drug, and technology industries. They get all kinds of credit for approving drugs, or paying for someone's liver transplant, but how often does anyone compute the body count and make them account for it when they merely impede progress, discourage investment, and slow down the folks actually trying to make our lives better and longer? What's a reasonable number? Dozens a day? Thousands?

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  3. we're looking for the advances in health that pharmacology gave us over the past 50 [or 100] years. but those advances came from finding chemicals that fought infectious disease. those solutions gave longevity a huge boost. but the cure for genetic disease is much more illusive and much more expensive, so we're not going to have the results in 2011 to 2061 that we had in the earlier 50 year period, no matter how much we spend. and performing medical procedures on 70 and 80 year olds [hearts, hips and knees] is going to be horrendously expensive. actually, unaffordable. get used to it.

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  4. Such a negative rating for the healthcare sector may be justified on the economic fundamentals; after all, the continuing crisis of regulation and litigation plus now Obamacare does make prospects for the industry seem dim. They get all kinds of credit for approving drugs, or paying for someone's liver transplant, but how often does anyone compute the body count and make them account for it when they merely impede progress.
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