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Category Archives: Health Care

Healthcare in this country is F’d

Don't we need to pay our doctors?

In Obama’s latest budget for fiscal 2012 we see yet another example of why healthcare in this country is screwed.  In order to preempt scheduled cuts to physician Medicare payments, the budget implements a solution to the “Doc Fix” that will reallocate $54 billion of government spending to doctors.  Of course, this large chunk of change needs to come from somewhere, and a significant portion of those funds will come from savings to the Medicaid program.  States will be limited in the levies they can put on healthcare providers such as hospitals.  This, in turn, limits the revenues generated by state Medicaid programs, and thereby limits the Medicaid funds that the federal government must match.  The savings generated from those matchings will go to docs.

As you can imagine this proposal garnered praise from the doctor community and criticism from Medicaid advocates.  Unfortunately it’s going to be very hard to reconcile these  two opinions.  With one third of doctors above the age of 55 we need to motivate young, intelligent individuals to go to medical school, and the way we do that is with the promise of financial security (albeit less than previous generations of doctors enjoyed).

Cigna (CI) - Undervalued Stock


Cigna (CI) is amongst 7 Undervalued Stocks from the Cheapest Sector, according to a February 11, 2011 article on TheStreet.com.

Health care is the stock market’s cheapest sector (based on earnings projections) and CI, in the past 12 months, has rallied 30 per cent.

Check out this CI Socratic Trade Review made by Hedge Fund LIVE Trader Jeffrey Tynik, and learn how he handled a trade in CI over 12 months ago.


Broader Market Considerations for a Healthcare Fund

We just kicked off the health care trading desk here at Fuqua, and we’re all very excited about the opportunity.  We’re starting off pretty conservatively with a few big plays on Insurance and Big Pharma ETFs, but we have ambitions to get a lot more sophisticated in both our analysis and trading strategies as  we get comfortable with the process.

One of the interesting concerns that came up during our last meeting was how we planned to address movements in the broader market.  For instance, if we expect a 10% corrective sell-off to impact the S&P500 over the next couple of weeks, how should we act on that information?  We are a health care fund, because we are all health care experts (or at least that’s what we tell people).  Therefore, or mandate is to invest in the health care space - a space where we should have a real competitive advantage.  Is it our place to be making bets on the broader market?  One school of thought says that we should stick to what we know, and not try to beat the broader market, but the other school of thought says that we would be foolish to leave money on the table if have real reason to believe that there will be a sell-off.

This is still very much an open question, but here’s my opinion.  I think we should feel free to try to protect our portfolio’s value by making selective investments (specifically puts and calls) on the value of the S&P500.  A case could be made to go as far as investing in Gold if we believe that a real “flight to quality” is about to occur.  In general, these types of investments should not become a cornerstone of our strategy, but I feel like we would be doing ourselves a disservice to wall ourselves off entirely from investments in the broader market.

Any thoughts or advice are welcome…


Quick Bio:  I am a first-year student at Fuqua, and one of the inaugural members of the school’s health care hedge fund team.  I come from a biomedical engineering background with significant management consulting experience in the biotech/pharmaceutical space.

ALNY, RNA Interference, & Jeffrey

Big pharma drops RNA interference

I believe it was a couple weeks ago that I heard Jeff “the tin man” Tynay mention that he was looking into trading some ALNY.  I bought a little ALNY back in 2006 around $18 per share.  At the time I was a young whippersnapper in graduate school and my very British molecular oncology professor displayed a hint of excitement when lecturing on “RNAi” or RNA interference, best known for gene silencing.  RNAi is a naturally occurring mechanism in which the body prevents a gene from producing a mutated or abnormal protein.  Many human diseases can be traced back to abnormal protein production and the ability to turn off or silence these proteins has shown measurable results in laboratory settings.  Drug companies took note of the lab work being done and initiated their own RNAi programs.  Nonetheless, what started out as a promising road to treatment is, it appears, coming to an end.  An article in the New York Times sums up the death knell of RNAi evident in the pharmaceutical industry:

“The biggest bombshell was dropped in November, when the Swiss pharmaceutical giant Roche said it would end its efforts to develop drugs using RNAi, after it had invested half a billion dollars in the field over four years.  [And] just last week, as part of a broader research cutback, Pfizer decided to shut down its 100-person unit working on RNAi and related technologies.  Abbott Laboratories has also quietly shelved its RNAi development work.”

The article goes on to say that “the loss of appetite at the big companies is hurting smaller companies that specialize in RNAi”, most notably Alnylam.  RNAi is facing competition from other gene silencing technologies as well as from more traditional drug mechanisms.  The author does quote some big-pharma-big-wigs who essentially believe that RNAi will one day make it to market, although best efforts should be focused elsewhere for the time being.  Alnylam has a RSV drug in phase 2 trials, but they won’t generate revenue from that program any time soon, and the licensing of their RNAi technology to drug companies has waned, as expected.  It looks like another 18 handle on ALNY may be a ways in the future (if at all).

Healthcare focused desk

One question that I would like to address is what is special about a health care focused desk?  After all, the health care index has been underperforming the S&P 500 over the past year.  There are several characteristics that make health care an attractive investment, whether it be to provide diversification to a core fund or be fund specific.

-First the health care sector itself is highly diversified and a health care portfolio can be constructed in many ways.  Several sectors include pharmaceuticals, biotech, medical devices, diagnostics, medical supplies, hospital providers, health care insurance, health care services, health information technology, generics, genomics, with many companies spanning several sectors-or integrating through various parts of the value chain.  Additionally, many sectors appear to be uncorrelated with each other.

-Due to the large number of firms, it is estimated that 80% of health care firms are not followed closely by Wall Street thus giving opportunities to capitalize on information asymmetries.

-Historically,  the health care industry has been non-cyclical and returns have been uncorrelated with broader equity markets and typically has a beta less than 1.  Prior to the financial crisis, growth had been fairly consistent for the past 40 years.

-Another key characteristic are binary events, meaning that a health care stock can go up or down depending on the direct failures and successes of the company, and are mostly uninfluenced by broader market conditions.  This makes betting on key events (i.e. drug approval) an important portfolio strategy to consider.

In terms of constructing our own portfolio strategy, we had to take all these characteristics into account.  One starting point was deciding how to hedge against binary events for a single company when it is not planned for (when not betting on events).  For example, we don’t know when suddenly a company’s product has a newly discovered side effect and needs to be recalled.  One way it to have a long-term put option to limit our losses or have a sector ETF for that firm.  I think we are leaning towards a sector ETF to manage the risks associated with a single company, even though the ETF itself has its own risks associated with it.

Thus, it is likely that a strategy involving reducing unplanned binary risks through diversification of health sectors and companies with a sector will be used so that it will allow us to gain exposure to only those binary events that we decide to bet on, using hopefully, our understanding and knowledge of the health care markets and companies.

oh caffeine

Thank God for caffeine.

I don’t know a single person who hasn’t at some point relied on a cup of coffee (or red bull etc) to help them stay alive through an all-nighter or a tough day. The first time I learned to put together a cup of coffee was when I was six years old. Kudos to the parents for giving me a great education.

Flip-side; As much as I love caffeine and energy drinks, I have to admit there are concerns as to the intake common in society today. Those 0f you who suffer personality changes and splitting headaches without your three cups of coffee know exactly what I’m talking about. I’ve had friends that have had the lining of their inner organs severely irritated by excessive caffeine consumption.


Sounds harmless and full of fruit punch innocence, no? My debate partner passed out from a four loko (granted, the five shots and beer taken beforehand also had something to do with it). The first time I ever drank a double shot espresso was a time of humiliation. I chugged it as I walked into a debate round, and that was the worst debate round I have ever had. I must have sounded like a chipmunk on steroids.

Let’s move on to more substantive evidence, which will be taken largely from http://www.edrinks.net/energy-drinks/caffeine-controversy.aspx

Tea, soda, chocolate, candy, 5-hour energy drinks, red bull, caffeine gum, caffeine mouth spray, medicinal OTC stimulants - more caffeine. All the intake contributes to sleeping problems, heart palpitations, and anxiety. This isn’t just a warning to older people - there have been 14 year olds suffering heart palpitations that were partially caused by caffeine intake. To quote the e-drinks article, “Caffeine may also lead to irritability, dangerously accelerated heart rates, restlessness, excitability, dizziness, headaches, concentration lapses, gastro-intestinal pain, dehydration and, in the worst-case scenario, overdose.” The cardiovascular system is hit the hardest, so those with high blood pressure, beware.

energy drinks

http://www.energyfiend.com/death-by-caffeine lets you know just how many Monsters or Red Bulls or whatever it will take to kill you. It’s not that most people set out thinking that they want to wreck their body with excessive caffeine - more often, people are so focused on getting their work done that they remain unaware of the damage slowly being done. Meeting up at a Starbucks/grabbing coffee is so common. Media images of the typical Manhattanite or student with a latte in hand abound. Coffee is being portrayed like water.

http://www.caffeinedependence.org/caffeine_dependence.html tells us that 30 mg of caffeine alters a person’s mood. 100 mg a day leads to dependence. The average American consumes 280 mg daily. People with caffeine dependence are more prone to depression, irritability, and motor/cognitive impairment resembling that of a drunk frat guy. Caffeine dependents can even develop flu-like symptoms as a result of too many pumpkin spice lattes. Who knew. The website cited lists a variety of relevant info, including correlations between caffeine intake and workplace errors, bad parenting actions, and poor academic performance - shocking, because we expect caffeine to help us do the very opposite.

The next time you buy that latte, make sure you have a limit for how many you’re going to drink in a given week.

Oh, and btw- if you’re ever in India sometime later this year, keep your eyes open for any shiny new Starbucks, because today,  Starbucks announced that it is expanding there.

Drink Responsibly this weekend…

Cops: Drunk driver can’t tell his Fairfields apart
Published: 07:03 a.m., Saturday, November 13, 2010

A man charged with driving drunk Thursday night in Fairfield also missed his intended destination — by two states and more than 60 miles.

Luiz Perez, 70, of Paterson, N.J., who told local police he thought he was in Fairfield, N.J., was charged with driving under the influence and failure to drive right about 7 p.m. Thursday after police said he was spotted driving on the wrong side of the Post Road.

Fairfield authorities had been alerted by Easton police to be on the lookout for a dark-colored Toyota Previa, as it had been involved in a hit-and-run in that town. Perez’ vehicle had heavy front-end damage and its headlights were not functioning, said Sgt. Suzanne Lussier, a Fairfield police spokesman.

When Perez was pulled over near Westway Road and Pequot Avenue in the Southport section of town, he failed to pass field sobriety tests.

Police said he appeared to be so intoxicated that thought he was in Fairfield, N.J., which is 14 miles from his hometown, according to mapquest.com. He wound up, however, nearly 63 miles from home.

So you can put a price tag on curing cancer…

On April 29, 2010 the FDA approved Provenge, Dendreon’s (DNDN) late-stage prostate cancer-fighting vaccine.  Soon after the approval was announced, CMS said they would organize a national coverage analysis for Provenge.  While most Medicare reimbursement is decided at the local level, CMS will occasionally make a National Coverage Determination (NCD).  This is often the case when a new, unprecedented drug or treatment comes to market, and Provenge fits both of those criteria.  There is one aspect of Provenge, however, that some think is getting more attention than it should as a November 17 public advisory panel approaches- its price.

The late-stage prostate cancer victim gets blood drawn.  The white blood cells in the blood are then separated via leukapheresis and sent to Dendreon’s manufacturing facility.  Dendreon technicians then introduce a recombinant human protein found on ~95% of prostate tumor cells to the patient’s antigen-presenting cells (APCs) and formulate a vaccine.  The vaccine is then sent back to the patient’s doctor who injects the vaccine into the patient.  This process is quite a to-do and, understandably, is quite expensive.  Each vaccine developed brings with it a price tag of $31,000 and the standard regimen is 3 vaccines for a grand total of $93,000 per treatment.

National coverage analyses are supposed to focus only on therapeutic effects (Provenge does prolong life by several weeks for prostate cancer victims), but with spending cuts and repealing health reform on everyone’s mind after last week’s election, price just may creep into the minds of those whose opinions matter.

Virtualization: VMW, RHT, CTXS

An interesting article out in the IT News this morning, Gartner a firm that specializes in Technology Research and Business Leader Insight has a piece out discussing virtualization.  Virtualization and Cloud Computing stocks have become the poster child of the new age high flying tech names over the last year   and Gartner continues to see growth for years to come.

In the note Gartner stated one out of every four server workloads will be in a virtual machine by the end of 2010, and that enterprises should attempt to double or triple the size of their virtualization deployments.

“More than 80 percent of enterprises now have a virtualization program or project, but only 25 percent of all server workloads will be in a virtual machine by year-end 2010,” Gartner reports, suggesting that the analyst firm believes enterprises haven’t gone far enough. Virtualization is “the highest-impact issue challenging infrastructure and operations,” the analyst firm says.

Virtualization has been around for decades on the mainframe, but the adoption of virtulization on x86 servers, which make up 90% of the server market, is where the technology has seen its greatest growth.

According to VMware, its customers include every member of the Fortune 100. But some enterprises are still reluctant to place their most critical applications in virtual machines because of security concerns, performance issues and software licensing complications.

The proportion of virtualized workloads should continue growing significantly, as TheInfoPro and other researchers have reported that more than half of newly deployed servers are actually virtual machines, and that this number will hit 80% by 2012.

With Gartner saying “only” one quarter of workloads are virtualized, that means a lot of workloads that were running on physical machines have stayed put.

Server hypervisors are often free or sold inexpensively, so the ability to consolidate workloads onto fewer physical machines is readily available. But “as virtualization matures, the next ‘big thing’ will be automating the composition and management of the virtualized resources,” Gartner said.

VMware, Microsoft and Citrix, the most widely used virtualization vendors, are all touting their ability to automate management of virtual resources and build cloud networks. But they have competition from Red Hat, Novell and others

VMW: $88.39 +1.06%

MSFT: $24.56 (0.68%)

CTXS: $70.41 +1.32%

RHT: $40.95 +0.29%

NOVL: $6.13 +1.00%

Progress slow but sure on biogenerics

FDA is scheduling a public hearing for November 2-3 to discuss the development of biosimilars.  Biologic drugs, however, are complex proteins so copycat versions may be “similar” but not completely identical or have the same efficacy and safety profile. While FDA now has the authority to approve biosimilars, the agency has struggled so far to come up with clinical testing standards to ensure that patients treated with biologic copies receive the same benefits while not being put at any greater risk.  The hearing will be held to obtain input on issues and challenges associated with implementation of follow-on biologics such as what is the exact definition of “interchangeable status”.  Without interchangeable status (like chemical generics have) doctors would have to specifically prescribe the biosimilar drug and switching between the copy and the branded version would not be allowed.  In August 2010 the FDA decided to approve a biosimilar version of the SNY anticoagulant Lovenox.  The anemia drugs Epogen and Procrit sold by AMGN and JNJ are susceptible to biosimilar competition, as are AMGN’s RA drug Enbrel, Roche’s cancer and RA drug Rituxan, and BIIB’s MS drug Avonex.