Archive for August, 2010

Obamacare Helps the Middle Man?

Wall St. Journal reports that the ratings agency Fitch had increased the rating of McKesson (MCK), Cardinal Health (CAH) and AmerisourceBergen (ABC).  “Fitch Ratings announced on Thursday increased optimism about drug distributors, noting low debt levels and ongoing growth in the industry, which is expected to be further helped by the federal health-care overhaul.”

Fitch sees “moderate increases” in prescription volumes when Obamacare goes into effect in 2014, and concomitant leverage for MCK, ABC and CAH.  Like others, MCK is keenly aware of the disruptive power and shift in buying due to ObamaCare.  McKesson has been giving monthly updates on the Federal Stimulus, especially as it relates to McKesson’s Electronic Health Record offering.

McKesson has had a particularly good run over the last few months.  Successes include winning the coveted Walmart Supplier of the Year Award; increasing their shareholder dividend by 50%; and showing increased quarterly revenue for the quarter ending June 30, 2010.  McKesson cited strength in its Distribution Solutions Group, the same group that grabbed the Walmart Supplier of the Year Award.  That MCK Distribution Solutions Group is the one that will be able to leverage new buying contracts and volume when ObamaCare goes into place.

Consistent with the patient ‘land-grab’ happening among electronic health record providers including eclipsys, GE Health, Siemens, Cerner, Sage, PracticeFusion and Epic, McKesson took the hit on profit margins as they chose to invest invest more in developing their EHR offering.  They, like others, are keenly aware and caught in the race to position their software as uniquely designed to qualify providers as achieving ‘meaningful use’.  Said their CEO:

“We are pleased that the Department of Health and Human Services released the final rules for meaningful use and certification standards of electronic health record (EHR) systems under the Medicare and Medicaid incentive programs,” said Hammergren. “Providers now have the flexibility to achieve meaningful use by taking different paths to implementing an EHR system based on their needs and priorities, which we believe is critical to broad-based adoption. We remain focused on working with our customers to make sure they have the right resources in place to qualify for stimulus money and improve the quality of care for their patients.”

The future seems to hold a nice mix for McKesson: new, as yet inefficient Rx markets in existing distribution channels, increased Rx volume, and an existing clinical solution driven by ObamaCare stimulus and regulation.  Maybe this time the ratings agencies are getting it right.

Recently, the Proceedings of the National Academy of Science (PNAS) published an article describing the successful completion of IBM researchers mapping neural pathways of a macaque monkey.  IBM’s interest?  One of IBM’s chief interests is looking at design in substrates that can generate lots of intelligence in small spaces.  Being smart about squeezing lots of intelligence in physically small spaces can be used when designed next generation computer chips.  Indeed, one of the findings IBM was interested in is how architecting intelligence in a space-limited network (like the brain, which is bounded by the skull on the upper plane and by quantum physics at the lower plan) is different from the unlimited space of a social network.

The PNAS article included this comment (emphasis ours)

“We derive a unique network incorporating 410 anatomical tracing studies of the macaque brain from the Collation of Connectivity data on the Macaque brain (CoCoMac) neuroinformatic database. Our network consists of 383 hierarchically organized regions spanning cortex, thalamus, and basal ganglia; models the presence of 6,602 directed long-distance connections; is three times larger than any previously derived brain network; and contains subnetworks corresponding to classic corticocortical, corticosubcortical, and subcortico-subcortical fiber systems.”

Why is deeper analysis of brain networks important for the genetic predictions of Alzheimers?  Genetic testing for Alzheimer’s risk is at a standstill of sorts.  Consider this snippet from a widely read article on the limitations of genetic screening testing for Alzheimers:

“For the majority of people who are at risk for the late-onset form of Alzheimer’s disease, the most important factors are age, female gender, family history, and presence of the gene APOE4 . Even though people who have the APOE4 gene are more likely to develop Alzheimer’s, genetic testing is not very useful because so many people who have APOE4 don’t go on to develop Alzheimer’s, and there are plenty of people who don’t have APOE4 that do develop Alzheimer’s.”

It seems likely that APOE4 alone is not a good indicator.  What will be a much better indicator are multiple markers.  One approach for finding multiple markers is looking for single markers like APOE4; a better approach is to look down neural pathways to find where APOE4 is acting together with other genes—and their joint activity, decay, presence, or absence is a much higher correlate.  This is impossible without much deeper understanding of where the brain rural routes, highways, freeways, and superhighways exist.