Healthcare M&A remains hot, but value fell in Q2

• The second quarter of this year was the 15th quarter in a row with more than 200 M&A healthcare deals, according to a new PricewaterhouseCoopers report.
• The deal volume of 255 matches the average from the previous seven quarters. The amount declined by 7.3% compared with last quarter, but increased 9.4% year-over-year.
• Despite the active quarter, the value of healthcare deals was down. At $24.6 billion, the total was a decline of 66.1% compared to the previous quarter and 50.7% down from a year ago.

Factors that contributed to deal activity included private equity fundraising and investment and corporate strategic initiatives, Thad Kresho, U.S. health services deals leader at PwC, wrote in the report. “We don’t anticipate these trends to slow during the remainder of 2018,” he said.

​The value decline in the second quarter is attributed to more megadeal activity in previous quarters.

The second quarter’s lone megadeal, defined as worth more than $5 billion, was KKR’s acquisition of Envision Healthcare Corporation for $9.9 billion. That accounted for 40% of the quarter’s total deal value and is the third largest transaction since 2016.

The first quarter also only saw one megadeal, but it made up 92% of that quarter’s value. There were four megadeals in Q2 2017 that accounted for 56% of the value.

The other top deals for the second quarter were:

• Long-term care: Welltower’s purchase of Quality Care Properties for $4 billion.
• Managed care: WellCare buying Meridian for $2.5 billion.
• Physician group practices: Summit Partners acquiring Sound Inpatient Physician Holdings for $2.2 billion.
• Home health and hospice: Humana, TPG Capital and Welsh, Carson, Anderson & Stowe acquiring Curo Health Services LLC for $1.4 billion.

Long-term care continues to see the most deal volume with 104 in the quarter, sustaining a multi-year trend. However, physician medical group deals saw a 1,502.4% growth in value, mostly because of the KKR-Envision deal. Medical groups accounted for 49.4% of the quarter’s total deal value with $12.2 billion. A recent analysis from The Commonwealth Fund found providers are consolidating faster than payers, leading to more concentrated markets.

Managed care was the most rapidly growing subsector for volume with a 100% increase.

Healthcare M&A activity will remain hot in the coming quarters with vertical deals and megadeals expected. Two large deals to watch are Amazon’s announced acquisition of PillPack and the proposed AT&T-Time Warner merger. If AT&T-Time Warner happens, other megadeals could follow in healthcare, according to PwC.

Factors for more M&A this year include regulation and policy uncertainty, vertical integration (like Cigna-Express Scripts and CVS-Aetna), new technologies and new entrants in healthcare, sagging inpatient volume and higher costs and the move to value-based care and population health management, PwC said.

A recent New York Times article, citing data compiled by Thomson Reuters, said that the healthcare sector ranks third behind energy and media entertainment regarding total deal volume in 2018.

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Proton-Beam Therapy: Snags in US but Expanding Globally

Proton-beam therapy centers are proliferating around the world, despite remaining questions over what advantages it offers over conventional radiotherapy.

While it provides a high degree of precision, allowing an escalated radiation dose to be targeted directly on a tumor while sparing the adjacent healthy tissue, it remains controversial because of its high cost and limited evidence on how it compares with other forms of radiotherapy, as previously reported by Medscape Medical News.

The United States has the most proton-beam therapy centers, with 28 in operation, a jump from just 11 in 2013. In addition, 23 more are under construction or in development.

However, proton-beam therapy centers may be experiencing “growing pains,” according to a feature article published July 12 in the Lancet Oncology. Patient demand for the technology has been much lower than anticipated in some centers, and several centers have been grappling with financial losses or have missed financial targets, the authors report. For example, the Scripps Proton Treatment Center in San Diego, California, declared bankruptcy, is no longer affiliated with Scripps, and is now under new management.

A recent article from Kaiser Health News reported other centers with financial struggles, including one  at Indiana University that closed in 2014, and several that have been losing money and restructuring their debt. The Hampton University Proton Therapy Institute in Virginia has lost money for at least 5 years in a row, recording an operating loss of $3 million in its most recent fiscal year, the article noted.

Growing Globally

Despite the struggles in the US marketplace, proton-beam therapy centers are proliferating worldwide.

There are 63 facilities in operation, with 32 facilities under construction, and 16 more are in the planning stages of development, according to the Particle Therapy Co-operative Group, a nonprofit organization. With Argentina and Australia soon to be added to the roster, there will eventually be proton centers on every continent other than Antarctica.

About 165,000 patients with a variety of cancer types have been treated with proton-beam therapy, and in their latest global forecast, Research & Marketspredicts that it is on track to become a multibillion-dollar industry by 2024. The group estimates sales to reach between $2.3 to $4.3 billion by 2030, with 900 to 1300 particle therapy treatment rooms open to patients worldwide. The number of centers is anticipated to continue increasing each year.

In Europe, the market more than tripled between 2010 and 2017, and proton-beam therapy is being used for solid tumors, including those of the brain, spine, prostate, and stomach. Germany, Italy, Sweden, France, Denmark, the Netherlands, Switzerland, Russia, Spain, the United Kingdom, Norway, and Belgium are all setting up new centers or are in the planning stages. The European proton-beam therapy market is likely to continue growing from now until 2024, the Research & Markets group predicts.

About 60% of the global population resides in Asia, and it accounts for about half of the global cancer burden. The market in Asia for proton-beam therapy is also anticipated to increase at a double-digit growth rate from 2018 to 2024. While Japan currently has the largest number of centers in Asia, new facilities are under construction or in the development stages in China, Singapore, Thailand, and South Korea.

The first proton-beam therapy center in the Middle East/North Africa region has opened in Saudi Arabia, and another one is under construction in the United Arab Emirates. Egypt is planning a center at the Children’s Cancer Hospital Foundation in Cairo, and Israel has just announced that it will be finalizing plans to build a center. The Israeli Health Ministry estimated that approximately 250 patients will be treated annually in Israel, including 150 children. Building the facility will cost about $60 million, and another $6 million will be needed to operate it.

Arriving Down Under

A newcomer to the proton-beam therapy market is Australia, which has its first center in development in the city of Adelaide.

“The federal government has committed funding to the center in Adelaide,” said Scott Penfold, PhD, a medical physicist at the Royal Adelaide Hospital and University of Adelaide. “This is the only project that has received federal funding at this stage,” he  told Medscape Medical News.

He noted that the center is still in development and will not be in operation until 2021 at the earliest. As far as additional centers in the future, that will depend somewhat on the success of the one in Adelaide.

“We currently send patients, and their carers if required, overseas to receive proton therapy if it is deemed advantageous,” Penfold explained. “This is very costly considering the distances to be traveled. Opening of the other centers will certainly depend on demand for the service.”

An important consideration is whether the Australian healthcare system here, known as Medicare, will pay for proton-beam therapy. “We recently had a consultation report written to examine the evidence for proton therapy,” he said. “The report is currently receiving consumer responses and a final recommendation to the Health Minister is expected at the end of this year.”

Penfold added that they are hoping that at a minimum, patients who are funded to travel overseas will be covered by Medicare when a center opens in Australia. “We also hope for future consideration of wider indications,” he added.

Limited Access Up North

Despite some of the financial woes, the United States is forecast to maintain its dominant position in the proton-beam therapy market. But its neighbor to the North has not shown much interest in expanding its proton-beam therapy capacity.

Canada has one only facility, located in Vancouver, British Columbia (BC), which is primarily a research center. TRIUMF is Canada’s national particle accelerator center and a leading subatomic physics facility on an international level. Patients are treated there, but in a very limited capacity.

Cornelia Hoehr, PhD, Proton Therapy Manager at TRIUMF, told Medscape Medical News that they treat patients with choroidal melanomas, which are located at the back of the eye, and have done so since 1995.

“Our center is a collaboration between TRIUMF, the Eye Care Centre at the University of British Columbia and BC Cancer,” she said. “We are an older proton therapy center, and we only treat about 10 patients a year.”

Hoehr noted that they do not have any imminent plans to expand to treat other indications. “The BC health care system coves the cost for BC patient, and many other provinces do have agreements with BC to cover as well,” she said.

Hoehr also explained that they do have the capacity to treat more than 10 patients a year, and in fact, their ophthalmologist sees about 40 patients or so a year. “But she chooses to treat three quarters with brachytherapy, and only one fourth with the biggest tumors or tumors close to sensitive organs like the optic nerve are referred to TRIUMF,” she explained.

She added that there is “talk” about opening proton-beam therapy centers in Toronto or Montreal, given the very long distances patients living in the eastern provinces must travel to be treated in Vancouver. “For certain indications, Canadian cancer patients are referred to US centers,” she said.

Still a Niche Market

Despite the growing global number of proton-beam therapy centers, however, it is still very much a  niche market and represents only about 1% of all the external radiotherapy systems installed worldwide.

In 2017, just over 0.1% of all patients with cancer were treated with this modality, and by 2022, it is estimated that there will still be only 0.5 proton therapy treatment rooms per 10 million people worldwide, vs about 20 radiotherapy systems per 10 million patients.

By 2030, even if the projected 900 to 1300 treatment rooms will be available, that will still allow only 6% to 7% of patients with cancer to receive proton therapy treatment.

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Smarter cancer treatment: AI tool automates radiation therapy planning

Beating cancer is a race against time. Developing radiation therapy plans — individualized maps that help doctors determine where to blast tumours — can take days. Now, engineering researcher Aaron Babier has developed automation software that aims to cut the time down to mere hours.

He and his team at the University of Toronto’s Department of Mechanical & Industrial Engineering, including Justin Boutilier, supervisor Professor Timothy Chan and Professor Andrea McNiven of U of T’s Faculty of Medicine, are looking at radiation therapy design as an intricate — but solvable — optimization problem.

Their software uses artificial intelligence (AI) to mine historical radiation therapy data. This information is then applied to an optimization engine to develop treatment plans. The researchers applied this software tool in their study of 217 patients with throat cancer, who also received treatments developed using conventional methods.

The therapies generated by Babier’s AI achieved comparable results to patients’ conventionally planned treatments. — and it did so within 20 minutes. The researchers recently published their findings in Medical Physics.

“There have been other AI optimization engines that have been developed. The idea behind ours is that it more closely mimics the current clinical best practice,” says Babier.

If AI can relieve clinicians of the optimization challenge of developing treatments, more resources are available to improve patient care and outcomes in other ways. Health-care professionals can divert their energy to increasing patient comfort and easing distress.

“Right now treatment planners have this big time sink. If we can intelligently burn this time sink, they’ll be able to focus on other aspects of treatment. The idea of having automation and streamlining jobs will help make health-care costs more efficient. I think it’ll really help to ensure high-quality care,” says Babier.

Babier and his team believe that with further development and validation, health-care professionals can someday use the tool in the clinic. They maintain, however, that while the AI may give treatment planners a brilliant head start in helping patients, it doesn’t make the trained human mind obsolete. Once the software has created a treatment plan, it would still be reviewed and further customized by a radiation physicist, which could take up to a few hours.

“It is very much like automating the design process of a custom-made suit,” explains Chan. “The tailor must first construct the suit based on the customer’s measurements, then alter the suit here and there to achieve the best fit. Our tool goes through a similar process to construct the most effective radiation plan for each patient.”

Trained doctors, and often specialists, are still necessary to fine-tune treatments at a more granular level and to perform quality checks. These roles still lie firmly outside the domain of machines.

For Babier, his research on cancer treatment isn’t just an optimization challenge.

“When I was 12 years old, my stepmom passed away from a brain tumour,” Babier shares.

“I think it’s something that’s always been at the back of my head. I know what I want to do, and that’s to improve cancer treatment. I have a family connection to it. It adds a human element to the research,” says Babier.

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Story Source:

Materials provided by University of Toronto Faculty of Applied Science & Engineering. Note: Content may be edited for style and length.

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Journal Reference:

1. Aaron Babier, Justin J. Boutilier, Andrea L. McNiven, Timothy C.Y. Chan. Knowledge-based automated planning for oropharyngeal cancer. Medical Physics, 2018; 45 (7): 2875 DOI: 10.1002/mp.12930

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U.S. tax cuts prompt rethink by some ‘inverted’ companies

A few U.S. companies that moved offshore in a wave of inversion deals are considering returning to the United States now that domestic tax rates are lower and tax policing is tougher abroad, attorneys and consultants said.

A handful of clients have asked about redomestication, which could involve buying a U.S.-headquartered company, the tax advisers said. No specific companies or deals were identified.

Uncertainties about U.S. Republican President Donald Trump’s trade policies have also prompted the conversations, the advisers said.

“Inverted companies have reason to look at whether or not it still makes sense for them to be offshore, particularly those that manufacture product outside the U.S. and sell it back into the U.S.,” said Pam Olson, a Washington-based tax expert at accounting and consulting group PwC.

A surge of homecomings would reverse an on-again, off-again trend since the 1980s of U.S. companies reincorporating overseas to cut tax costs.

In an inversion, a U.S. company typically buys a smaller foreign firm in a lower-tax country and adopts the acquired firm’s headquarters.

That maneuver means the company does not have to pay U.S. taxes on foreign income, even if its management and operations remain in the United States.

Trump’s public shaming of companies that move plants and jobs overseas has also made some consumer-focused firms rethink inversions, advisers said.

Executives at inverted companies see less tax “friction” under the new tax regime that would discourage redomiciling, advisers said, and have also mentioned the appeal of corporate-friendly, low-tax states and improved access to U.S. government contracts in the discussions.

More than 60 U.S. companies have inverted, including medical device maker Medtronic Plc. There was a wave of deals in 2011-2014, but inversions largely ended in 2015 after a regulatory crackdown by Democratic President Barack Obama.

Pfizer Inc walked away from a $160 billion merger with Ireland-based Allergan Plc in 2016 because of new U.S. Treasury rules.

The Trump administration last month finalized and left in place the Obama-era rules.

The Republican tax overhaul signed into law in December eliminated a key inversion incentive by slashing the U.S. corporate rate to 21 percent from 35 percent and altering how foreign profits are taxed.

A push to prevent profit-shifting strategies and corporate tax base erosion across the 36-nation Organisation for Economic Co-operation and Development is also making foreign tax domiciles marginally less attractive, especially in Europe.

Tax advisers said it is still possible to structure lower tax rates in countries such as Ireland and the Netherlands.

How the U.S. Treasury implements parts of the new tax law will help determine whether companies return to the United States.

A new tax on Global Intangible Low Taxed Income, or GILTI, on its face imposes a 10.5 percent tax rate. But because the bill is poorly worded, it can result in rates of 15 percent or more due to unfavorable effects on foreign tax credits.

GILTI’s implementation could influence tax-base decisions among companies redomiciled in Britain, which may consider whether to relocate to the United States or other countries to avoid the effects of Brexit.

Redomiciling to the United States is a case-by-case decision, said Joe Calianno, tax partner at financial advisory firm BDO.

“It really is a modeling exercise to determine whether it’s more beneficial being a U.S.-based company versus a foreign-based company,” he said.

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CNS Disease Tied to Contaminated Raw Veggies

Angiostrongyliasis was linked with the consumption of raw vegetables containing larvae of the parasite Angiostrongylus cantonensis (often called “rat lungworm”) in the continental U.S., researchers found.

The CDC identified 12 confirmed angiostrongyliasis cases in the U.S. from 2011 to 2017, and six of 11 patients reported eating raw vegetables, reported Eugene W. Liu, MD, of the CDC, and colleagues, writing in the Morbidity and Mortality Weekly Report.

Rat lungworm infection typically occurs in Asia and the Pacific Islands. The A. cantonensis parasite lives in rats, which pass feces that are then ingested by snails and slugs (gastropods) that crawl on garden vegetables. The parasite is spread to humans when gastropods containing mature larvae of the parasite are “inadvertently ingested by humans,” the authors said.

While infection with A. cantonensis often involves transient mild symptoms, larval migration to the brain can lead to eosinophilic meningitis, focal neurologic deficits, coma, and death, the researchers noted.

Cases of angiostrongyliasis were identified through A. cantonensis polymerase chain reaction testing of cerebrospinal fluid (CSF) submitted to the CDC. All 12 patients had CSF pleocytosis and eosinophilia, consistent with eosinophilic meningitis. Most reported subjective fever, generalized weakness, headache, and numbness or tingling.

Although no specific treatment for A. cantonensis infection currently exists, 11 patients received systemic steroids and 7 were treated with the anti-parasitic drug albendazole (Albenza).

Two months after their initial evaluation, all 12 patients were alive and 11 had improved symptoms. Four people had ongoing focal neurologic symptoms such as cranial nerve palsies or lower extremity weakness; one patient developed seizures 5 months after initial diagnosis and was treated with anti-epileptic drugs.

Six cases were likely a result of local transmission in the southern U.S., the CDC researchers said: “Healthcare providers, especially those in the southern United States, need to consider angiostrongyliasis in patients with eosinophilic meningitis, particularly those with a history of ingestion of gastropods or raw vegetables contaminated with larvae.”

• Primary Source

  Mortality and Morbidity Weekly Report

  Source Reference: Liu E, et al “Rat lungworm infection associated with central nervous system disease — Eight U.S. states, January 2011–January 2017” MMWR 2018; 67 (30): 825-827.

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Fluidigm Q2 Revenues Jump 11 Percent

Fluidigm reported after the close of the market on Thursday that its second quarter revenues grew 11 percent year over year, driven in part by strong sales of its mass cytometry instruments.

For the three months ended June 30, the South San Francisco, California-based life science research tools firm reported total revenues of $26.4 million compared to $23.9 million in the same quarter a year ago, in line with analysts’ consensus estimate of $26.3 million.

Product revenues increased 12 percent to $21.8 million from $19.5 million year over year, while service revenues rose 9 percent to $4.7 million from $4.3 million.

By product category, instrument revenues grew 5 percent to $10.4 million from $9.9 million year over year as higher revenues from mass cytometry instruments were partially offset by declining genomics instrument sales. Consumables revenues increased 19 percent to $11.4 million from $9.6 million with growth in both mass cytometry and high-throughput genomics consumables, partially offset by decreased sales of single-cell genomics products.

By end market, mass cytometry revenues (instruments, consumables, and service) jumped 32 percent to $13.7 million from $10.4 million a year ago. Genomics revenues, however, fell 5 percent year over year to $12.8 million from $13.5 million.

In a conference call following the release of Fluidigm’s earnings, CEO Chris Linthwaite noted that in Q2 “robust instrument placements across pharma, translational research, and cancer centers were highlighted by our conversion of mass cytometry opportunities into orders at leading institutions around the world. Furthermore, mass cytometry consumables growth was strong, partially driven by remarkable adoption of our MaxPar Human Immune Monitoring Panel that was launched early in the second quarter.”

Linthwaite also noted that Fluidigm is primed to take advantage of the “explosive investment in the clinical, pharma, and research communities to answer questions about immune function. Most of these questions require an intersection of genomic and proteomic analysis, leading to an environment that is increasingly multi-omic. Fluidigm is a leading provider of tools to meet this need as researchers require a broad array of solutions and workflows across tissues, cells, and circulating biomarkers.”:

As an example, he noted that during the quarter an unnamed Japanese medical hospital adopted Fluidigm’s mass cytometry technology for a cancer biomarker project that is being funded by the Japan Agency for Medical Research and Development.

In addition, Linthwaite noted, Fluidigm had a “very exciting mass cytometry placement with a leader in the CAR-T cell therapy space” during the quarter. “As biotech and pharma companies investigate methods to use a patient’s own T cells to fight cancer, mass cytometry is an important tool to uncover new insights in cellular phenotypes, function, and signaling status that can further the development of cancer treatments,” he added.

Fluidigm’s Q2 net loss narrowed slightly to $16.2 million, or $.42 per share, from $16.9 million, or $.58 per share in the year-ago quarter. On an adjusted basis, loss per share was $.17, ahead of the Wall Street estimate of a loss per share of $.40.

The firm’s Q2 R&D expenses fell 1 percent year over year to $7.4 million from $7.5 million, while its SG&A spending dropped 10 percent to $19.0 million from $21.0 million.

Fluidigm finished the quarter with $39.4 million in cash and cash equivalents and $996,000 in short-term investments.

For the third quarter, the company said that it expects revenues of $26 million to $29 million. Analysts are expecting Q3 revenues of $27.9 million.

Separately on Thursday, Fluidigm disclosed in a filing with the US Securities and Exchange Commission that it has entered into a loan and security agreement with Silicon Valley Bank that provides the company with a secured revolving credit facility of up to $15 million. The company said it would use the loan for working capital and to fund general business requirements.

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Genomic Health Q2 Revenues Up 14 Percent, Beat Views

Genomic Health reported after the close of the market on Thursday that its second quarter reported revenues rose 14 percent year over year, beating the consensus Wall Street estimate.

For the three months ended March 31, the company’s total revenues were $95.6 million, compared with $83.8 million in the second quarter of 2017, when adjusted to the new ASC 606 accounting standard the company adopted this January. On a constant currency, pre-606 basis, revenues rose 13 percent in Q2 2018 from $85.5 million in Q2 2017. Analysts had predicted revenues of $92.1 million on average.

During a conference call with analysts following the release of the earnings, Genomic Health Chairman, President, and CEO Kim Popovits said that the company believes its growth was driven by enhanced operational efficiency, strong reimbursement for the Oncotype DX breast cancer test, and increased private payor reimbursement for the firm’s Genomic Prostate Score test.

“With increasing reimbursement in our US urology business and the global impact of the recently published landmark TAILORx results, we are on track to deliver double-digit revenue growth and full year profitability,” she added.

Long-awaited results from the TAILORx study — which answered what had been an unresolved question regarding intermediate risk-scores — were presented at the annual meeting of the American Society for Clinical Oncology in June, and simultaneously published in the New England Journal of Medicine.

Genomic Health CSO and Chief Medical Officer Steve Shak said during the call that reception of the new data has been very warm, including across “key countries where there remains significant opportunity for increasing patient access.”

Notably, the German Federal Joint Committee — an authority that decides which therapies and medical services are covered under Germany’s public health insurance system — said in July that it had commissioned the Institute for Quality and Efficiency in Health Care to evaluate the new TAILORx results on the use of biomarker-based tests in primary breast cancer.

Popovits said that the UK’s National Institute for Health and Care Excellence (NICE) made a similar pledge to consider the new data in its ongoing reevaluation of OncotypeDx and other similar assays.

During Q2, Genomic Health’s US product revenues rose to $81.4 million from an ASC 606-adjusted $71.0 million in Q2 2017. The company’s invasive breast cancer testing in the US rose 13 percent to $72.5 million from $64.2 million in the year-ago quarter. Revenues from the company’s Genomic Prostate Score test rose 63 percent to $6.7 million from $4.1 million in the same period last year.

Genomic Health said that it delivered more than 33,590 Oncotype test results during the quarter compared to 31,550 in the same period last year. The company’s Oncotype DX breast cancer testing volume grew 4 percent in the US, while prostate cancer test volume increased 32 percent compared to the prior year’s quarter.

Popovits said that the company has now seen multiple private payor coverage decisions for its prostate cancer test, including a new positive decision by an unnamed “top five national payor,” bringing the total number of covered lives for the GPS test in the US to “more than 92 million.”

During a question and answer period, she added that the company believes it is likely that it will see at least one more positive coverage decision from another major payor before the end of the year.

Finally, although Popovits said the firm plans to continue to actively develop its urology pipeline, she also announced during the call that Genomic Health has discontinued its early-stage development of the IsoPSA assay, terminating its milestone-based licensing agreement with Cleveland Diagnostics.

Outside the US, Genomic Health’s international product revenues increased 11 percent to $14.2 million from an adjusted $12.8 million in Q2 2017. The company said it delivered about the same number of international tests as it did in the same part of last year, with international testing making up approximately 23 percent of its overall test volume during the quarter.

Genomic Health’s second quarter net income was $8.3 million, or $0.23 per share, compared with a net loss of $2.7 million or $.08 per share, a year ago. Analysts, on average, had expected income of $.06 per share.

The company’s R&D costs in Q2 shrank slightly to $15.3 million from $15.8 million the prior year, while SG&A costs dropped to $58.8 million from $59.1 million.

The firm ended the quarter with cash and cash equivalents totaling $53.8 million and short-term marketable securities of $99.1 million.

For full-year 2018, Genomic Health expects revenues of $366 million to $382 million, EPS of $.00 to $.14, and adjusted EPS of $.39 to $.56. Analysts are expecting revenues of $377.1 million for the year and EPS of $.45.

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