AdaptHealth to Become Public Company via Business Combo With DFB Healthcare

AdaptHealth is the Third Largest Distributor of Home Medical Equipment in the United States

Combined Company Expected to Trade on the NASDAQ post-close

DFB Healthcare Acquisitions Corp. (“DFB”) (NASDAQ: DFBH, DFBHU, DFBHW), a special purpose acquisition company sponsored by Deerfield Management (“Deerfield”) and Richard Barasch, announced today that it has entered into a definitive agreement for a business combination with AdaptHealth Holdings, LLC (“Adapt” or the “Company”), the third largest distributor of home medical equipment (“HME”) in the United States. Upon the closing of the transaction, it is expected that DFB will be renamed AdaptHealth Holding Corporation (“AdaptHealth”) and remain NASDAQ-listed under a new ticker symbol.

The combined company will represent an initial enterprise value of approximately $1.0 billion and market capitalization of approximately $800 million.

Adapt’s management and major equity holders will roll their equity into AdaptHealth, and proceeds generated by the transaction will be used by AdaptHealth primarily to reduce debt and fund future growth and acquisitions. A fund managed by Deerfield has signed a subscription agreement to support the transaction to backstop redemptions and/or provide additional capital to the Company. Adapt’s current management team is expected to remain in place, supplemented by Richard Barasch as newly appointed Chairman of AdaptHealth.

Adapt: A Leading Provider of Home Medical Equipment

Founded in 2012 and headquartered in Plymouth Meeting, PA, Adapt offers a full suite of medical products for both rental and sale, with a focus on respiratory and/or mobility equipment, including CPAP sleep equipment, oxygen equipment, wheelchairs, walkers, and hospital beds. Adapt serves over 1.0 million patients and performs 7,000 deliveries per day across 49 states through more than 150 locations. The Company has created a scalable, purpose-built, and centralized operating platform that optimizes client service and delivery, improves compliance, drives operational and financial efficiencies, and increases enterprise-wide profitability.

The Company utilizes an extensive and highly diversified network of referral sources, including acute care hospitals, sleep labs, pulmonologists, skilled nursing facilities, and clinics; many of these referral relationships average 10+ years. Adapt maintains an attractive payor mix, primarily comprised of commercial insurers, Medicare and Medicaid.

A Record of Growth and Consolidation in an Expanding Industry

Adapt currently operates in a growing segment of the HME industry, which represents an estimated $12-$15 billion total market, within a broader HME industry representing $56 billion in total market value and forecasted to produce a CAGR of 6.1% through 2026. Multiple industry tailwinds are driving this expansion, including: favorable demographic trends, specifically the rise in individuals over the age of 65; increasing life expectancy; growing patient desire to receive care in the home; the economic advantages of home care versus institutional care; and the increasing prevalence of medical issues for which HME is indicated, such as chronic obstructive pulmonary disease, congestive heart failure, and sleep apnea.

The combination of industry growth and government mandates to reduce costs to patients in the largest HME spending categories has allowed Adapt to execute a strategy of organic growth, accretive acquisitions, and market-leading profitability in a highly fragmented industry landscape. Since 2012, Adapt has acquired 56 companies with an aggregate purchase price of approximately $286 million and has employed proprietary techniques alongside industry expertise to derive significant value from these acquired businesses.

Adapt intends to continue to focus on increasing net revenue both organically and via accretive acquisitions and has identified a significant volume of potential acquisition opportunities it will target in late 2019 and early 2020.

Seasoned Management Team and Board

Adapt’s management team is comprised of seasoned industry and financial professionals, led by Chief Executive Officer, Luke McGee, President, Josh Parnes, and Chief Financial Officer, Gregg Holst.

Richard Barasch, who will be appointed Chairman of AdaptHealth upon closing of the transaction, was Chairman and CEO of Universal American, an NYSE-listed health insurance and healthcare services company until its sale to WellCare Health Plans in 2017.

https://www.biospace.com/article/releases/adapthealth-to-become-a-public-company-via-business-combination-with-dfb-healthcare/

How Trump Is Reforming Medicare

The Trump administration is making fundamental changes to the Medicare program. These reforms are every bit as radical as the changes we have seenin federal policy governing employer-provided coverage and the market for individual insurance. Further, it seems likely that the changes initiated so far are only the beginning of a continuing shift in the role of government in health care.

The vision behind these reforms can be found in Reforming America’s Healthcare System Through Choice and Competition. This 124-page document from the Department of Health and Human Services challenges a premise behind 50 years of thinking in health policy circles: the idea that our most serious problems in health care arise because of flaws in the private sector. Most problems arise because of government failure, not market failure, the document declares, and it goes into great detail on how to correct the policy errors.

Trump policy toward health care is based on the idea of promoting choice, competition and market prices. In Medicare, so far, that means liberating telemedicine, liberating Accountable Care Organizations, ending payment incentives that are driving doctors to become hospital employees, promoting hospital price transparency, deregulating paperwork and creating more transparency in the market for prescription drugs. We’ll cover some of those policy changes today and the rest next week.

Liberating “Virtual Medicine.” The ability to deliver medical care remotely is growing by leaps and bounds. It promises to lower medical costs, increase quality and lower the time and travel cost of patient care. For example:

• After hip and knee replacements at Tallahassee Memorial HealthCare, patients are transported to rehab facilities, nursing homes and even to their own homes — where follow-up observations are made with video cameras.
• A nurse at Mercy Virtual Hospital in St. Louis can use a camera in a hospital room in North Carolina to see that an IV bag is almost empty. She can then call and instruct a nurse on the floor to refill it. The telemedicine cameras are powerful enough to detect a patient’s skin color. Microphones can pick up patient coughs, gasps and groans.

The problem? Medicare doesn’t pay for any of this. And since private insurers and employers tend to pay the way Medicare pays, the entire country is missing out on incredible advances in telemedical technology.

This is not an accident. Federal law (the Social Security Act) allows Medicare to pay for telemedicine only under strictly limited circumstances. For the most part, doctors can examine, consult with and treat patients remotely only in rural areas and even there, patients can’t be treated in their own homes.

Readers may be surprised to learn that even Medicare Advantage (MA) plans face the same legal constraints. An MA plan can contract with a separate vendor, like LiveHealth or Teledoc, who has met the many onerous regulations required by the Centers for Medicare and Medicaid Services (CMS) for Telehealth vendors.  But MA plans cannot pay their own doctors to conduct remote consultations with their patients.

The CMS is acting aggressively to change that. As of January 1 of this year, doctors in MA plans and Accountable Care Organizations (ACOs) can now bill Medicare if they use the phone, email, Skype and other technologies to consult with patients remotely to determine if they need an in-office visit. Patients can be anywhere, including their own homes. Doctors can also bill Medicare to review and analyze medical images patients send them. And, they can bill for telemedical consultations with other doctors.

So, how did Seema Verma (the administrator of CMS) and her colleagues overcome the legal barriers? By classifying these activities as “virtual medicine” or “communications technology” instead of “telemedicine.”

The new changes don’t go as far as people in the industry would like. But aCMS white paper makes clear the administration’s intention to do more. CMS is aggressively using its authority to sponsor federal telemedicine demonstration projects. Beginning in 2020, Medicare Advantage plans and Next Generation ACOs (see below) may seek and obtain waivers to use telemedicine for the monitoring and treatment of diabetes, heart disease and other chronic conditions.

If things go well, expect more liberalization in the future.

Liberating ACOs. The idea behind Accountable Care Organizations and Medicare Advantage plans is similar. In both cases, the federal government is encouraging the private sector to find innovative ways to reduce costs and improve quality – generally through integrated, coordinated, managed care. If the plan successfully reduces costs, it gets to keep some or all of the savings. If it improves quality it receives a bonus payment. Beyond that, the two models diverge.

Yet, as we explained in a recent post at the Health Affairs Blog, the MA market is better designed to meet four social goals: lower cost, higher quality, better information and the ability to adjust to changes in market conditions.

The original plan for ACOs was one of progression – evolving from shared savings to more savings for plans that take more risks to fixed payment for each patient in return for delivering all medical care. At the end of the line, ACOs will look more and more like Medicare Advantage HMOs. For the Trump administration, we can’t seem to get there quickly enough.

The administration is allowing Next Generation ACOs to (a) have greater freedom to communicate with patients,  (b) reward patients for meeting compliance measures, (c) offer additional benefits that patients must forgo if they go “out-of-network,” (d) have broad freedom to utilize telemedicine and in some cases (e) opt for full capitation.

Equalizing Physician Fees. The CMS vision paper expresses alarm over increasing concentration in medical markets – especially in the hospital and physician sectors. It cites a number of studies which conclude that increasing concentration means less competition and higher consumer prices. One reason for concentration in physician services appears to be the acquisition of doctors by hospitals. In 2010, 27.7% of primary care physicians worked for hospitals. By 2016, that number had climbed to 43.5%.

One reason for such consolidation appears to be that Medicare pays higher fees for the same service when the doctor is employed by a hospital. According to the Ambulatory Surgery Center Association, Medicare pays almost twice as much for hospital-based outpatient services as it pays for the same services provided by a free-standing facility. For example, Medicare pays hospitals $1,745 for performing an outpatient cataract surgery while paying surgery centers only $976.

Under a new CMS rule, Medicare will be moving toward parity over the next two years for billing codes covering about 50% of outpatient services. According to the CMS, current Medicare payment for a typical hospital-based clinic visit is approximately $116, with an average beneficiary copayment of $23. After two years, the payment rate for the clinic visit will fall to $46 and the beneficiary copayment will fall to $9, thus saving beneficiaries an average of $14 each time they visit the clinic.

The American Hospital Association is suing to block the rule change. But this illustrates something important about the powers of the executive branch. Many of the reforms described here would have been done by Congress – but for the influence of powerful special interests.

When Congress tries to reform health care institutions, special interests stop the reforms in committee. Under the Trump administration, increasingly the special interests must turn to the courts.

https://www.forbes.com/sites/johngoodman/2019/07/08/how-trump-is-reforming-medicare-part-i/#3a970a7e7897

Coherus BioSciences Shares Fall Following Q2 Sales Guidance

Coherus BioSciences CHRS 20.03% announced that UDENYCA preliminary unaudited net sales for the second quarter expected in the range of $79 million-$84 million.

Coherus BioSciences shares were trading lower by 13% at $19.77 on Monday morning. The stock has a 52-week high of $23.43 and a 52-week low of $8.32.

https://www.benzinga.com/news/19/07/14039542/coherus-biosciences-shares-fall-following-q2-sales-guidance

CEL-SCI up on encouraging arthritis vaccine data

CEL-SCI (CVM +3.1%) is up on below-average volume in response to data on a new potential rheumatoid arthritis (RA) vaccine candidate called DerG-PG275Cit that it says can complement its existing RA vaccine CEL-4000. The results were presented at i-Chem2019 in San Francisco.

In a mouse model of RA, vaccination with DerG LEAPS conjugates, alone or together with CEL-4000, modulated the inflammatory response and stopped the progression of arthritis.

The company and collaborators are leveraging the former’s LEAPS platform technology to develop a therapeutic antigen-specific treatment for RA under a $1.5M grant from the NIH’s National Institute of Arthritis and Musculoskeletal and Skin Diseases.

After the preclinical and IND-enabling studies have been completed, CEL-SCI plans to file an IND with the FDA seeking signoff to start clinical trials.

https://seekingalpha.com/news/3476231-cel-sci-3-percent-encouraging-arthritis-vaccine-data

Sol-Gel has positive results in trials of rosacea treatment

Sol-Gel Technologies Ltd. shares SLGL, +13.16% soared 9.5% in premarket trade Monday, after the company said that two late-stage trials of a treatment for papulopustular rosacea produced positive results. The Israeli company said the trials evaluating Epsolay(R) microencapsulated benzoyl peroxide cream, 5%, made with the company’s proprietary microencapsulation technology, met its main goals. Epsolay showed statistically significant improvement in both primary endpoints of the number of patients achjieving “clear” or “almost clear” in the Investigator Global Assessment (IGA) and absolute mean reduction from baseline in inflammatory lesion count, the company said in a statement. Papulopustular rosacea is a chronic inflammatory skin disorder that affects nearly 5 million Americans. Symptoms include redness on the cheeks, nose, chin or forehead and over time, it can cause pimples, burning, stinging, dry skin, plagues and skin thickening. Shares have gained 51.5% in 2019, while the S&P 500 SPX, -0.60% has gained 19.3%

https://www.marketwatch.com/story/sol-gel-technologies-reports-positive-results-in-trials-of-treatment-for-papulopustular-rosacea-2019-07-08-7912256

U.S. looks to extradite Chinese researcher in GSK trade secrets case

The U.S. wants Switzerland to hand over a Chinese scientist accused of helping his sister steal trade secrets from GlaxoSmithKline, Reuters reported on Monday. Gongda Xue allegedly received those secrets from his sister, conducted tests at his workplace in Basel and sent the results to associates in China.

Swiss authorities arrested Xue in May and are keeping him in custody while they mull the extradition request, Reuters reported. He is fighting extradition and considered a potential flight risk, according to a Swiss Federal Criminal Court Verdict.

Xue’s sister, Yu Xue, worked at GSK’s R&D unit in Pennsylvania from 2006 to 2016, when charges were brought and the Big Pharma fired her. She pleaded guilty last August to attempting to steal confidential research and funnel it to accomplices in China.

Yu Xue sent her own research and that of other GSK scientists to her personal email address, as well as to associates who founded Nanjing, China-based Renopharma, the Department of Justice said in a statement at the time. She did so between Jan. 1, 2012 and Dec. 28, 2015, according to the complaint.

The indictment, brought in January 2016, also implicated Yu Xue’s twin sister, Tian Xue, who was accused of hiding advances paid by Renopharma to Yu Xue.

As for where their brother fits in, Gongda Xue allegedly received trade secrets from Yu Xue relating to “involved antibodies that bind to tumor cells and kill them,” Reuters reported. He performed tests at Friedrich Miescher Institute for Biomedical Research, where he worked until 2014, and then passed results on to conspirators in China.

“Gongda Xue knowing received, bought, and possessed a trade secret belonging to GSK…knowing it to have been stolen…with the intent to convert that trade secret…to the economic benefit of someone other than GSK,” said one U.S. charge, according to Reuters.

https://www.fiercebiotech.com/biotech/u-s-looks-to-extradite-chinese-researcher-gsk-trade-secrets-case-reuters

Genocea Biosciences reinstated as Buy by Stifel

https://www.benzinga.com/stock/GNCA/ratings