Health products industry copes with uncertainty


Uncertainty over the direction of health care reform sent the industry's stocks plunging several months ago, but analysts now say changes will be less catastrophic and come slowly enough for companies to adjust their business strategies.

As Alex. Brown & Sons Inc. opened its 18th annual health-care conference at the Hyatt Regency in Baltimore yesterday, chief executives from throughout the industry said they were aiming to develop cost- effective products and differentiate their business.

"All health-care stocks are depressed, but increasingly investors are sorting out which companies can be successful in the changing environment," said Neal C. Bradsher, an Alex. Brown health-care analyst.

While the mood at the conference was less upbeat than a year ago, investor interest remained. As they did last year, venture capitalists and institutional investors showed up in record numbers to assess the 130 private and public companies making presentations and to find good deals in an industry that now appears to have reached bottom.

Alex. Brown is one of the nation's largest investment bankers in the health-care industry. This year, more than 1,500 people were expected at its seminar.

For health-care companies such as Physician Sales & Service Inc., of Jacksonville, Fla., and OccuSystems Inc. of Dallas, whose spectacular growth has been financed by venture capitalists, the winning strategy has been to increase volume and cut costs in highly specialized areas.

Physician Sales, a 10-year-old company that provides same-day delivery of supplies to physicians' offices, said it was aiming to be the nation's No. 1 physician supplier. It says its growth will come from supplying doctors with more products to allow them to treat patients in their offices or lower-cost outpatient centers.

It expects to reach $150 million in sales this year, up from $118 million last year. Physician Sales said it was reducing the total health-care bill by removing doctors from the inventory business.

"We are the Federal Express of the Band-Aid business," said Patrick C. Kelly, president and chief executive officer.

OccuSystems has found a niche in the part of health care where costs have skyrocketed even higher than in the rest of the industry: work-related injuries and illnesses.

Its centers contract with companies for treatment of sick or injured workers. Its strategy is to target the 70 percent of health-care bills that is due to lost work days, administrative costs and legal bills. The company carefully monitors patients, speeding up tests, treatment and paperwork.

These kinds of strategies drew the interest of investors, who were lined up double file yesterday for a copy of the company's annual report.

For medical biotechnology companies, capital is difficult to raise in the current public market. As a result, such companies will try to preserve what they have in the bank, said Alex. Brown analyst David Webber.

"Already, we have seen several rounds of private financing," he said, for both private and public firms.

Those that are unable to raise the capital they need are likely to license their products to larger pharmaceutical companies or scale back their product development.

But to some degree, biotech companies will be insulated from an expected attempt to cap the cost of drugs, analysts said, because they are developing drugs and therapies for diseases for which there are no cures or treatments today.

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