About Kristi Park

ER docs and vampires take note: Scientists have figured out how to turn embryonic stem cells into human blood.

In a study published in the (aptly named) journal Blood last week, researchers at a company called Advanced Cell Technology tell how exposing developing stem cells to a combination of proteins coaxed them into becoming red blood cells. The process is not ready for prime time: It’s way too expensive for mass production, for one thing, and it’s also not clear that the blood produced with the current process would be transfusable. But the breakthrough — which could potentially eliminate the prospect of blood shortages (not to mention the unpleasantness of donating blood) — nevertheless represents a significant technical success in the beleaguered field of US stem cell research.

US researchers have largely been denied federal funding for embryonic stem cell research since President Bush’s 2001 executive order limited funding to existing stem cell lines. And though state and private funding have taken up some of the slack by bankrolling laboratory and animal research in the field, very few are willing to take the next risky step of funding clinical research (that is, research in human subjects).

Nobody knows that trouble better than Advanced Cell Technology, which despite its recent success with the blood study and others in the area of age-related macular degeneration, is just about broke. Its first-quarter report for 2008 included a financial warning indicating it would require additional cash from somewhere to keep operating. Perhaps the company will find it, or at least be able to hold on until a new president lifts the ban that is impeding medical advancement in the field.

While the big for-profit hospital operators continue their long-term turnarounds (HMA, Tenet, and LifePoint have all posted financial improvements this quarter) and politicians of all stripes debate the merits of expanded health insurance coverage, the nation’s health care safety net — the US’s patchwork system for caring for the poor and uninsured — continues to adapt to industry realities in order to survive. Problem is, surviving may have led them to abandon their main mission: serving as the last resort for indigent patients needing health care.

A new report in the journal Health Affairs (via the Wall Street Journal Health Blog) chronicles the ways in which safety net providers have adapted to competitive pressures in an increasingly profit-hungry health care world. And the upshot is that the doctors, community health centers, and public and not-for-profit hospitals that make up the safety net are, in some cases, turning their backs on Medicaid patients and the uninsured and focusing their attention on more profitable service offerings (heart surgery, anyone?) and populations (i.e., those with insurance).

The Health Affairs article lists a number of factors involved in the shifting strategies of safety-net providers. Among them are:

• the continuing rise in the number of uninsured patients, leading to increased demand for services and higher levels of uncompensated care
• greater competition between hospitals and doctors, who are increasingly providing outpatient services that were formerly the purview of hospitals
• a decreasing number of doctors, especially specialists, who are willing to serve Medicaid and indigent patients, and
• competition from non-safety-net providers for patients with insurance

In response to these pressures, providers have taken a number of steps, including expanding into more affluent areas, marketing their services to insured patients, and restricting access to charity care for non-emergency cases. These steps effectively refocus safety-net providers’ attention away from the patients who already have incredibly tenuous access to health care and make it well nigh impossible for them to get care before their situations become emergencies.

It’s a problem that’s been noted before, of course. Senator Chuck Grassley has, for some time, been investigating not-for-profit hospitals and whether they are living up to their mandate to provide charity care. And increased regulatory scrutiny is one of the policy recommendations that the Health Affairs authors make. They also contend that raising government subsidies for safety-net providers — such as the Medicaid disproportionate-share payments that go to the hospitals treating the lion’s share of poor patients — would help the situation. But, as I think everybody ought to know by now, they point out that the most direct way of fixing the problem is to expand insurance coverage. The best way to accomplish that is up for debate, I suppose, but whether we have to is no longer a question.

The world of monoclonal antibodies and genetic testing may seem far removed from the realm of mortgage-backed securities and the other bogeymen of the current credit crisis, but the biotech industry is still feeling the fear. Despite an increasing number of profitable biotech companies, like Genentech and Applied Biosystems, the industry is still dominated by unprofitable start-ups that rely heavily on venture funding and capital from the public markets. And the economic environment being what it is, companies are having a hard time going public or getting attractive acquisition offers from larger life sciences companies.

That leaves the venture capitalists in a bind. Venture capital firms like to cash out their investments – either through IPOs or sales of a company – in about five to seven years. But with “exit opportunities” limited right now, they are having to put more of their money into bankrolling later-stage biotech companies while they wait for a better IPO environment or a juicy acquisition deal to come along.

The good news is, venture firms are still ponying up lots of cash. The MoneyTree report for the second quarter of 2008 (produced by PriceWaterhouseCoopers and the National Venture Capital Association) shows that overall funding from venture capital firms has held steady so far this year. But there is a difference in where all that money is going and what it’s being used for.

According to the report, investment in life sciences companies (which includes both biotech and medical device firms) went down 14% in the quarter. Perhaps more importantly, the amount of money going into later-stage companies – the ones that at another time would probably be going public – has gone up, potentially leaving the next crop of new, innovative start-ups without the money to, well, start up.

So what’s the solution to the capital quandary? Some analysts think that, with the IPO option not available, the life sciences sector will see more mergers and acquisitions in the vein of Thermo Fisher Scientific’s acquisition of Open Biosystems (a maker of RNA research tools) and Invitrogen’s proposed merger with Applied Biosystems Group. Experts are also optimistic about the growth of emerging markets like India and China and the likely increase in funding from government sources like the NIH. But even with those bright spots, early-stage biotechnology companies may have to get creative when it comes to finding the money to fund their innovations.

Hot on the heels of Fresenius’ proposal to buy APP Pharmaceuticals, consolidation in the generics industry continues unabated with two giants in the sector agreeing to make a match. The world’s largest generic drugmaker, Israel’s Teva Pharmaceutical Industries, announced Friday it would buy Barr Pharmaceuticals, a US-based player with about $2.5 billion in sales in 2007.

Teva is paying a cool $7.5 billion for Barr, in a deal most agree makes sense for the Israeli firm. The acquisition of Barr expands Teva’s market share in the US (particularly in the area of oral contraceptives, Barr’s bread and butter) and gives it presence in fast-growing markets in Central and Eastern Europe, markets Barr entered in 2006 with its own acquisition of Croatian firm PLIVA.

Additionally, the deal adds Barr’s proprietary prescription drug unit Duramed to Teva’s small portfolio of brand-name drugs and expands Teva’s efforts in the nascent field of biogenerics (off-brand versions of difficult-to-replicate biological drugs). Barr’s efforts with biogeneric development — another operation gained with the PLIVA acquisition — will complement Teva’s purchase earlier this year of CoGenesys, a privately held biotech firm formerly part of Human Genome Sciences.

Teva has already been in expansion mode in 2008. In addition to buying CoGenesys, it is in the process of acquiring Bentley Pharmaceuticals’ Spanish drug business. The buying spree is part and parcel of Teva’s intention (announced this year) to reach $20 billion in annual revenue with 20% profit margins by 2012.

The Teva/Barr deal is just the latest (and biggest) in a run of acquisitions and mergers in the generics sector, which is growing at a considerably faster clip than the brand-name pharmaceuticals industry. Last year Mylan bought Merck KGaA’s generics business, a business Teva also made a bid on, for $6.7 billion. And this year, we’ve already seen big deals between Daiichi Sankyo and Ranbaxy, and Fresenius and APP. Nobody expects the trend to stop — only question is, who will be next?

Counting itself one of the luckiest girls in town this week, APP Pharmaceuticals got a $3.7 billion engagement ring from Fresenius SE, the German health care group best known for its worldwide network of dialysis clinics.

Fresenius is acquiring APP Pharmaceuticals and its stable of generic injectable drugs to expand its Fresenius Kabi unit, which makes infusion therapies such as intravenous nutrition and blood volume replacement products. The acquisition gets Fresenius Kabi into the North American market, where APP has operated exclusively, and gives APP the ability to go global. Fresenius has agreed to the nearly $4 billion cash payment, as well as additional payments if financial targets are met. It will also assume nearly a billion dollars in APP’s debt.

APP Pharmaceuticals makes generic injectable drugs like the blood thinner heparin, as well as intravenously administered pain and cancer drugs. It became the US’s largest supplier of heparin in 2008 after tainted batches of the drug imported from China (and sold by Baxter International) were withdrawn from the market.

The deal is yet another sign of the growing interest in generics, particularly in the US market, where two-thirds of all prescriptions are filled by a generic equivalent. It follows newspaper reports last month indicating the intentions of Chinese drugmakers to enter the US, as well as Daiichi Sankyo’s agreement to acquire a controlling interest in Indian generic maker Ranbaxy, which also has a significant North American presence.

Incidentally, if APP is the luckiest girl in town, then its founder and former CEO Patrick Soon-Shiong is certainly the luckiest boy. Soon-Shiong, already named one of Forbes’ richest Americans last year, owns more than 80% of the firm, which was spun off from Abraxis BioScience in 2007. (Soon-Shiong owns a controlling stake in that company as well.) And he will get a payout of up to $3.8 billion, according to the LA Times, if all goes according to plan.