Posts from — June 2008

(Update below)

Or perhaps, why has it taken so long.

The homecare market has several business segments, ranging from care services to ambulatory home dialysis, lower value home patient aids, wheelchairs as well as higher margin and faster growing segments like respiratory and diabetic care.

One of these segments is sleep therapy. Sleep apnea is being increasingly diagnosed (and increasingly easier to be diagnosed) in larger numbers of patients. The principle treatment is a CPAP (and variations) machine which essentially minimizes periods of apnea during sleep - a syndrome that not only effects a persons ability to function 100% during the day but also has been clearly shown to increase the risk of heart disease and premature death.

Some companies that sell respiratory products into the home, segment their business according to oxygen therapy and sleep therapy. CPAP falling into the later category.

Oxygen therapy (oxygen concentrators, liquid oxygen) is slower growing and tends to follow population growth while sleep therapy is fast growing.

At the end of 2007 Phillips acquired Respironics - a leading full line respiratory products company - to enter the homecare space. This provided them the opportunity of entering the homecare medical business at the higher value end. Speculation immediately followed as to how long it would take for Resmed, Respironics prime competitor in the sleep business to be snapped up.

According to this press report out of Australia (the home of Resmed founder - Peter Farrell), Linde, German gasses multinational is rumored to be in talks to acquire Resmed.

Synergies are clear - combine the medical gasses business with the high growth and margin medical homecare segment and strengthen their homecare presence.

If this one does not happen another one will - soon.

Update July 1, 2008:

Resmed have reacted to the market rumor by issuing the following statement on on the Australian stock Exchange:

“ResMed notes the comments in the Age and Australian Financial Review newspapers published today, 1 July 2008 to the effect that the company “is being stalked by German industrial and medical gases giant the Linde Group” (Age) and to “rumours of an agreed
cash bid” (AFR) under the headline “Sceptics doubt ResMed rumour”.The company confirms that it is not aware of any information that would require disclosure to the ASX in terms of listing rule 3.1.

Further, the company has a policy of not commenting on market rumours.”

The market likes the rumor anyway??

Resmed is trading at $38.34 up 7.7% at time of writing July 1, 2008

http://finance.yahoo.com/q?s=RMD

The story and the argument is not particularly new. What is somewhat new is the direct and stern criticism leveled directly at certain companies that the New York Times allege directly benefit from this delay. They name Invacare, Pride, Praxair and the Scooter Store and criticize Invacare’s Cara Bachenheimer who they allege does not want to see any substantive changes to the current system.

At the hub of the issue is the fact that consumers can purchase (according to the Times) – for example – a walker on the internet for about half the price of what national insurer Medicare (and therefore (directly / indirectly) the tax payer) pays.

It is true that in several cases the internet price of products is less expensive than the Medicare price. It is also true that the internet does not particularly serve well 90 year olds with Alzheimer’s or other incapacitating conditions who have no idea how to use the internet.

Unfortunately there have been documented cases of Medicare issues which have not helped the industry. Although it has changed somewhat, the industry has also not been able to get its act together in terms of a plan that makes sense to all. This continues today in some cases for example with the Scooter Store recommending that even higher specified products should be part of the competitive bidding process. Much to the chagrin of several industry stalwarts.

Adversity has made for strange bed fellows and time will tell if the new industry initiative will prove effective.

(In an unrelated event, Dan Meuser, President of Pride and former Republican candidate, will be hosting a Sen. John McCain lunch on July 23).

Update:

New York Times Opinion piece continues the onslaught “Medicare Savings vs The Lobbyists” - perhaps in part referring to the disclosure of a major homecare company spending $230,000 on lobbying in Q1.

If you would like to see our related post referring to the Office of the Inspector General and their report it is here - Pricing vs Reimbursement In The Homecare Industry - And The Competitive Bidding Solution

And a quick rebuttal from AAHomecare which actually is a little challenged in terms of winning this fight. You decide.

Blackstone group has bid a 33% premium to take homecare services and distribution company Apria private. The Blackstone investment is $920 million which is big in the homecare industry although relatively modest in Blackstone terms.

All this despite the homecare industry cries of Medicare foul over the what is clearly the biggest pressure on pricing and reimbursement in recent history - especially through the much hated new National Competitive Bidding program.

This investment is clearly good for the industry (however there must be some lawmakers and lobbyists scratching their heads as to how to explain why such a supposedly handicapped industry is attracting investors like Blackstone).

Of course the argument will be made about unlocking the value in Apria which has suffered from some self inflicted wounds in recent years - true - but it also makes great strategic sense as well.

About two years ago I blogged about the coming changes in the industry “(Why) Would You Invest In The Home Healthcare Industry?”

It’s a fairly lengthy analysis however one of the key take aways was that National Competitive Bidding and the future environment would benefit distribution owned groups (like Apria) - looks like Blackstone might be in agreement.

As always the market tells the story. We note that in smaller private deals investors are paying 4 to 6 times multiples for manufacturing companies while distribution companies are fetching double digit multiples today.

In the above analysis the summary takeaway applies even more today than it did then.

Just to be upfront the recommendation is going to be to invest in “change”. Identify what the change will be and buy into it. Divest companies (or management) that believe “nothing much will change”. It is not a place for the faint hearted. It is certainly not business as usual. Past performance is definitely not a reliable indicator in the homecare business today - or rather tomorrow.

Scott Slocum Drucker Labs (contact details below)

Drucker Labs is looking for International distributors of the most complete and comprehensive all in one multivitamin line:

Below is an article written on the most recent clinical study performed on intraMAX from Drucker Labs.

By Lisa Tully, PhD

(May 12, 2008) Drucker Labs intraMAXÔ significantly improves cellular functions in several body systems according to peer-reviewed clinical trial findings released this spring by the independent research firm, Fenestra Research Labs.

125 subjects were randomly divided into two groups: those who received Drucker Labs intraMAXÔ (75 subjects) and those who received placebo (50 subjects). Participants in the study ranged in age from 18 to 60, were found to be in general good health and were drawn from a large and diverse population including Caucasians, African-Americans, Asians and Hispanics.

The final results of Fenestra’s research indicated statistically significant changes in several Optimal Wellness Test markers in the group taking intraMAX™, while no significant changes were found in the placebo group. Results were race, sex and age independent.

The Clinical Trial Results

Balanced pH is vital to proper biochemical functioning and energy production. The cells in the body require a slightly alkaline state in order to communicate effectively through chemical, electrical and hormonal processes. intraMAX™ improved cellular pH on an average overall of 1.8. In the narrow range of the pH scale, this improvement demonstrates intraMAX™’s ability to create a substantial change in pH levels.

[Read more →]

This acquisition comes as no surprise and fits not only with the Permobil value added product line but establishes a larger footprint in the French market - a market so far largely shunned by other large Nordic players like Etac and Handicare. This represents another investment for Nordic Capital, relatively new owner of Permobil.

It also continues the buying spree of the “Homecare Vikings” which we wrote about two years ago and at the beginning of this year when Handicare had just completed two acquisitions within months of each other.

There is no question that “stand up” chairs, both manual and powered, offer higher margins to manufacturers. It is also true that this market segment is maturing with the mainstream large manufacturers having entered the market in the past year or two - better late than never.

Could we be heading back to those heady days in the mid 90’s when now market leaders Invacare and Sunrise went on big buying acquisition drives, or are the Scandinavian homecare vikings being more selective?

Here is what Hans Bergh, CEO at Permobil says:

As part of its international development strategy in the field of specialist medical equipment for the handicapped community, PERMOBIL has just carried out the acquisition of the French company LIFESTAND, situated in Lyon.
LIFESTAND, which was founded in 1978, specialises in the design and manufacture of « stand-up » wheelchairs. These wheelchairs, which can be operated manually, semi-electrically or fully electrically, enable a disable person to stand upright.
The company, which has a staff of 30 people, markets its products worldwide, with 80 % of sales into export markets. It has a subsidiary in both Germany and Belgium.

Annual sales exceeds 8M Euros, with good profitability.
This transaction strengthens PERMOBIL’s position in a key, potentially high growth, market in which it is already present with its powered wheelchairs !

“This acquisition gives a great opportunity to develop even further our position in this field thanks to LIFESTAND’s full gamut of top of the range « stand-up » wheelchairs, which cover all pathologies”, says PERMOBILS CEO Hans Bergh

For LIFESTAND, this merger with such a well-established group will enable it to widen its distribution network, particularly in the United States.

For more information :
www.permobil.com
www.lifestand.eu

It will be interesting to see the integration strategy of this Swedish and French company.