MondayMorning

TOP STORIES

TriZetto Group, IMS Health to Merge in Stock-Swap Deal. IMS Health Inc. (Westport CT), the largest provider of information systems to drugmakers, agreed to merge with TriZetto Group Inc. (Newport Beach CA), an Internet healthcare firm, in a stock swap valued at about $4.65 billion. TriZetto shares, which have risen six-fold since coming public in October, will be used to finance the transaction. Shares of both companies fell sharply after the deal was announced. IMS shareholders will receive 0.4655 share of TriZetto for each share they own. IMS shareholders will control 88% of TriZetto after the purchase is completed. Analysts said TriZetto investors are worried about placing the fast-growing Internet company under the control of IMS, whose shares have plummeted 45% in the past 12 months. IMS investors are wary of joining forces with a little-known start-up company. Once completed, the new company will issue shares that track each of its three businesses. TriZetto shares closed the week down $30.438, or 47%, to $34.813 -- slashing the purchase price of IMS by $3.45 billion. IMS shares fell $6.50, or 28%, to $16.938.

Neoforma Plunges on Acquisition of Eclipsys. Shares of Neoforma.com Inc. (Santa Clara CA) lost nearly half of their value after the online medical supply company said it agreed to acquire Eclipsys Corp. (Delray Beach FL) and its closely-held affiliate Healthvision Inc. for about $4.2 billion in stock. A new company, to be called Neoforma.com until another name is chosen, will be formed to build and launch business-to-business marketplaces serving the purchasing needs of healthcare providers. Eclipsys provides information technology to the healthcare industry. Eclipsys noted it is dropping its efforts to pressure Shared Medical Systems Inc. (Malvern PA) to accept a $2-billion hostile takeover offer. News of the Neoforma/Eclipsis merger sparked a sell-off in the parties' share prices as investors worry that Neoforma still won't have the necessary tools to compete in the consolidating market for online sales of medical supplies. Neoforma shares closed the week down $13.00 at $16.375; Eclipsys fell $8.50 to $19.375.

Bausch & Lomb to Make Tender for Wesley Jessen. Bausch & Lomb Inc. (Rochester NJ) said it will make a tender offer for all outstanding shares of Wesley Jessen VisionCare Inc. (Des Plains IL), after the maker of colored contact lenses on Thursday rejected an unsolicited $666-million buyout offer. Bausch said it will offer Wesley Jessen sharesholders $34 a share in cash -- a 37% premium to the stock's closing price March 22, the day prior to Bausch's initial buyout offer. Earlier in the week, Bausch said it planned to nominate three directors to Wesley's board. Bausch said its bid is contingent upon Wesley dropping its proposed purchase of rival Ocular Sciences Inc. (San Francisco), the combination of which would create the world's No. 2 contact lens maker. Bausch would fall to No. 3 with Johnson & Johnson still No. 1. Wesley shares closed the week up $0.438 at $35.938. Bausch fell $3.313 to $52.188.

Medical Stock Spotlight: United Therapeutics Corp. (Nasdaq) jumped 7 5/8, or 11% on the week, to 77 3/4 after announcing positive preliminary results from trials of its lead drug candidate Uniprost, for the non-intravenous treatment of pulmonary hypertension. The company said patients who received Uniprost showed a statistically significant improvement in their ability to exercise. MedQuist Inc. (Nasdaq) surged 3 9/16to 27 3/16. The provider of medical-transcription services settled a lawsuit with Belgium-based Lernout & Hauspie Speech Products NV. MedQuist had sued Lernout, a business partner, for breach of an agreement to develop an automated voice-recognition system. But Internet healthcare company Drkoop.com Inc. (Nasdaq) plunged 4 5/16, or 54% for the week, to 3 11/16 after saying in its annual report that its accountant expressed "substantial doubt" about its ability to continue as a going concern.

Six Health Insurers to Form Online Claims Network. A group of six of the largest U.S. health insurers are in talks to build their own Internet site to process claims. Such an alliance would compete directly with established online service providers like Healtheon/WebMD Corp. (Santa Clara CA) and CareInsite Inc. (Elmwood Park NJ). Citing unnamed sources, Bloomberg News said Thursday the talks are in the early stages and involve Oxford Health Plans Inc. (Trumbull CT), Aetna Inc. (Hartford CT), Cigna Corp. (Philadelphia), WellPoint Health Networks (Thousand Oaks CA), Foundation Health Systems Inc. (Woodland Hills CA) and PacifiCare Health Systems Inc. (Santa Ana CA). "It's collaborative," said Maria Shydlo, an Oxford spokeswoman. "There have been discussions about ways to make things easier for doctors. Shydlo said the site will be called "MedUnite."

Tracking Government: Higher-than-expected payroll taxes improved the outlook for Medicare and Social Security -- deferring their insolvency dates -- the trustees for the programs said in their annual report. A strong U.S. economy and a slowdown in Medicare spending growth will delay until 2023 from 2015 the projected date that the trust fund for the program will run out of money, the trustees said. "Fiscal discipline has contributed enormously to the current economic expansion," said Treasury Secretary Lawrence Summers, the chief trustee for both Medicare and Social Security. Only three years ago, the Medicare trust fund, which also pays for long-term and HMO care, was destined for bankruptcy. Analysts said the fund's outlook has improved because of reduced payments to hospitals and other healthcare providers, stricter enforcement of fraud and abuse laws and a robust economy.

CORPORATE

Healthcare Companies Forming Online Network. An Internet-based healthcare information exchange and e-commerce marketplace will be launched by Johnson & Johnson (New Brunswick NJ), Baxter International Inc. (Deerfield IL), Abbott Laboratories Inc. (Abbott Park IL), Medtronic Inc. (Minneapolis) and the General Electric Co. (Fairfield CT) unit, GE Medical Systems. The privately-held company, to be based in Chicago, will permit companies to buy and sell products, services and equipment online. The exchange also will provide access to extensive clinical content. Analysts said that of the $100 billion that U.S. healthcare companies spend annually on products and services, the new exchange will tap into about 10% of that market. The first version of the exchange will be operational in the third quarter. The founding companies will make the equity investments to establish the exchange.

Pfizer Sues Ivax for Infringing Zoloft Patent. Pfizer Inc. (New York) has sued Ivax Corp. (Miami FL) and its Zenith Goldline Pharmaceuticals unit, claiming the latter's new drug submission to the Food and Drug Administration infringes on its patent for the depression drug, Zoloft. Zenith applied to the FDA last year for a generic form of Zoloft saying it wouldn't begin making or selling the drug until one of Pfizer's patents expires in 2005. In regulatory filings, Pfizer in January brought an action in the federal District Court in New Jersey, alleging that the patent covering Zoloft's treatment of anxiety-related disorder expires in 2009, and the patent covering a crystalline form of the drug expires in 2012. Zoloft generated $2 billion of revenue last year.

MAGAININ PHARMACEUTICALS INC. (Plymouth Meeting PA) announced it was issued a U.S. patent for the use of the gene Med-IL9, which appears to make people who inherit it less susceptible to allergy and asthma. The company said the gene is a mutant form of interleukin-9 and was discovered by its scientists. Magainin shares closed the week off $0.313 to $4.75.

ARTHROCARE CORP. (Sunnyvale CA) announced that its board of directors approved a two-for-one stock split. The medical device company makes soft-tissue surgery systems based on its patented Coblation technology. Soft-tissue markets include arthroscopic surgery, cosmetic surgery, spinal surgery, neurosurgery and various cardiology applications.

SCHERING-PLOUGH CORP. (Madison NJ) will buyback $1.5 billion of its stock, a move analysts say comes as the drugmaker faces new competition for its lead product, the world's top-selling allergy pill, Claritan. French drugmaker Aventis SA recently won FDA approval for a once-a-day Allegra, whose sales already were growing when it was available in just a twice-a-day version.

WARNER-LAMBERT CO. (Morris Plains NJ) said it expects one-time costs of about $100 million to cover the withdrawal of its Rezulin diabetes drug that has been linked to 63 deaths since 1997. According to an annual report filed with the Securities and Exchange Commission, the costs cover product returns and the inventory write-off for the drug.

FDA ROUNDUP:. Irish drugmaker Elan Corp. won approval for its epilepsy drug Zonegran. In March of 1998, the FDA said the drug met most of the conditions of approval, but it has taken Elan and the agency two years to resolve outstanding issues. Analysts expect the drug to have peak annual sales of about $200 million. * * Medical devicemaker Carrington Laboratories Inc. (Irving TX) said it was cleared to sell its wound-care product for speeding healing. Carrington said the dressing contains its Acemannan Hydrogel preparation, meant to help wounds heal faster by insuring proper moisture levels in the dressing. * * Biosite Diagnostics Inc. (San Diego) fell $2.50, or 9%, to $24.375 after an expert FDA panel voted against backing the company's diagnostic test for congestive heart failure. Biosite said the panel didn't accept that its clinical-trial data supported the claim the Triage BNP Test could aid in the diagnosis of heart failure at the point of care. Biosite said it plans to resubmit its applicatn and work with the FDA to answer any other questions.

WALL ST./FINANCE

Markets: Stocks closed the first quarter with a week of losses, following comments by Goldman Sachs strategist Abby Joseph Cohen suggesting technology stocks have little room for additional growth. Investors reacted swiftly, fleeing technology shares and returning to many depressed old-economy companies whose shares look relatively cheap. The resulting rotation left the Nasdaq with a week-long loss of 8%, while the Dow Jones industrial average fell 190 points to 10,921.92. Bonds, meanwhile, rallied on the flight from equities. Analysts said worries still persist that inflationary pressures are building in the white-hot economy. The yield on the 30-year Treasury bond fell 16 basis points to 5.83%.

IPO Sector: Two biotech initial public offerings received a chilly reception this past week. Allos Therapeutics Inc. (Denver) offered five million common shares at a price of $18.00 per share. The company makes a drug called RSR13, which helps in the treatment of brain cancer. Allos has yet to generate revenues and racked up a loss of $33.7 million last year. The firm's IPO opened at $15.00, then fell $0.688 on the week, to $14.313. Elsewhere, IntraBiotics Pharmaceuticals Inc. (Mountain View CA) offered 7.5 million shares at $15.00 per share. The company markets drugs to combat pulmonary and bone infections. After opening up $4.00 at $19.00, shares fell back, closing the week unchanged at $15.00.

Sources: Salomon Smith Barney; Telerate; The Bond Buyer

Weekly Money Rates in percent	3/31/00	Prev. Week	Year Ago
PRIME RATE:	9.00	9.00	7.75
DISCOUNT RATE:	5.50	5.50	4.50
30-YR. TREAS. BOND	5.83	5.99	5.59
TELEPHONE BONDS	8.05	8.12	7.23
MUNICIPAL BONDS*	5.97	5.99	5.25

Certificates of Deposit Source: Dow Jones Markets

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MondayMorning/April 3, 2000/No. 369

RESEARCH & TECHNOLOGY

Theragenics Corp (Buford GA) said a newly-published nine-year clinical study showed that treatment with its TheraSeed radioactive seed implants perform at least as well as, or better than, traditional treatments for prostate cancer. The study's findings, published in the March issue of the International Journal of Radiation Oncology, Biology and Physics, reported that 83% of patients treated with TheraSeed implants were cancer-free nine years later. Researchers from the Seattle Prostate Institute said that the implant procedure, called brachytherapy, can achieve a high rate of success for patients with organ-confined disease. They added that results with the radioactive pellets rival more traditional methods of prostate-cancer treatment including radical prostatectomy and external beam radiation. Theragenics shares closed the week off $0.875 at $13.375.

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Aronex Pharmaceuticals Inc (The Woodlands TX) announced that it is beginning Phase II clinical trials of its Annamycin treatment for breast-cancer patients who have a resistance to other drugs. In such cases, patients have an excess amount of P-glycoprotein (PGP) in their tumor cells, a condition that causes drugs to be transported out of the cells, rendering them ineffective. Annamycin belongs to a class of widely-prescribed anticancer agents known as anthracyclines, which encapsulate other drugs in a fatty, or lipid coating. Annamycin has been specifically designed to evade PGP, giving the drug the opportunity to stay within the tumor cell. Annamycin is also undergoing Phase I/II trials as a treatment for leukemia where other customary treatments have failed or where patients have relapsed following such treatments.

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MondayMorning/April 3, 2000/No. 369

NEWS BRIEFS

Responding to the persistent lobbying by hospitals and nursing homes, House Democratic Leader Richard Gephardt (D-MO) said that Congress should raise Medicare payments that were slashed as part of the 1997 balanced-budget law. Speaking to the Federation of American Hospitals in Dallas, Gephardt said last year's pay raises didn't permit hospitals and other healthcare providers to make up for the cuts in the growth of Medicare spending. "The Medicare cuts in 1997 were too deep," he told the association of publicly-traded hospital companies. The 1997 law cut the growth of Medicare payments by $112 billion over five years.

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Medicare payments to hospitals will rise 4% under a new payment system for outpatient care scheduled to begin in July, the Clinton administration said Friday. Such payments originally were supposed to drop by 5.7% according to a reimbursement system created under the auspices of the 1997 balanced-budget law. But Congress and President Clinton subsequently enacted legislation eliminating $900 million in annual Medicare cuts and took other steps to ease the transition.

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Brokerage Dain Rauscher Wessels issued a bearish report on the outlook for Internet-based healthcare networks. Analyst Jeffrey Peters downgraded both Healtheon/WebMD Corp. (Santa Clara CA) and CareInsite Inc. (Elmwood Park NJ) to "neutral" from "strong buy," saying that recent merger activity in the healthcare information technology and e-health markets has altered the fundamental outlook. He also cited discussions among healthcare companies to develop their own purchasing groups as another source of pressure. Healtheon agreed to acquire CareInsite for $5.4 billion in February.

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