MondayMorning

TOP STORIES

HMOs Bailing Out of Medicare. An estimated 200,000 senior citizens receiving health benefits under Medicare from managed-care plans will lose coverage next year when some insurers drop out of the program, according to a health-insurance industry trade group. And once health insurers exit the program, they are unlikely to return, the Bush administration's top Medicare official said. "The funding formula is basically screwed up," Tom Scully, administrator of the Centers for Medicare and Medicaid Services, told an industry conference in Washington. "It's pure math. It's not rocket science." Last Monday was the deadline for insurers to tell the government in which regions they intend to operate Medicare plans next year. HMOs have been exiting Medicare since medical inflation began exploding in the late 1990s. About 40 million seniors qualify for Medicare. As recently as two years ago, one million of them were dropped from HMO Medicare coverage, according to the American Association of Health Plans.

Genentech Stock Falls on Failed Cancer Drug. Shares of Genentech Inc. (S. San Francisco) fell last week after the biotech company's experimental Avastin failed in a key trial among patients with breast cancer. The news marked a setback for the high-profile medicine, which is also being studied for other types of tumors and represents the latest stumbling block for a class of drugs designed to choke off the blood supply to tumors. Few of such drugs have yet proven they can work in rigorous, human tests. Genentech said patients who took Avastin along with the widely used cancer drug Xeloda, sold by Roche Holding Ltd., fared no better than a group who took Xeloda alone. All 462 women in the year-long trial had cancer that had spread to other parts of the body and all had previously failed to benefit from other standard cancer drugs. The company said it did see tumors shrink more in the Avastin group, but that didn't help patients live longer. News of the disappointing results sent Genentech shares down $1.27 on the week to $30.43.

Justice Department Raises Antitrust Scrutiny of Plans. The U.S. Department of Justice is stepping up scrutiny of health insurers, concerned that competition in the industry may have been crimped by mergers. Health insurance companies have become an "area of primary concern" to the department's antitrust division, Deputy Assistant Attorney General Deborah Majoras said at an antitrust conference last week. "For consumers to benefit from competition in healthcare markets, sufficient competition must be maintained not only among providers but also among the health plans that purchase the providers' services on behalf of health plan members," Majoras said. Between 1995 and 2000, there were more than 350 mergers involving health insurers or managed-care organizations. The 10 largest national insurance companies now cover more than half of all Americans who are insured.

Medical Stock Spotlight: SciClone Pharmaceuticals Inc. (Nasdaq) led advancing issues, jumping $0.74, or 34% on the week, to $2.91. SciClone said a new study showed its drug Zadaxin boosted production of a protein that helps direct the body's immune system to kill colorectal cancer cells. Elsewhere, NeoPharm Inc. (Nasdaq) surged $3.29, or 33%, to $13.35 after announcing positive results for its experimental tumor-targeting agent for treating malignant glioma, a deadly form of brain cancer for which there currently is no cure. And Pharmaceutical Resources Inc. (NYSE) rose $2.10, or 8%, to $28.20. The generic drugmaker raised its third-quarter forecast to between $0.54 and $0.56 a share, amid strong sales. But Cubist Pharmaceuticals Inc. (Nasdaq) fell $2.21, or 31%, to $4.95. The biotech said it agreed to end a licensing agreement with Gilead Sciences to market Cubist's antibiotic, Cidecin.

Allergan Won't Pull Botox Ads. Allergan Inc. (Irvine CA) is refusing a Food and Drug Administration demand to pull allegedly illegal and misleading television ads and patient brochures for wrinkle-smoothing Botox Cosmetics. Allergan reacted angrily last Monday to the FDA's notice-of-violation that the firm "immediately cease distribution" of advertisements and brochures, claiming they violate federal law and contain misleading information. The FDA said in the Sept. 5 letter that Allergan's ads fail to emphasize that Botox is a temporary fix for wrinkles, suggest incorrectly that it can be used to treat all kinds of wrinkles and do not mention that cosmetic use is approved only for people aged 18 to 65. Allergan said it will not pull the ads or the brochure. "We strongly disagree on all points," said Allergan spokeswoman Christine Cassiano. Global sales of Botox totaled $200.8 million in the first half of the year.

Tracking Government: House lawmakers, troubled by skyrocketing malpractice insurance costs, approved a bill in committee last week that would limit malpractice awards to injured patients. Among other provisions, the bill would require lawsuits to be filed within three years of the date of injury or one year after the injury has been discovered. The measure, approved by voice vote in the House Judiciary Committee, answered a demand by President Bush in July for legislation to put a ceiling on the amounts juries can award to punish medical malpractice. Provider groups have supported the bill, which was introduced by Rep. James Greenwood (R-PA). The legislation would limit noneconomic damages, such as pain and suffering, to $250,000. Punitive damages would be limited to twice the economic damages awarded or $250,000, whichever is greater. Lawyers fees would be curtailed under the legislation. The American Medical Association said it "looks forward to similar action being taken by the House Energy and Commerce Committee."

CORPORATE

FDA Issues Alert for Dialysis Machine. Baxter International Inc. (Deerfield IL) saw its shares close lower following reports that five patients died after using dialysis machines manufactured by the medical products firm. The dialysis news, announced by the FDA Thursday, represents the second time in two years that Baxter's renal division has been linked to patient deaths. Last year, Baxter had to withdraw its Althin dialyzers after they were blamed for more than 50 deaths. The five patients who died - four in Indiana and one in Michigan - apparently used a combination of Baxter's Meridian dialysis machine and blood tubing made by privately held Medisystems Corp. (Seattle). Only the four deaths in Indiana appear related, according to a Baxter spokeswoman. Analysts downplayed the news, saying Baxter didn't appear to be at fault for the deaths. Baxter closed the week down $2.76 at $32.44.

HCA, Tenet Eyeing KC Hospital Group. HCA Inc. (Nashville) and Tenet Healthcare Corp. (Santa Barbara) reportedly are the front-runners to buy Health Midwest, a Kansas City MO-based hospital group with 2,483 beds. Health Midwest President and CEO Richard Brown said the nonprofit group's board has made no commitment to sell, but the company has evaluated "unsolicited expressions of interest" in buying the 14 general acute care and behavioral health centers and several office buildings. Health Midwest's board voted to continue discussions with HCA and Tenet, respectively, the No. 1 and No. 2 U.S. for-profit hospital chains.

CARDINAL HEALTH INC. (Dublin OH) won a $360 million contract for U.S. Defense Department mail order prescription services. Work will be perform ed in New Jersey, West Virginia, Arizona and Florida. The work completion date is scheduled for October 2003. Earlier in the week, the Defense Department said Express Scripts Inc. (St. Louis) had won a contract valued at up to $275 million.

INVERNESS MEDICAL INNOVATIONS INC. (Waltham MA), which makes women's nutritional products, agreed to acquire Ostex International Inc. (Seattle) for $36.8 million in stock to enter the market for osteoporosis treatments. Inverness would exchange about 0.1494 of its shares for each Ostex share. That values Ostex at about $2.49 per share, more than double its closing price on Sept. 6.

ZOMA LTD. (Berkeley CA) and diagnostic-test maker Biosite Inc. (San Diego) said they have resolved their patent and licensing dispute, and have agreed to dismiss pending legal proceedings. The agreement grants biotech XOMA a royalty-free license to certain Biosite patents for a process called "phage display" that selects and develops antibodies. Biosite gets a royalty-free license to use XOMA's bacterial cell expression technology for production of antibodies and the development of new antibody products.

ORGANOGENESIS INC. (Canton MA) may file for Chapter 11 bankruptcy protection, according to Steven B. Bernitz, the cash-strapped biotech company's CEO. Such a filing is "certainly possible" Bernitz said. Organogenesis, which suspended operations last week, has been unable to renegotiate its marketing agreement with Novartis AG, which distributes its human-skin substitute, Apligraf.

FDA ROUNDUP:. Baxter International Inc. (Deerfield IL) won approval for its Alyx blood collection system aimed at increasing the nation's consistently low blood supply. The system allows blood centers to collect two units of red blood cells, instead of just one, from eligible donors. Elsewhere, Boston Scientific Corp. (Natick MA) was cleared to market its new Express2 coronary stent system. It's the company's first competitive stent in almost three years, according to analysts. Express2 is already available in Europe. Sicor Inc. (Irvine CA) received approval for its generic version of AstraZeneca's Diprivan anesthetic used in surgery. The product is known chemically as propofol. And an advisory panel rejected NMT Medical Inc.'s (Boston MA) Starflex device, an implant designed to close a heart defect that may increase the risk of stroke in some people. The panel said NMT failed to prove Starflex helped prevent strokes.

WALL ST./FINANCE

Markets: Stocks closed the week lower as signs of a slowing economic recovery gave investors another reason to avoid equities, while President George W. Bush pressed his case for a strike against Saddam Hussein. A spate of mostly bad news - ranging from earnings warnings from Honeywell and Lucent to falling consumer confidence - left all three major stock indicies down a third straight week. With investors eyeing a war on the horizon, analysts said upbeat data showing tame inflation and strong retail sales failed to brighten their outlook. For the week, the Dow Jones industrial average fell 114.51 to 8,312.69. Meanwhile, U.S. Treasury yields chalked up historic lows as jittery investors sought relief from sliding stocks and economic unease. The yield on the benchmark 10-year note fell 11 basis points to 3.91%.

IPO Sector: Among recent SEC filings for initial public offerings, New York-based WellChoice Inc. registered up to $400 million worth of stock via Credit Suisse First Boston. The nonprofit firm, which is converting to for-profit status, won't receive any proceeds from the IPO. The shares are being sold by the New York Public Asset Fund and Foundation. According to its filing, WellChoice is the biggest health insurance firm in New York based on membership. It did not detail how many shares would be offered or at what price. WellChoice rang up $138.7 million in net income and $2.6 billion in revenue in the first six months of this year, versus $62.5 million in income and $2.4 billion in revenue in the year-ago period.

Weekly Money Rates in percent	9/13/02	Prev. Week	Year Ago
PRIME RATE:	4.75	4.75	6.50
DISCOUNT RATE:	1.25	1.25	3.00
10-YR. TREAS. NOTE	3.91	4.02	4.64
30-YR. TREAS. BOND	4.77	4.86	5.39
TELEPHONE BONDS	6.48	6.65	7.81
MUNICIPAL BONDS	4.86	4.99	5.15

Sources: Salomon Smith Barney; Telerate

Certificates of Deposit

COM. PAPER: 30 days	1.74
Primary Offerings by NYC banks:
One month	1.42
Three months	1.19
Six months	1.24
Secondary Market Offerings:
One month	1.71
Three months	1.70
Six months	1.69

Source: Dow Jones Markets

RESEARCH & TECHNOLOGY

Early stage prostate cancer patients who had surgery to remove their tumors died of the disease half as often as those who monitored their condition and did nothing, a 10-year study concluded. But researchers also found that there was no significant difference in overall mortality between the two groups, extending a vigorous debate over how best to treat the slowly progressing cancer that kills 30,000 U.S. men each year. The study, published in the New England Journal of Medicine, reported that the risk of dying from prostate cancer fell from 9% to 5% during the six years after surgery. However, deaths from all causes were similar between the men who got prostate surgery and those who didn't. The researchers said it could have been a matter of chance that those who escaped cancer death were somewhat more likely to die from other causes. Removal of the prostate can also cause serious side effects, including impotence and incontinence.

Researchers have created a "biological pacemaker" in guinea pigs by slipping a gene into their hearts - a first step in what could lead to alternatives to the electronic devices now implanted in hundreds of thousands of people each year. In their study, researchers at Johns Hopkins University used a virus to deliver genes to cells in the guinea pigs' ventricles - places in the heart where the animals have no natural "pacemaker" cells. Three or four days later, some of the animals' ventricle cells had been converted into "pacemaker" cells - able to generate spontaneous, rhythmic electric activity on their own. Source: the journal Nature (9/12).

NEWS BRIEFS

The House Ways and Means Committee's health subcommittee approved a patient safety bill that would create a voluntary medical-errors reporting system for hospitals and other providers. The bill, introduced in June by Rep. Nancy Johnson (R-CT), now moves to the full committee for consideration. Under the measure, hospitals would pay a fee to join the voluntary program allowing confidential reporting of medical errors and other safety concerns to any of several patient-safety organizations. A new Center for Quality Improvement and Patient Safety, under the Agency for Healthcare Research and Quality, would collect reports in a single database and disseminate information to caregivers in an effort to prevent similar problems. The information could not be used in medical malpractice lawsuits, unless it is otherwise available from other sources.

Surgery for carpal tunnel syndrome produces better long-term results than the more common treatment of putting a splint on the wrist. Dutch researchers, writing in the Journal of the American Medical Association (9/11), studied 176 patients who underwent surgery or wore wrist splints for at least six weeks; they were then evaluated periodically. After three months, significant improvement was seen in 80% of the surgery patients, compared with 54% of the splint patients. At 18 months, the success rate remained higher for the surgery group. Surgery, which usually takes less than an hour, entails making a small incision in the wrist and cutting the carpal ligament away from the median nerve to relieve pressure.

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