Wall Street Week with Louis Rukeyser; 2743; The Healthcare Debate

A. For nearly three decades America's most popular program about the economy people and their money. Wall Street Week With Louis Rukeyser. Is made possible by the annual financial support from viewers like you. By Prudential Securities. With more than 50 600 financial advisors nationwide Prudential Securities provides solutions for a lifetime of investment needs. That's the power of the rock at work for you by A.G. Edwards committed professionals providing a full range of financial services and investment advice. A.G. Edwards trusted advice exceptional service and by Oppenheimer Funds.

Every year millions of Americans place their financial futures in the hands of one mutual fund company. Oppenheimer Funds. You produce the Friday April 24th. Tonight special guests are John F. kinda long health care service analyst Donaldson Lufkin and Jenrette Macon home biotechnology analyst Goldman Sachs and company. And Jamie Rubin senior pharmaceutical analyst Schroeder and Company Incorporated. Could a man on the earth move guys or this of Wall Street Week. Welcome back. Call me crazy but I have a sneaking suspicion that our two topics for the night may just be of interest to you. We're going to be talking about your health. And your wealth. As we have learned again in the 1990s the topic so often interrelated. The most ambitious and ill fated political initiative of the decade was President

Clinton's proposal to in effect let government do it. By the time that one crashed and burned there was a General Re discovery that the US is not Europe. Or even Canada. And the president himself was rushing to assure us that in his words the era of big government is over. But someone has to pay for the nation's health care and the settlement of that bill remains a subject of vigorous and ongoing controversy exacerbated by one generally unspoken reality. Whereas Americans are ready to accept that not everybody can afford to drive a Cadillac or live in a mansion. Just about everybody feels an entitlement to the world's best health care. And there is little question that at its best that is what America offers. It's not just the Saudi princes and European tycoons who flock to the Mayo Clinic and Johns Hopkins. It's true much further down the line as we were reminded this week when the Chinese Communists ironically

used the quality of American medical care as an excuse for letting Chinaman square dissident Wang dun enter a Detroit hospital. There was a time when Americans rationed health care the same way a free economy rationed everything else by price. There was always of course a charity element for those without means. And many a family doctor waive payments as a matter of routine but with the enormous growth not just of the government's involvement but of private individual business and union medical insurance. The concept settled in that everybody was entitled to the best available care at any time regardless of price or duration. That comforting idea is fading a bit now as new institutions like health maintenance organizations routinely cry halt to treatments that would have been rubber stamped a few years ago. And the American debate public and private over how to deliver adequate medical care to an ever

aging population and to keep it anywhere near the level the country takes as its right. Has only just begun. Happily there is considerable good news on the medical front too and will be telling you about that tonight as well. Much of it comes from an industry that has taken more than its share of public vilification in recent decades from ideologues who automatically equate profit with evil. The drug companies. In a burst of productivity that must have even some of their severest critics reaching for an aspirin. The industry has been unveiling an enormous series of new hope inspiring products to treat some of the world's most troubling diseases and will give you the inside story on the most promising of them tonight. It doesn't take a genius to tell you that all the wealth in the world won't do you much good if you don't have your health. Tonight with three eminent experts on the subject we're going to try to help you

improve both. Of our presentation my friend. But first let's see what fever was raging in Wall Street in the week. Yes past. The Dow Jones Industrial Average moved to its 24th record of the year on Tuesday helped by a run of better than expected earnings news but then eased off amid an a ray of forecasts that in the short term at least prices might be getting a tad ahead of reasonable expectations. The Dow's net decline of just under one hundred three points to ninety sixty four point sixty two was only its fourth weekly loss in the first four months of 1998. All the market's broader index is set at least a couple of records this week before the late selling took hold. And the continuing comeback of the volatile technology sector left Nasdaq with a gain for the week. Can't scare our elves though their consensus on the Dow's outlook for the next three months remains an ultra bullish plus six calling for an advance of at least

another 5 percent. And once again confounding their non elfish doubters fully five of them get halos for being correctly bullish three months ago. Since when the Dow has added nearly 18 percent. So take that you full size folks. Gold continued its recent bounce in the bottom topping three hundred fourteen dollars an ounce its highest price since November but long term bond yields held below 6 percent despite a fall in the dollar against every major currency. But the British pound. And if all the merger activity here on the ground hasn't been enough for you cast your eyes I would major airlines were flying so close it was a financial traffic controllers nightmare. Already this year Northwest and Continental are embracing. Yesterday American and U.S. Airways puckered up for a much closer meaningful relationship. And today Delta and United suspended but did not cancel their own plans for a link

up. All of course subject to union consumer and regulatory scrutiny. So look up in the sky it's a bird it's a plane no it's supervised. And now before we turn the stethoscope on the wealth of your health. And vice versa. One final reminder. Next week we'll mark our ninth annual induction into the Wall Street Week With Louis Rukeyser Hall of Fame. So there's still time if you have a favorite you would like to nominate for the judge's consideration to send it to us at Wall Street Week Owings Mills Maryland 2 1 1 1 7. Or faction or nomination to us at 4 1 0 5 8 1 0 9 8 0. Now before we meet tonight's special guests who are experts in three key areas of American health care. Let's take one of our periodic looks at how much progress we're making in finding cures for some of the major threats to our health. As we say again to the nation's drug industry it's time for a checkup.

Tonight pharmaceutical specialist has identified what she calls nine major new drugs in development. The first three are all manufactured by farmers are starting with prove that an antibiotic launched in January that she says has an unparalleled spectrum of activity and is as effective as the current therapy of choice in each of the 12 indications for which it is approved. Second is the most publicized new drug of the year and the fastest selling biography pill for the treatment of impotence that is said to be effective in 50 to 80 percent of men. And the third Pfizer favorite is the docs and anti-psychotic drugs that treat schizophrenia with reportedly fewer side effects and greater ease of administration than current therapies. Eli Lilly she picks the Vista a new drug for the Prevention of post menopausal osteoporosis that may also have a future in other areas including the prevention of breast cancer. For stroke reduction she likes Bristol-Myers Squibb as plastics which is comparable to aspirin

and its efficacy but offers benefits to patients who cannot tolerate aspirin. Her best new candidate to deal with asthma is Merck's Singulair a once daily pill that is not a steroid as a treatment for urine every incontinence she favors pharmacy and up Johns death trawl twice a day pill that is the first new agent for bladder control in more than 20 years. Her leading prospect for hepatitis C treatment is Shearing ploughs rebuttal an anti-viral agent license from ICN pharmaceuticals to be administered in combination with intro on ebay with the combination said to eradicate hepatitis C ten times more effectively than in trun alone in relapse patients. Finally she sees good prospects for SmithKline Beecham Avandia an oral antibiotic drug for type 2 diabetes that may be both more efficient and safer than existing treatments. What else is in store for our bodies. As we close out the 20th

century with me tonight our three experts on the health care of the future. Jamie Rubin who prepared that list of major new drugs is the highly regarded pharmaceutical analyst for Schroeder and company. Make an HO with Goldman Sachs has once again been chosen as the industry's top rated biotechnology analyst and John have him the long covers the hospital industry for Donaldson Lufkin Jenrette Jamie Viagra has been the hardest selling new drug ever introduced. Can it be sustained. That's a good question I'll probably find out within the next three to six months. But Lou this drug's been on the market now for two weeks and Pfizer has yet to even detail the product. And doctors are writing something like 40000 prescriptions a day. And so I think the demand continues as strong as it's been this will by far be the largest drug we've ever seen with sales approaching 10 billion dollars. But the question that I have is will the men and the women and the aged and the young who are taking this drug continue to take

this drug and we probably won't know for another three to six months will there be a drop out such as there were program. Well there are two obvious questions. First is does it work. Second is does it hurt you in any other way. Apparently it works and apparently it doesn't hurt you in any other way. There were reports this week that some insurance companies were resisting the number of new prescriptions that are being written. Is this something that could slow it down. Yeah it certainly can in fact we spoke to some HMO just today and most of the HMO is having no choice. They have to cover the drug if it's medically necessary but that's the key. If it's medically necessary we suspect the number of the first users or first time users are men who who don't need it. And there's this whole emerging sort of performance market which may last or may not last and we just don't know. Jimmy Justice has exceeded expectations has been a disappointment. There's the new you use in breast cancer going to turn that around. It certainly can. In our view though we think that the breast cancer indication is still three to five years away. The company has to perform long term pivotal trials

in order to fully alleviate the clinical benefits in breast cancer. But the initial claim is is prevention of osteoporosis. There is no market yet for osteoporosis so it's been a tough challenge for Lilly creating demand in the marketplace for a disease which is asymptomatic. Current prices which of these companies look attractive to you. Actually the company that looks most attractive to me today is American Home Products. It's a stock selling at a 25 percent discount to the sector. And yet it's held been held back by litigation concerns over the weight loss products redux and ponder meant and our research tells us that the risks are way overblown and as a result investors have overlooked the emerging pipeline 7 new drugs will be filed this year with the FDA and we think that will lead to a much higher valuation over the next few years of any of them. So for that you think we should be sold. I would not suggest selling any drug stocks at this point. Pfizer is the most

expensive but if I average turns out to be a 10 billion dollar drug we think it will continue to move higher. While the upside is not as great as it was six months ago we still think there's room to go. But no I wouldn't sell any of these drug stocks right now. Make of it how it used to be that we could talk about drugs to talk about biotechnology stocks and we were in two different worlds these days it seems to me there's a terrific overlap. Amgen is really a drug company Merck is really a biotechnology company how do you define the differences. I agree with you it's getting much more difficult to separate the two industries I think that in general people we've got biotech companies and the smaller companies who are doing research and try to supplement the pipeline maybe of the drug industry but definitely there are overlaps for example Merck is developing a drug that will be competing with cent of course drug as well as core therapeutic struck in the heart disease area. Where's the excitement in biotechnology.

Which companies. I think that as a whole the industry has progressed quite a lot in terms of developing new products at this point we have over 600 products that are in clinical testing in humans. And if you look at Amgen they have 11 products in development so this didn't interact. So I think that's where we're going to begin to see more and more products coming along which you think are the most important new product we can expect. I think some of the exciting products in the areas of the brightest for example where we're going to have products coming out to treat people who are not responsive to conventional therapy will have products in cancer that will have less value sex and then talk. We will have drugs to treat chest pain as well as to reduce complications in surgery. In the last couple of weeks in the marketplace anything that had an internet connection seemed to go to the skies. It reminds me a little bit of earlier in this decade the story with biotechnology and the company that made a product that nobody could understand immediately would triple in price then the whole group was hit down pretty hard.

It has really whacked the drug group lately has it not. Yes it has actually has let the drug within the past two years. There are a number of reasons for this I think that some of the larger companies like Amgen the experience of slowing growth in the products that they were selling and then for smaller companies they ran into some problems in drug development which is not unexpected in this sector and definitely the volatility is much much more than. The drug stocks. Let me ask you a question I asked Jamie what would you sell in this area. Right now I think that most of the larger companies are in pretty good shape in terms of turning their pipelines around and I don't think we have anything that we're going to sell in our universe. John let's talk about the hospitals. And the hospital management companies and the whole others in the area that you cover so well. They have been up and down as much as any other group in the marketplace in recent years. The next going to be up or down I hope it's up and I've got the scars to prove it. You had

some good times and some bad but tell us why. Last couple years the hospital group has performed very well and I think right now the industry is very sound. Fundamentally all the pieces to the earnings model are flourishing green demand is good pricing is firm in Colombia which is really a special situation because I did the acquisitions game that's leaving plenty for everybody else and so that's how you get revenue growth pricing demand and acquisitions good shape on the cost side. There are only two things that you have to worry about one is a nursing shortage. We have one of those every five or six years. It's not on the horizon. The other thing I have to watch is Medicare and I think maybe that's the most important part of the hospital story and I think it's maybe the best CT. I used to say for traders in the hospital stocks you buy in January is sell in June and it works because every January the president whether it was Clinton Bush Reagan didn't matter. He would always stand up at the State of the Union mess and say we've got to balance the budget. Congressman great ploy. Next word out of his mouth. Slash Medicare stocks get hammered. So you buy them when they get hammered in January

by June. The lobbyists do what they do. The elderly yell and scream write to the congressmen the current storm is bad and you know there was a rhythm to it that didn't happen this year and it won't happen next in the year after because we've got a budget that's imbalance. So we don't have to go through this annual uncertainty. I think that'll create visibility and visit visibility usually creates better multiples at least I hope so that seems to be the way it's playing out. What significant changes do you expect to Medicare. Well there is a whole laundry list of cuts that have been legislated in the list budget go around. But the good news is we know what those cuts are for our purposes. You'll get minimal price increases but at least not major cuts from current levels with respect to reimbursement from Medicare and the companies who just kept it run a lot or a little faster to keep their Morgans but I think as long as they're allowed to continue to consolidate you ought to be able to do that. A true Mosab become the institution that Americans love to hate. You've been one of their defenders what. Well I think the H.M.S. job is to say no and

somebody has got to because I think the country has said we can't tolerate the kind of double digit health care inflation that we had in the early 90s. And you basically have two ways to solve the problem. One is that you have the government control. We almost had that in the early years of Clinton voted down. Well if we're not going to take that approach we want to address the issue. We've got to take the competitive pro-choice approach let the forces of the market play out. That's what the h Most are all about and I think that again they they are the stocks that many people love to hate but what you hear in the media usually or enteric coated stories an awful lot of people are very pleased with their HMO services. But that doesn't make headlines. A lot of investors have had reason to hate Columbia HCA health care. What's going to happen next with her company. Well Columbia's I think most of your viewers know is in the eye of the storm they've been targeted for several government investigations. I think the company by corporate culture from his previous management really was aggressive. They pushed the envelope. Maybe they pushed too for I'm not sure

but they've had a change of management now. The new CEO Tommy Frist I think is settled things down. It will take a while for them to work out of their problems but they will. There is still Columbia still represents very good hospitals in very good markets and I think under a kinder gentler management they'll be fine. Would you buy the stock. Yeah stocks have a bit of a bounce upward here a little movement list a couple of weeks so it might be a little ahead of itself but I think longer term you do very well with it. I think the only concern in the near term is that I hope investors don't expect too much too soon to 20 billion dollar organization and these things you know take time to turn around. What are your favorite stocks now. Well in the hospital group Tenet is a company that we've been recommending. I think Tenet is the perfect kind of stock for the institutions. If this market continues to be driven by big inflow of funds into the big mutual funds. They've got to put the money to work and I think among health care costs health care stocks that are big liquid have a clean track record high teens growth and most importantly are very

reasonable valuation. I think that's an easy one but the message for the group generally has been in the hospital stocks if you like big cap stocks. I like Tennant for emerging growth. Universal health care. But on the hospital side I'm very bullish nursing homes assisted living other groups that I cover. I think you have to be more selective in what we do so. We've been downgrading nursing home stocks as the valuations get higher. The nursing home industry is on the verge of at least two major changes in assisted living. Over time will obsolete the nursing home industry as we know it. It targets the private pay patient which is the most lucrative patient for the nursing home. That's not going to happen this week this month with over a 10 plus year period nursing homes up to change the kind of service that they provide and so some of the stocks that we've downgraded are very good companies but I think you know their valuations have gotten ahead of themselves I would include companies like event Corps Gen. Medicare health care retirement. I want to think you want to look at the lower

valuations such as fully integrated health cheap stocks maybe they'll be acquired. There's some M&A activity underway in this industry. I think by definition investor expectations are low and therefore I think that we want to be in that group. Jan we we were talking about the. The new drugs as you see them vigorously absent from the list were two issues that we've talked a lot about in recent years AIDS an old slow motion anything going on. Those are two very Those areas are two difficult areas to crack. Pfizer has a drug on the market called Aricept for Alzheimer's and it is certainly better than the other medication on the market cognates but not good enough. And a number of companies have tried to develop Alzheimer's drugs but have had to eliminate those projects because they just it's such a difficult area to understand. But number of companies are developing earlier stage the things we don't see anything on the horizon. And in terms of AIDS that area is also evolving.

What doctors are using today are triple therapy protease inhibitors in AZT. And that too is evolving but there's not a major breakthrough late and later in the stages of clinical development that we're aware of that to dramatically change the way doctors are treating AIDS patients today. It's not because the disease is developing the minute it is to some of the new treatments that certainly that's certainly one reason patients are developing resistance in some cases to triple therapy. What's the most excitement you see the next big area of excitement we see or the Cox 2 inhibitors or a new class of drugs for the treatment of arthritis pain and some cancer indications and the companies that are developing these drugs called Cox 2 inhibitors are Monsanto a drug called celebrity that will be going to the FDA later this year and Merck Vioxx. What's unique about these drugs are that they work very well. They treat pain but they lack some of the stomach problems that are associated with standard therapies such as end sets. We think they'll be very big drugs. Megan Holden have less than a minute left. What's the next area of excitement in biotechnology.

Oh I think in the cancer area as I mentioned there are some products coming out that have much less side effects than some of the chemotherapy is that we're using and I think that weight loss is also an area that a number of companies are working on including Amgen and millennium. It's going to be a long term favorite. Yes it is because I think that the pipeline is turning around and suddenly from a value spec to trading at a discount to the markets but the growth is still higher than the market. Well thank you all three of you very much I feel healthy already thank you Jamie Rubin making hoedown him to long to be on with us tonight and filling us in on the outlook for health and wealth. Hope you'll be back again next week when my guest will be a top performing mutual fund manager with a keen ear for separating the bull from the believable. He's David Williams and he has an impressive record for finding bargain companies that are undergoing the kind of change that really will turn them into winners. So let's see if he can successfully restructure our finances.

Meanwhile it's been more Fleet Week. I'm with you guys tonight Wall Street Week With Louis Rukeyser is produced in association with Kaiser television incorporated by Maryland Public Television made possible by the annual financial support from viewers like you. By Prudential Securities with more than 50 600 financial advisers nationwide Prudential Securities provides solutions for a lifetime of investment needs. That's the power of the rock at work for you. Why A.G. Edwards providing a full range of personalized financial retirement and estate planning. A.G. Edwards trusted advice exceptional service and by Oppenheimer Funds. Where a long term approach to investing has helped put financial security in the hands of millions of Americans. Oppenheimer Funds.

For a printed transcript of this program will send $5 to transcripts. Wall Street Week With was Ruth Kaiser of Maryland Public Television. Owings Mills Maryland 2 1 1 1 7. Transcripts are also available to subscribers of Dow Jones interactive. This is PBS.