Jenks Healthcare Business Report May 2001

In the May 2001 issue:

First Quarter Earnings: Better Than Expected, Mostly
P. 1

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Going Concern Opinions
P. 2

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Venture Capital
P.2

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Jenks Stock List in Full
P.4

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Private Placements
P.6

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Public Market Financing
P.7

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Analysts
P.7

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Merger and Acquisition Volume Strong
P.8

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Jenks Insider Trading Roundup
P.10

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Notes and Briefs
P.12

Jenks Healthcare Business Report

First Quarter Earnings: Better Than Expected, Mostly

While much of the rest of corporate America turned in disappointing earnings results for the first quarter, with the sputtering economy given as the leading reason, the health care sector posted a surprisingly strong performance. More than 75% of the companies had double-digit earnings increases compared to the first quarter of 2000, and many of those increases were in excess of 20%. Approximately 15 companies exceeded the consensus earnings estimate of Wall Street’s analysts, with hardly any companies coming in below estimates.

In the pharmaceutical sector, just about all of the companies, except Schering-Plough (NYSE: SGP), had earnings increases from 10% (Bristol-Myers Squibb, NYSE: BMY) to over 100% (IVAX Corp., NYSE: IVX) compared to the first quarter last year. SGP, while turning in a 10% decline in earnings, did manage to beat analysts’ estimates for the quarter. Other companies that beat analysts’ estimates include Pfizer (NYSE: PFE), Johnson & Johnson (NYSE: JNJ), Eli Lilly (NYSE: LLY) as well as BMY and IVX.

The hospital sector turned in similar results, with earnings increases over last year’s first quarter ranging from 13% (HCA - The Healthcare Company, NYSE: HCA) to 85% (LifePoint Hospitals, NASDAQ: LPNT). Both HCA and Universal Health Services (NYSE: UHS) topped analysts’ estimates for the quarter. The biotechnology and medical device sectors generally performed well also. Although Chiron Corp. (NASDAQ: CHIR) posted a decline in earnings and Incyte Genomics (NASDAQ: INCY) had a loss, both companies exceeded earnings estimates. Genentech (NYSE: DNA) returned to profitability after a loss in last year’s first quarter, while Medimmune (NASDAQ: MEDI) posted a 177% increase in profits. C.R. Bard (NYSE: BCR) and Guidant (NYSE: GDT) both reported earnings increases.

In long-term care, Sunrise Assisted Living (NASDAQ: SNRZ) posted a 215% increase in earnings per share on a 35% rise in revenues, although most of the earnings gain was the result of asset sales. On the negative side, Alterra Healthcare (AMEX: ALI) reported a pre-tax loss of $25.5 million on a 20.4% increase in revenues over last year’s first quarter, while American Retirement Corp. (NYSE: ACR) produced a first quarter loss of $2.8 million on a 29% increase in revenues. ALI continues to negotiate with its creditors and landlords to avert a bankruptcy filing. Despite a 32-facility reduction, Beverly Enterprises (NYSE: BEV) reported a 2% increase in revenues based on an 8.8% rise in the company’s average per diem nursing home rates. Before special charges, BEV had earnings of $12.6 million, a 25% increase over last year’s first quarter.

In last month’s issue of Jenks HBR, we voiced the opinion that the problems facing Aetna (NYSE: AET) may be a warning signal for the managed care industry as a whole. Two weeks later, Cigna Corp. (NYSE: CI) issued a warning that earnings this year would be lower than expected, blaming pension and retirement accounts that it manages as well as an 11% rise in medical costs in the first quarter. This increase was 200 to 300 basis points higher than the company’s own estimate three months earlier. Cigna’s shares plummeted by almost 15% on the news, while other managed care stocks dropped by 5%. A week later, AET reported a first quarter loss of $36.6 million, or $0.26 per share, before charges related to exiting some Medicare markets. Because of rising medical costs, the company will not predict earnings for the remainder of the year. We continue to believe that 2001 will be an erratic year for the managed care industry.

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