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MedCity morning read, Friday, Feb. 27

Even the "recession-proof" health care and biotechnology industries are feeling the economic pain of the worst contraction since The Big One. Will consumers keep the health care industry growing?

By Mary Vanac on February 27, 2009

Even the “recession-proof” health care and biotechnology industries are feeling the economic pain of the worst contraction since The Big One.

Slightly more than half (53 percent) of Americans said their households cut back on health care because of cost concerns in the past 12 months, according to poll results announced by the Kaiser Family Foundation this week. The most common cut-back actions reported by poll responders were relying on home remedies and over-the-counter drugs rather than visiting a doctor (35 percent), and skipping dental care (34 percent). 

The poll results caused BNET Healthcare reporter Ken Terry to ask the question: Will consumers keep the health care industry growing?

Novation, the Irving, Texas, contract services company, surveyed its members — more than 2,500 institutions in national health care alliances VHA Inc. and the University HealthSystem Consortium, and nearly 14,000 institutions in Provista LLC., a health care group purchasing agent — and found that:

  • 60 percent of responding hospitals have seen a moderate to significant impact from the recent economic crisis.
  • 47 percent of respondents foresee staff cuts.
  • 73 percent of respondents have seen an increase in the cost of care related to meeting new patient safety standards.
  • 84 percent of respondents plan on reducing spending, with 49 percent anticipating in a 6 percent-to-10 percent reduction.
  • 44 percent of facilities will focus on product utilization to reduce costs.
  • 44 percent of respondents have seen a reduction in surgical procedures, with hip (orthopedic) procedures garnering the highest percentage drop – 45 percent.
  • 69 percent of respondents will cancel or delay capital equipment projects.

Even biotech companies are hurting.

Recent Biotechnology Industry Organization reports show that biotech companies — large and small — with strong cash reserves and promising pipelines of products in late stages of development are the most likely to weather the economic storm, according to a Joshua Boger, president and CEO of Vertex Pharmaceuticals and chairman of the BIO board.

But the reports also show that:

  • More than 40 percent of small biotechnology companies has less than a year of cash remaining.
  • More than 30 percent of small, publicly traded companies has less than six months of cash.
  • In 2008, only one biotechnology company completed an initial public offering (selling its stock to the public to raise money for development and to cash-out investors). In 2007, there were 28 biotech IPOs.
  • Lack of an IPO market is causing companies to look to alternative financing, such as selling future or existing royalty streams, to generate capital while remaining independent and retaining rights to assets.
  • The cash crunch is causing many companies to cut their workforces and trim early research efforts — perhaps good for the short-term viability, but bad for the long-term prospects of those companies.
  • Researchers and business people are growing less likely to uproot themselves to start new biotech companies, which constrains growth and limits innovation in the industry.

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