Byline: CHUCK SODER
Reading the headlines, it seemed like the world shook in March when President Barack Obama signed what has been called the biggest change in the United States health care system since the creation of Medicare and Medicaid.
Judging by the reaction from investors in Northeast Ohio, however, the quake wouldn't rate all that high on the Richter scale.
Several local health care investors said that, while they are concerned about certain aspects of the Patient Protection and Affordable Care Act, the overall impact of the bill on their investments would be a wash.
That's not to say it won't have any impact. Some said they believe that having millions more people insured means a bigger market for the health care companies that they're financing. Other aspects of the bill, such as the 2.3% tax on medical device sales, may hurt some of the companies in which they invest.
The law likely will have a neutral impact on Lakefront Partners LP, said Ed Matuszak, senior vice president and portfolio manager of the Cleveland private equity firm. The intricacies of the expansive law will have positive effects on some companies and negative effects on others, Mr. Matuszak said.
It's hard to 'positively spin the medical device tax, said Dr. Brian Duncan, a Cleveland-based venture partner for life sciences venture firm Arboretum Ventures of Ann Arbor, Mich.
Regardless, Dr. Duncan noted that the increased size of the insured population will be a plus for investors. On top of that, he said that his venture firm puts an emphasis on backing companies developing devices that lower the cost of health care.
'There's going to be an even greater premium placed on those simple solutions that decrease costs, he said.
'Still a very good sector'
B.J. Lehmann, president and chief operating officer of Athersys Inc., said the government's ongoing push to reduce health care costs could have a positive impact on the publicly traded Cleveland company, assuming the products it is developing and testing which include stem cell therapies for various conditions and an obesity drug work as well as the company expects.
The recently passed health care bill shouldn't have an impact on Athersys' ability to raise more capital and has had little overall impact on the company, Mr. Lehmann said. Companies with products on the market are more likely to feel the effects of the law, he said.
'My sense is those folks in the longer term will be more affected by health care reform, he said.
Not all biomedical companies without a product on the market will be immune to the impact of health reform, said Baiju Shah, president of BioEnterprise Corp., a nonprofit that assists health care companies in Northeast Ohio.
Health reform in the broadest sense including the new law, pending Medicare and Medicaid cuts and anticipated changes in how the U.S. Food and Drug Administration approves new drugs has made some investors more risk averse, Mr. Shah said. The overall impact of those changes will drive more companies to repurpose existing drugs and to make modifications to devices instead of inventing new ones, he said.
He noted, however, that many pieces of the broader health reform effort still are in flux, and that the health care market presents too many opportunities for investors to turn away.
'Health care is still a very good sector for investment, Mr. Shah said.
Stocks for a handful of local health care companies, like the broader stock market, didn't move much after President Obama signed the health care bill.
Even Invacare Corp.'s stock price remained steady, despite the world's largest maker of wheelchairs vocally opposing the issue. The firm has softened its stance because the implementation of the medical device tax was pushed to 2013 from 2010, said Lara Mahoney, Invacare manager for corporate communications.
Some feeling ill effects
Individual stock market investors haven't made big moves into or out of health care stocks because of health reform efforts, said Charles Rotblut, vice president with the American Association of Individual Investors in Chicago.
The health reform bill might lead to greater demand for tax-free municipal bonds in the future, he said: It included two new federal taxes on individuals earning more than $200,000 per year and couples making more than $250,000. The two taxes combined would apply to about 4.7% of earnings over those amounts starting in 2013.
Mr. Rotblut added that the health care sectors that should benefit the most from health reform are health care-focused information technology companies, pharmacy benefits management companies and urgent care clinics. The 'losers most likely will be insurance companies, he added.
'They have very few friends in Washington right now, Mr. Rotblut said.
Copyright 2010 Crain Communications Inc. All Rights Reserved.
