For many investors, the health care space is somewhere they want to avoid completely. Others, however, can wade through the risky companies to find some real picks. Megan Murphy has three this week.

1. Savient (SVNT): “They have a nov el biologic that they own 100% of the rights to, from a licensing standpoint, and they are due to have data at the end of this year.  They are looking at a pegylated enzyme to combat refracatory gout. It’s a compelling merket; it’s an orphan drug market. “
2. Neuroges (NGSX): “A small cap company…in the pain space. They have a patch that has three positive Phase III studies; it’s a product called Transacin. They’ve filed the product in Europe. They are executing extremely well.”
3. Fores (FRX)- “We happen to think that Forest is very undervalued here for a big cap name with great liquidity, a great balance sheet and an improving pipeline.”

For the full interview with Megan Murphy, including an exploration of drug delivery trends and general trends in the specialty pharameceuticals sector, click here.

In 1996, David Kliff, a successful money manager for high net individuals, was diagnosed with Type II diabetes. In response to this, David Kliff decided to remain proactive.

He founded Diabetic Investor- the only electronic newsletter dedicated solely to the business aspects of diabetes. The newsletter covers both public and private companies that have any connection to the business of diabetes. Not just drug and device companies, but retailers, insurance companies and disease management companies.

Being a diabetic, Mr. Kliff has a unique understanding of the space he’s covering: he uses several of products and drugs he writes about. It is this perspective that he provides to the subscribers of Diabetic Investor.

To read our interview with David Kliff, including recent trends in diabetes, and his full coverage of diabetic investing, click here.

Our other special focus this week is on Royalty Trusts. We spoke with Mark Bridges, analyst and Executive Director of Institutional Equity Research at CIBC World Markets who talked a little bit about the downturn in investor interest in Royalty Trusts.

TWST: When you talk with investors, what kind of interest level are you finding in this space?

Mr. Bridges: Not the same level of interest that we saw a couple of years ago. This lack of interest speaks to the anemic rates of return we are seeing on capital employed today, especially as it relates to the gas weighted trusts. That said, we are seeing a significant dichotomy with the oil weighted names till generating strong returns right now, maintaining solid investor interest. Value players are sifting through the natural gas weighted trusts, but from an overall perspective, we have seen limited interest in the group over the last 18 months.

For the full interview with Mr. Bridges, including a full analysis of royalty trust sector and stock picks, click here.

This week our special focus is on the Specialty Pharmaceuticals space. We spoke to several analysts about what they specifically covered within this broad space, to get a better sense of how the sector works as a whole.  

• Angela Larson, Susquehanna Financial Group: “I focus on brand drug marketers and product development companies…I cover companies that are trying to do some discovery and innovation like Barrier Therapeutics (BTRX) and also companies that are only doing drug identification and development, like a DURECT Corp. (DRRX) and POZEN(POZN). Also my coverage includes companies with marketed and pipline products that focused on a single target audience like Salix Pharmaceuticals (SLXP) and ISTA Pharmaceuticals (ISTA).”
• David Windley, Jefferies & Company: “I focus on pain management and some of the central nervous system diseases…[In pain management] getting through the Agency has proven notoriously difficult. The pain management area is one that is dominated by strong opiates and has…been driven by reformulations or enhanced delivery for stronger opiates.”
• Megan Murphy, Lazard Capital Markets- “I cover the drug deliver side and the specialty markets….The issue on drug delivery is looking at the performance of some of the names in the space relative to their economics as the assets that are leveraged to either move through the clinic, but more importantly actually reach the market and are generating sales.”

For the full specialty pharmaceuticals report, featuring in depth coverage of why to invest or not invest areas of this space, click here.

Each portfolio manager we speak to weekly has their own take on investing. Some perfer active management, some passive management, but portfolio manager Mike Kimbarovsky chooses to combine the two into a style he terms: “dynamic asset allocation”.

“If one were to distill how most money is managed for institutional or high net worth families, there are essentially three different approaches (this ignores private equity, hedge funds and the like). The first is the “traditional” approach, what we call ‘active management.’ The second is the ‘indexed’ approach, what we call ‘passive management.’ The third is a hybrid of  the first two, what we call ‘dynamic asset allocation.’”

“The traditional, active-management approach chooses a team of active managers that focus their energies on picking good stocks.”

“The indexed approach selects several different passively managed index funds.”

“The dynamic asset allocation approach combines the best attributes of both the actively managed and index fund approaches. This approach relies heavily on the use of low-cost index funds (exchange-traded funds, mutual funds or similar products). We use these index funds as the building blocks of the portfolio. We vary the sector and industry weightings and occasionally alter the asset allocation mix (the stock, bond, real-return weightings) within prescribed boundaries established by investment policy. We know that effective long-term investment decisions that result in above average market returns stem from investing in unpopular areas where there are catalysts for change unrecognized by most investor.”

For the full interview with Mr. Kimbarovsk, including the stock picks associated with dyanmic asset allocation, click here.
 

Hospitals and Healthcare facilities are, for the most part, in a bad place financially these days. According to the roundtable of analysts we spoke to this week, one of the causes for this was high and growing levels of bad debt. The reason for this might come as a surprise.

Most investors assume that the rising levels of debt are due to the growing number of the uninsured in America.  However, as the analysts we spoke to have observed, the number of uninsured over the past few years has stayed the same. What has changed is the number of insured Americans staying away from hospitals- either for economic reasons or in favor of alternatives such as ambulatory surgery centers. The result is only the  appearance of  growing numbers of the uninsured at hospitals- as the number of insured patients decline and the number of uninsured patients remains the same.

The debt, in fact, doesn’t seem to be coming from the uninsured as much as the insured themselves that aren’t paying their co-pays and deductibles. The average hospital has 7%-14% debt, according to our analysts, 25% of which is related to co-pays and deductibles from the insured.

For the full roundtable discussion on Hospitals and Healthcare Facilities, including stock picks and an outlook for the next few years, click here. 

In our continuing coverage of the Healthcare Facilities space, we spoke to John Ransom, managing director of Health Research at Raymond James & Associates. He had a few picks in healthcare facilities:

• Da Vita (DVA)- ”The appeal of Da Vita is the upside to margins, the free cash flow, and a possible upside from Medicare changes.”
• Pychiatric Solutions (PSYS)- ”PSYS…is in another growth niche. We think the demand is growing at 3 to 4 times population growth, and what’s more, there is no new supply as we are not really building new psych hospitals in this country.
• CVS/Caremark (CVS)- ”The theory is CVS bought a large PBM, Caremark, and Caremark buys generic drugs a lot cheaper than CVS does. What CVS told the world when they closed Caremark, was there were roughly $500 million of cost savings. We think that those savings could grow over $1 billion.”  

For the full interview with Mr. Ransom, including a forecast for the future of healthcare facilities, and an explanation of current rends, click here.

When looking for someone to manage your money, it’s important to know how a portfolio manager will assess and control risk. With a market as volitile as today’s is,  it’s more crucial than ever. This week we spoke to several portfolio managers about how they assess and control risk:

• Cameron Johnson – Lowry Hill (small cap stock investments): ”Since we manage focused portfolios, risk management is driven by our stock selection. To us, risk is defined as a permanent loss of capital. We avoid capital loss by identifying companies with strong and durable franchises and by purchasing their stock at a significant discount to their intrinsic values.”
• Kurt Spieler- Tributary Capital Management (mid-cap growth investments): “We control risk from industry and company diversification. We hold 50 to 60 stocks in the portfolio and specifically look for companies that have low correlations. Our analysis is to find fast growing companies in a wide variety of industries. This includes analyzing slower growth industries like utilities or consumer staples for potential investment. In these slower growth industries, we are looking for companies that are growing faster than their peer group. We get risk reduction from this intentional diversification within industry groups.”




• Mike Kimbarovsky- Advocate Asset Management  (Dynamic asset allocation): “Our philosophy of risk management is to target a level of risk. We think of risk in two ways, one is from a perspective of capital loss and one is from a perspective of volatility. We have targets of what level of capital loss we are comfortable with. We want to maintain a level of risk in the portfolio that is consistent with our targets because we know there is no such thing as a free lunch. We know we can’t make money without taking on the risk of loss.” 

For our full investing strategies report, complete will a full interview of each of portfolio managers listed above, and stock picks, click here.

EMS, or Electronic Manufacturing Services, is other special focus this week. The EMS Space has had a rough time over the past few years, with major restructuring happening on many fronts in the hopes of turning companies around. However, there is only one thing that will bring investors back to these companies, no matter how they restructure: performance.

TWST: As you look at the group, is there something that’s going to get investors to come back to them or is it just going to be blocking and tackling and a dual return to business as usual here?

Mr. Miscioscia: Investors end up going where the performance is. If the EMS companies can get their performance back on track, I would expect investor interest to come back up. I think it’s interesting that human nature takes over very often, obviously, in investing. When we hold conferences, if the companies’ shares are down and out, we’ll have two investors in a room, whereas companies whose shares are doing well will pack the room; you’d think it would be the other way around – people would be looking for the good values, but that’s generally not the way it works. I think that you are going to have to see at least a quarter or two of decent performance before some of these come back.

For the full interview with analyst Louis Miscioscia of Cowen and Company, LLC, complete with a full overview of the EMS sector and stock picks, click here.
 

One of this week’s special focuses is on the Hospitals space- a space whose future will be largely determined by who becomes our next president in 2008. We spoke with Ann Hynes, analyst with Leerink Swann & Company, Inc., who felt that Hillary Clinton’s proposed plan might have some benefits for the hospitals area:

TWST: As we look out over the next two or three years, what’s the scenario that you see unfolding in this space?

Ms. Hynes: I think it depends on the presidential election…Now that Hillary Clinton’s uninsured plan is released and, more important, that her proposal is not government-run, I think that people have more hope that possibly something could happen with the new  President. And if you look at the recent polls, the number one issue in this election is going to be health care, even more than the Iraq war. So if you get some relief on a national type of uninsured bill that’s employer-based, it would be a positive.

 For the full hospital and health facilities issue, complete with a full overview of the space, the subprime issue’s impact on it and stock picks, click here.