The coronavirus pandemic has negatively impacted numerous companies. Within the healthcare industry, three companies are being severely impacted by the pandemic, particularly as the “second wave” of cases accelerates. These companies are Tenet Healthcare (THC), DBV Technologies (DBVT), and Ventas (VTR).
By Lee Rivers, Biotech Analyst
Tenet Healthcare operates 65 hospitals and about 500 other healthcare facilities, including outpatient surgery centers. The lockdown caused by the pandemic resulted in visits of patients to hospitals declining significantly in the second half of March, and many patients have deferred elective care. Tenet said that its overall surgery count fell 55% from the prior year. At the end of the first quarter this year (March 31st), there was a 5% drop in same hospital admissions, portraying the decline in patient volume that began in mid-March. Consequently, Tenet furloughed approximately 10% of its workforce.
The decline in patient volume directly also led to a decrease in net income of $0.69 per share. However, Tenet Healthcare still reported a profit from continuing operations of $1.28, which beat analysts’ estimates by $0.32 per share. The earnings beat was primarily because of an $0.81 tax benefit linked to the Coronavirus Relief and Economic Security (CARES) Act. The company’s net income attributable to Tenet shareholders in the first quarter of 2020 was $93 million or $0.81 per share, compared to the first quarter of 2019’s loss of $12 million, or $0.11 per share. Operating revenue fell to $4.52 billion from $4.55 billion over the same period.
In the first half of June, Tenet reported that its admissions to hospitals had reached 90% of pre-crisis levels. Moreover, surgery counts were at 95% of pre-crisis levels. Hospital departments that were previously closed are reopening, and vital elective procedures are resuming, but the acceleration of the second wave of COVID-19 cases may pose a danger, as Texas (Tenet is based in Dallas) has paused its reopening plans. This second wave will likely disrupt Tenet’s operations again as patient volume decreases and elective procedures continue to get deferred. One significant difference in the first and second waves, however, is that the average age has declined considerably, resulting in shorter average hospital stays in this second wave.
DBV Technologies (DBVT)
DBV Technologies is a biopharmaceutical company that develops products and immunotherapies for diagnosing and treating food allergies, such as milk and peanuts. The firm is currently developing Viaskin Peanut, an immunotherapy for peanut allergies that is in Phase III trials for ages 4-11 and 1-3, and the treatment for adolescents and adults is in Phase II trials. It also has several other ongoing immunotherapy programs, such as Viaskin Milk, in Phase II trials, Viaskin Egg, in the preclinical stage, and a diagnostic for cow’s milk allergy in infants that is in Phase II trials.
DBVT’s Viaskin Peanut immunotherapy had a set target date of approval in August. The Food and Drug Administration (FDA), however, is currently focused on the coronavirus pandemic, thus impacting the timelines for reviews of drugs and medical treatments. A minimum of 1,100 clinical trials in both the U.S. and Europe have either decelerated or stopped. The company reports that it provided the FDA with answers and data regarding questions it had in March, but the FDA is still reviewing the data. Nevertheless, the FDA maintained the target approval date of August 5th.
Consequently, DBVT plans to implement a restructuring plan to provide more flexibility to the firm. This restructuring plan, according to DBVT, is intended to put DBVT in the best position possible for the possibility of a delay in the review process for Viaskin Peanut’s FDA approval. The company will focus on continuing the BLA review process for Viaskin Peanut, preparing to bring Viaskin Peanuts to patients, and preserving an abundance of cash to achieve the above.
This restructuring plan will diminish the firm’s other clinical and preclinical programs and spending to reserve capital. DBVT anticipates that its current holdings of cash and cash equivalents of €262.4 million will be able to fund operations substantially beyond the prior guidance of the first quarter of 2021 under the new plan. Despite the firm’s ability to restructure and pivot to focus on preserving cash, DBVT will still be impaired by scaling down its other programs under development, particularly when coupled with the present difficulties of finding enrollment for studies. It is unclear what the ultimate results of the restructuring will be for DBVT over the long-term, but, indubitably, the timelines for nearly all the programs outside of Viaskin Peanut will be delayed substantially.
Ventas, Inc. is a Chicago-based healthcare real estate investment trust that acquires and possesses senior housing, research and innovation, and healthcare properties. Ventas leases the properties to unaffiliated tenets or operates them through third-party managers. The company also makes secured and non-mortgaged loans relating to senior housing and healthcare properties or operators.
The coronavirus pandemic caused a tremendous shrinkage in demand for senior care, with occupancy of senior living and housing properties currently at 80.7%, compared to 85.5% in April. Some primary drivers of the decrease in occupancy are the limited admissions and visitations at many senior living facilities, as well as the headlines regarding infection rates. At the end of June, approximately 30% of Ventas’s communities were closed to new admissions. Additionally, senior living facilities have also experienced increased costs because of the pandemic, as its residents are the most at-risk, thus requiring extensive safety precautions, in addition to the obligation of hazard pay for employees drawing substantial funding.
The combination of increased costs and decreasing demand is certain to harm Ventas’s profitability, and occupancy declines are expected to continue. Ventas is preparing for this, as its quarterly dividend has been reduced by 43% compared to the prior quarter. Other senior care facilities have done the same, with WellTower decreasing its dividend by 30%. Ventas is expecting a 1% sequential average monthly occupancy loss, or a $2-$3 million decline in revenue each month. Senior living is an essential business, however, and occupancy rates are unquestioned to accelerate with the inevitable aging of the more senior U.S. population.
Conclusion: Essential Services?
The coronavirus pandemic has impacted many companies within the healthcare industry. Tenet Healthcare, DBV Technologies, and Ventas, Inc. are three stocks that will markedly be affected by the pandemic, particularly as cases of coronavirus continue to rise again. With reopening plans ceasing in some regions of the country, there is a likelihood of a potential second lockdown that could further detriment these companies.
Nevertheless, these companies are in an industry that is essential and will likely rebound in demand as the coronavirus pandemic subsides. In the short-term, the epidemic will undoubtedly affect them negatively from a business and financial standpoint. These companies hence have the potential to become undervalued investments, as a result. DBV Technologies is potentially the riskiest of the three stocks, as it is dependent on the approval of the FDA and the successful commercialization of its Viaskin Peanut treatment. Tenet Healthcare will likely experience a rebound in revenue as deferred elective procedures are performed after the pandemic dissipates, but will need to manage the rising costs caused by the pandemic. Moreover, Ventas, Inc. will likely rebound as well once the pandemic subsides, as new admissions will resume and the potential for health risks in senior living facilities minimized. Each of the firms will have to find efficient ways to reduce costs to achieve profitability and will be exceptional value investments if they can attain that aim despite the challenges posed by the current pandemic.