Health Stocks Lead Rally After Getting ‘Best of All Worlds’
(Bloomberg) -- Drugmakers and health insurers were the biggest gainers on Wednesday after Democrats failed to sweep the election in a “blue wave.” While the presidency remains up in the air, health-care analysts were largely positive about the results, with SVB Leerink calling the outcome, so far, the “best of all worlds.”
“Even though drug pricing and reimbursement reform have seen support from both Democrats and Republicans, we expect the Senate’s filibuster-proof, 60-vote supermajority requirement to pass major legislation will shield the biopharma industry from the most controversial reforms,” SVB Leerink’s Geoffrey Porges told clients in a research note.
Drugmaker deals are likely to continue unabated, particularly for companies targeting new cancer medicines, said Michael Yee, an analyst with Jefferies. He called the results “a clearing event that allows investment across more fundamentals, rather than fears of headlines.”
Goldman analyst Asad Haider also called out the divided government as positive for health insurers, saying the managed-care sector faces less risk of a “large progressive public option” or a corporate tax increase. Before the election, the health-care sector was trading at its largest ever price-to-earnings discount to the broader market. “The group starts to become more investible again,” he wrote in a research note.
Veda policy analyst Spencer Perlman said the public option as well as government negotiation on drug prices are “dead for at least the next two years.” There’s some downside from health-care providers, which are more likely to get less-than-hoped stimulus funds. Among insurers, Centene Corp. and Molina Healthcare Inc. are at a disadvantage because of their reliance on Obamacare and managed Medicaid.
The S&P Supercomposite Managed Health Care Index, a benchmark of insurers, rallied to a record and biotechs climbed for the biggest jump since March. Large-cap biotechs, along with the insurers, were some of the biggest gainers among S&P 500 stocks with Biogen Inc. leading the way after positive developments for its experimental Alzheimer’s disease medicine. Eli Lilly & Co., Cigna Corp, Anthem Inc. and UnitedHealth Group Inc. rounded out the top five gainers.
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