Wednesday, November 9, 2016
Trump Victory Big For Biotech
By Johanna Bennett
It may seem odd at first glance given Trump’s vow to dismantle the Affordable Care Act. President Obama’s health-care law extended health benefits to millions of uninsured Americas, who are now able to pay for medical care, boosting profits for hospitals, pharmacies and some health insurers. And with both houses of Congress now in republican hands, the fear is that he can actually carry it off (though the reality may be quit different).
But look at what’s happening with drug makers. Biotech and pharmaceutical stocks, which make up 60% the weighting in the S&P Healthcare Index, are recovering today after enduring a sharp selloff over the past year, largely due to Clinton’s outspoken stance against drug price increases. Her defeat is viewed as a win for the industry, especially biotech companies developing expensive treatments for cancer, autoimmune disorders and various rare diseases.
The iShares Nasdaq Biotechnology ETF (IBB) was the big winner, jumping almost 7% today, followed by a 5.3% gain by the iShares U.S. Pharmaceutical ETF (IHE).
And drug wholesalers are enjoying a similar leap, with McKesson (MCK) and Amerisource Bergen (ABC) climbing more than 5% in recent market action.
It a bit of an odd move. Trump and other republicans made high drug prices part of their campaign messages. But the issue never had the priority for them that it did for Clinton, explain Citigroup analyst Robyn Karnauskas. “We will know more when the new president unveils his plans in coming months,” she writes in a recent note
For hospitals and some health insurers, however, Trump’s victory is akin to Armageddon, or at least that’s how investors are reacting.
“A GOP Triple Play: The worst possible outcome for HC stocks is a reality,” writes Sheryl Skolnick and Ann Hynes, health-care service analysts at Mizuho Securities in a note published this morning warning of “extreme risk” for stocks exposed to a repeal of Obamacare.
We see extreme risk of ACA repeal/replace, loss of the Medicaid expansion, a primary driver of results for both hospitals and health plans, and reversal of the many value-based regulations that promote home health care. Only the potential for a Senate filibuster protects the ACA. We therefore are downgrading our Buys to Neutral and cutting PTs for our covered companies.Shares of Tenet Healthcare (THC) toppled 27% and LifePoint Health (LPNT) fell almost 12%.
In the insurance industry, Centene (CNC) and Molina Healthcare (MOL), the two largest Medicaid-focused health insurers, each fell 18%.