By Sarah Toy
Shares of health-care services companies took another beating Wednesday, as the evolving political climate on health care, including calls for lower drug prices and “Medicare for All” plans, continued to weigh heavily on Wall Street sentiment.
Four of the Dow Jones Industrial Average’s /zigman2/quotes/210598065/realtime DJIA +1.44% 10 biggest losers on Wednesday were health companies, including UnitedHealth Group Inc. /zigman2/quotes/210453738/composite UNH +0.02% , Merck & Co. /zigman2/quotes/209956077/composite MRK +0.05% , Pfizer Inc. /zigman2/quotes/202877789/composite PFE +1.11% and Walgreens Boots Alliance Inc. /zigman2/quotes/203410933/composite WBA +2.85%
The SPDR Health Care Select Sector exchange-traded fund /zigman2/quotes/205918244/composite XLV -0.24% slumped 2.9% to close at a 3 1/2-month low, after dropping 2.1% on Tuesday. It was the only SPDR ETF tracking the S&P 500’s 11 sectors that was losing ground year to date. In comparison, the S&P 500 index /zigman2/quotes/210599714/realtime SPX +1.05% has climbed 16% this year.
Wednesday’s selloff was led by medical-care services company DaVita Inc. /zigman2/quotes/204229673/composite DVA +1.82% , insurer Anthem Inc. /zigman2/quotes/203808743/composite ANTM 0.00% and drug company Alexion Pharmaceuticals Inc. /zigman2/quotes/206262068/composite ALXN +0.32%
Health companies have been grappling with investors’ reactions to possible changes to the health-policy landscape. Facing political pressure over hefty drug prices and, most recently, a new proposal from U.S. Sen. Bernie Sanders suggesting a single-payer system, investors are becoming increasingly skittish around an industry once considered a safe haven.
“Volatility picks up for health-care stocks around election cycles as sentiment moves around in reaction to different candidates’ plans for changing the health-care sector, especially since health-care benefits have been the key topic for voters since 2007,” Brian Tanquilut of Jefferies wrote in a note to clients on Wednesday.
Health insurers like Anthem and peers UnitedHealth, Humana Inc. and Cigna Corp. /zigman2/quotes/208431372/composite CI +0.94% have fallen substantially in the year to date.
UnitedHealth shares have shed 6.2% over the past two days despite the company reporting earnings on Tuesday that beat expectations, as investors seemed nervous about the possibility of Medicare for All becoming a reality. That follow’s last week’s 10.3% drubbing, which was the worst weekly performance in 10 years.
Meanwhile, Anthem shares have fallen 6.6% this week after losing 13.8% last week, the largest weekly drop since February 2009.
Health-care facilities and managed care companies could face “temporary downside risk,” analysts at J.P. Morgan said in a Wednesday note to clients. Health-care services company HCA Healthcare Inc. /zigman2/quotes/205934574/composite HCA +2.52% shares have fallen 11% in the year to date, though Tanquilut of Jefferies called the sell-off “overdone.”
“We will still need hospitals to be viable even if Medicare for All is enacted,” he said. “As currently proposed, [Medicare for All] will most likely reduce the need for managed care companies... on the other hand, the need for [health-care] providers does not go away, so the government will need hospitals, physician practices and other [health-care] providers to remain viable to protect access to care.”
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Bernie Sanders unveils a new 'Medicare For All' plan that's co-sponsored by Democratic presidential rivals Cory Booker, Kirsten Gillibrand, Kamala Harris and Elizabeth Warren. But can the Vermont Senator's bumper sticker survive scrutiny? Image: Getty
Pricing pressures and fears around Medicare for All may also be playing into the declining share prices of drug companies like Merck and Pfizer. Drug manufacturers would have to pare prices considerably under a single-payer system, Raymond James health-care policy analyst Chris Meekins wrote in a recent note to clients. The single payer — in this case, the government — would have substantial negotiating power and could “claw back patents” if companies refused to pay the government its desired rate, he wrote.
Earlier this month, Walgreens stock plummeted 12% after the company reported second-quarter earnings that missed expectations, while lowering its full-year outlook. At the time, Chief Executive Stefano Pessina called the period “the most difficult quarter we have had since the formation of Walgreens Boots Alliance,” citing declining generic drug prices and lower reimbursements from payers.
Rivals CVS Health Corp. /zigman2/quotes/209664499/composite CVS +2.24% and Rite Aid Corp. /zigman2/quotes/201733831/composite RAD -1.52% have also seen their shares fall, with Rite Aid sinking 32% and CVS dropping 20% in the year to date. Shares of Walgreens have declined 20% in the year to date.
“The retail/supply chain complex is very difficult to own...over the near term given the regulatory uncertainty with respect to the [Affordable Care Act], drug pricing, rebates,” Jefferies health-care trading desk strategist Jared Holz told MarketWatch in an email. “On the retail side, trends remain weak on average and Amazon will continue to be a lingering force for the industry to deal with.”