Sector Summary: Healthcare Year In Review
The Healthcare sector (XLV) is up +20.5% for the year, narrowly outperforming the S&P 500 +19.6%.
Biotech stocks surged to challenge the highs from 2015 as fears over drug price scrutiny subsided. The SPDR S&P Biotech ETF (XBI) is up 45% year-to-date. M&A was relatively slow in the face of uncertainty over tax reform.
Large-cap bio-pharma stocks traded more in-line with the broader market -- the iShares Nasdaq Biotechnology ETF (IBB) is up +21.6% year-to-date as large-cap biopharma saw slowing growth and generic drug makers dealt with price competition.
Gilead (GILD) made its long-awaited large acquisition by purchasing next generation immune-oncology (I-O) CAR-T company Kite Pharma. While immune-oncology is making great progress, it is an increasingly crowded space. Smaller biotech companies continue pair their therapies with I-O checkpoint inhibitor franchises from Bristol-Myers (BMY), Merck (MRK) and to a lesser extent AstraZeneca (AZN).
Gene therapy stocks have grown in popularity as they set the pace for innovation in biotech (SGMO +469%, ALNY +243% +QURE 242%, ABEO +232% BLUE +192%, CYRX +176%, AVXS 132%, +EDIT 84%).
Managed Healthcare stocks were strong -- all were up at least 20%, led by Centene (CNC, +82%), Anthem (ANTM, +57%), and Cigna (CI, +52%). Pharmacy CVS (CVS) is trying to acquire Aetna (AET) in a vertical deal after managed care M&A was shot down by regulators earlier in the year.
Hospital stocks were a laggard on disappointing results while the GOP tried to repeal The Affordable Car Act. Drug distributors underperoformed while the role of these intermediates comes in to question as drug prices continue to rise.
Below we highlight the best-performing stocks in the sector as well as the worst-performing stocks in the sector. In addition, we feature the price returns for gains outside the S&P 500 and most notable stocks.
S&P 500 Gainers: ALGN +143%, VRTX +97%, CNC +83%, ISRG +75%, ILMN +69%, ANTM +61%, CI +57%, ABBV +57%, ABT +49%, BAX +48%
S&P 500 Losers: EVHC -48%, AGN -20%, CAH -12%, SRCL -11%, PDCO -11%, CELG -7%, HSIC -6%, INCY -5%, MRK -5%, ALXN -4%
Big winners outside the S&P 500: SGMO +469%, NKTR +381%, DVAX +386%, SPPI +344%, EXAS +297%, FMI +284%, ALNY +243%, MYOK +227%, PBYI +223%, SAGE +222%, AXGN +216%
Notables: BIIB +22%, AMGN +20%, LLY +16%, NVS +15%, PFE +12%, SNY +7%, BMY +6%, REGN +5%, GILD +2%, MRK -4%
S&P 500 Losers: EVHC -48%, AGN -20%, CAH -12%, SRCL -11%, PDCO -11%, CELG -7%, HSIC -6%, INCY -5%, MRK -5%, ALXN -4%
Big winners outside the S&P 500: SGMO +469%, NKTR +381%, DVAX +386%, SPPI +344%, EXAS +297%, FMI +284%, ALNY +243%, MYOK +227%, PBYI +223%, SAGE +222%, AXGN +216%
Notables: BIIB +22%, AMGN +20%, LLY +16%, NVS +15%, PFE +12%, SNY +7%, BMY +6%, REGN +5%, GILD +2%, MRK -4%
A look to 2018:
Biotech will continue to set the pace for innovative new medicines as gene therapy and immune-oncology advances.
M&A is expected to pick up in the pharmaceutical and biotechnology stocks. The reduced US corporate tax rate will put the days of inversion to rest (US companies acquiring overseas firms to re-domicile in lower tax jurisdictions). What's more, large cap biopharma is flush with cash.
Biotech will continue to set the pace for innovative new medicines as gene therapy and immune-oncology advances.
M&A is expected to pick up in the pharmaceutical and biotechnology stocks. The reduced US corporate tax rate will put the days of inversion to rest (US companies acquiring overseas firms to re-domicile in lower tax jurisdictions). What's more, large cap biopharma is flush with cash.
Sector Risks: Drug price scrutiny remains a potential risk.