As biotech selling spreads, more weakness seen for U.S. health stocks

Fri Oct 23, 2015 7:00am EDT
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By Caroline Valetkevitch and Caroline Humer

NEW YORK Oct 23 (Reuters) - After a four-year love affair with healthcare shares, investors are moving on.

Selling has spread from biotechs - shaken on Sept. 21 when Hillary Clinton first tweeted concerns about drug prices - to other areas of the healthcare sector. Investors have been dumping shares of everything from hospitals to traditional pharmaceutical companies and insurers in recent weeks.

Since peaking in July, the Nasdaq Biotech Index has fallen 23 percent, the broad S&P Health Care Index has lost 12 percent and the S&P 500 Health Care Facilities index is down 31 percent.

Fund managers now say they expect myriad pressures weighing on the sector for the rest of the year and possibly into 2016. They include regulatory threats on drug prices, disappointing earnings, higher interest rates that could hurt heavily-indebted hospitals, and the loss of the initial Obamacare bump in business.

Profit warnings from two companies since last week - HCA Holdings and Community Health Systems - have pummeled shares of hospital operators. The health facilities index is down 13 percent since its Oct. 14 close.

"The best case through the end of year is range-bound for healthcare, maybe biased downward slightly," said Les Funtleyder, healthcare portfolio manager at E Squared Asset Management in New York.

The cautious attitude of investors is new for the S&P 500 healthcare sector, which has provided double-digit returns every year since 2011.

That run-up, prompted in part by the addition of roughly 17 million people by the Affordable Care Act, as well as expectations of financially rewarding mergers, may have left the sector priced for only the best of news.   Continued...