Medtech stocks benefit as drug-pricing scrutiny intensifies

Wed Dec 2, 2015 1:23pm EST
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By Lewis Krauskopf

NEW YORK Dec 2 (Reuters) - Investors have been moving into medical device shares as a safer play in the healthcare sector amid concerns that intensifying scrutiny over high U.S. prescription drug prices will continue to weigh on pharmaceutical and biotech stocks.

Shares of medtech companies such as Edwards Lifesciences , Boston Scientific and Becton Dickinson have outperformed the broad healthcare sector, and especially pharmaceutical and biotech shares, over the past two months since U.S. presidential candidate Hillary Clinton tweeted she planned to address specialty drug "price gouging."

Clinton's tweet was a watershed moment that shook the sector. Many on Wall Street expect the political and media scrutiny on pricing and healthcare costs to stick through the November 2016 election. Just on Tuesday, a U.S. senate report zeroed in on the costs of Gilead Sciences' blockbuster hepatitis C drug.

While some investors may flee healthcare altogether to avoid any political risk, others see medtech as a preferred alternative to those seeking exposure to the sector.

"They may not be completely safe, but I think there is less risk with the device companies than with the big biotech and pharma companies," said George Strietmann, a portfolio manager with Cincinnati investment advisory firm Bahl & Gaynor.

He said he likes Medtronic, Stryker and Becton Dickinson and his firm is underweight biotech and pharma stocks in its growth portfolios, but overweight medical technology stocks.

Since Clinton's tweet, the S&P 500 Health Care Equipment index, which includes large medical device companies, has climbed more than 5 percent, against a 1.5-percent increase for the S&P 500 healthcare index.

Medtronic, Baxter International and Abbott Laboratories have also gained at least 4 percent. Diagnostic equipment companies such as Thermo Fisher Scientific and PerkinElmer climbed sharply over that time.   Continued...