Here are the big healthcare themes to watch next year

An employee works on the production line of the pharmaceutical company Zentiva in Prague, Czech Republic, on May 6, 2021.

David W. Cerny | Reuters

The health care sector has erased much of its losses for the year during the December market rally. Battered biotech and medical device makers have seen the biggest recovery this month, and analysts see that momentum continuing into the new year.

Still, analysts and strategists have mixed outlooks for the industry in 2024.

“We’re starting the year underweight,” said Sam Stovall, chief investment strategist at CFRA. “There’s a lot of leverage resistance and they have to work through that because a lot of investors might say, ‘Let me get out and move to something with better growth potential.’

The second week of January could bring big moves for healthcare names as companies attend this year’s JPMorgan Healthcare Conference in San Francisco. It’s one of the biggest gatherings of major industry CEOs in healthcare of the year, and companies often provide updates on performance guidelines and clinical trial research during the conference.

The political calendar may be one of the biggest challenges. The S&P 500 healthcare sector has lagged behind S&P 500 in four of the last six presidential terms. Increased regulatory focus on drug prices may lead to a second year of underperformance.

The S&P 500 health care sector remains on pace for a second straight annual loss, led by makers of the Covid vaccine. Modern and Pfizerwhich have fallen by more than 40% during the year. Eli Lillygrew more than 55% year-on-year, is the industry’s biggest bullish driver, fueled by demand for its diabetes and obesity drugs.

Here’s a look at which segments of the healthcare industry analysts see continuing pressure into 2024, which will see some relief, and which beaten-down names have investors voting for next year’s upside:

Big Pharma: Price Negotiations

Novartis researcher on laboratory packaging materials for transport.

Source: Novartis

In 2024, drug price negotiations under the Inflation Reduction Act will be at the forefront. Medicare officials will make their first offers on the first 10 drugs up for discussion on Feb. 1.

“This bill was passed, and we want to implement it as judiciously as possible,” said Dr. Meena Seshamani, deputy administrator and director of the federal medical center, “to create a really robust conversation about our health system. How can we ensure people have access to the innovative treatments they need?”

Drugmakers have sued the administration but have decided to continue talks, while complaining that negotiations in this country are different from those they have had with other countries. They argue that US health insurance companies and pharmacy benefit managers may not pass on the full discounts to patients.

“In the European market, when the price is negotiated, the drug is readily available to patients, there are no prior authorizations,” said Victor Bulto, head of Novartis’ US operations.

NovartisThe heart drug Entresto is among the first negotiations. The negotiated Medicare discount for the drug, approved by the FDA in 2015, will take effect in 2026.

Bulto argues that under the IRA’s timeline, which makes drugs negotiable after nine years on the market, there will be less research into the indications for new drugs, such as cancer treatments.

“We usually start studying in the sickest patients, where you determine the benefit-risk of your molecule, and then you want to start bringing in data earlier,” he said, “to see if you can affect the cause of the cancer early. But that takes time and money and a lot of investment.”

The big question for investors is how steep a discount the Biden administration will ask for from manufacturers. Price discussions are expected to remain private until the Centers for Medicare & Medicaid Services reveals its final price next September, unless drugmakers decide to go public.

“We’re not going to go there publicly because we’re going to be part of the back-and-forth negotiations with each individual manufacturer,” Seshamani said. But he added that if the companies go public, Medicare could do so as well.

Health insurance companies: Benefits management risks are cool

A CVS location in New York, USA on Thursday, February 9, 2023.

Stephanie Keith | Bloomberg | Getty Images

Insurers’ pharmacy benefit management divisions, known as PBMs, are under increasing regulatory pressure. CVS Health’s CVS Caremark, Cigna‘s Express Scripts and UnitedHealth GroupOptumRx’s share of the pharmacy benefit management market share is almost 80% in total.

More than two dozen bipartisan bills aimed at increasing PBM price transparency were introduced in Congress this year. However, given House leadership struggles, none of the measures gained enough momentum to win approval from both chambers of Congress.

“As we move into 2024, history has told us that major healthcare regulatory reform events may not occur in an election year,” said Scott Fidel, a healthcare analyst at Stephens.

Analysts at Bank of America see health insurers’ fundamentals improving next year. They named Human their top pick for 2024, saying the Medicare insurer has the best chance for strong gains.

“The reported M&A discussion between Cigna and Humana has raised questions about whether Humana itself is concerned about its own growth prospects,” BofA analysts wrote in a note to clients. “We see Humana exiting the deal as confirmation of future growth.”

Cantor Fitzgerald analyst Sarah James believes health insurers are well-positioned to weather challenges such as higher patient care costs and Medicare reimbursement changes next year. He also sees a buying opportunity if there is any pullback in the heated election-year rhetoric about health insurance.

“When you see multiple pressures around election cycles, that’s when you want to put more investment or money into the sector because it’s very rare that everything they talk about during their stump speeches actually pans out,” James said.

Medical devices: GLP-1 pressure boosters

A pharmacy displays boxes of Ozempic, a semaglutide injection drug used to treat type 2 diabetes manufactured by Novo Nordisk, at Rock Canyon Pharmacy in Provo, Utah, United States on March 29, 2023.

George Frey | Reuters

Shares of medical device makers were among the biggest losers this year, as investors predicted the rise in popularity of obesity drugs known as GLP-1 receptor agonists would reduce demand for things like diabetes management, knee replacements and bariatric surgery, EE Health Portfolio Manager Les Funtleyder.

“Only because there was a lot of concern that the GLPs were going to remove all the procedures all the time. And that’s not going to happen. It’s going to be proven next year,” Funtleyder said. “I think medical devices will work best next year.”

There are signs that the sector may have bottomed out in October. The iShares Medical Devices ETF has risen more than 15% in the past two months. Two of the industry’s biggest lifters were insulin pump manufacturers Insulation and Dexcomwhich makes continuous glucose monitoring devices known as CGMs.

While both stocks are up more than 40% in two months, analysts at Leerink Partners raised their price target on Insulet to $270 from $231 and Dexcom to $144 from $128. Prescriptions for diabetes devices remain strong, Leerink said in a note to clients.

Diabetes players also have new products on the horizon that could bring new profits next year, said BTIG analyst Marie Thibault.

“We believe investors are already anticipating the expected launch of a 15-day sensor for non-insulin type 2 diabetes patients in the summer of 2024,” Thibault wrote in a research note, adding that rival CGM maker. Abbott Laboratories is also expected to receive approval for its new wearable glucose product in the new year.

Help with biotechnology and bioscience tools

Eli Lilly and Company, a pharmaceutical company headquartered in Alcobendas, Madrid, Spain.

Cristina Arias | Cover | Getty Images

The losing biotech sector has erased a year’s worth of losses during this month’s rally. SPDR S&P Biotech ETF rose more than 28% from the October low.

RBC analyst Brian Abrahams sees momentum continuing into 2024, driven in part by the rise of GLP-1 drugmakers such as Eli Lilly and Novo Nordiskwhich has left them flush with cash.

“The biotech sector may benefit more and be less overshadowed in the coming year as we potentially see GLP-1 cash flows catalyze more acquisitions and biotech efforts to improve some of the shortcomings of leading GLP-1 agents,” Abrahams wrote. in the customer note.

Smaller biotech companies faced a cash crunch as the Federal Reserve raised interest rates over the past year, making it difficult to access financing and invest in capital expenditures. This had a negative impact on life science tools, but many investors see the picture improving next year.

“We don’t think interest rates will go much higher, if at all, and that will ease the pressure on high value growth stocks going forward,” Advisor Capital Management portfolio manager JoAnne Feeney told CNBC. “And we think that’s going to take the pressure off a lot of the life sciences tools companies that were really hurt by the high-interest financing challenges. We think that’s going to start to ease.”

Analysts at Goldman Sachs see life science tools posting stronger gains than the healthcare sector next year after two years of declining sales growth. “We are looking for stability and, ultimately, a re-upturn in revenue and earnings revision cycle that should enable the sector to outperform the market in absolute terms,” ​​they wrote in a note to clients.

Goldman’s most popular tools for 2024 are Thermo Fisher, Avantor and Qiagen.

Don’t miss these CNBC PRO stories:

#big #healthcare #themes #watch #year
Image Source :

Leave a Comment