In this article, we will be taking a look at 10 healthcare stocks to watch amid Senate’s healthcare bill. To skip our detailed analysis of these stocks and how they will be impacted by the new laws, you can go directly to see the 5 Healthcare Stocks to Watch Amid Senate’s Healthcare Bill.
On August 7, the U.S. Senate passed the Inflation Reduction Act, a $729 billion healthcare and climate bill. One of the biggest outcomes that the bill’s passing will bring about is lowered healthcare costs for Americans, as it will allow Medicare to begin price negotiations for expensive prescription drugs. The bill will also cap Medicare recipients’ out-of-pocket prescription drug prices at about $2,000 annually, as reported by The Guardian. While the passing of this bill is beneficial for American citizens, it spells trouble for several major healthcare companies.
Renowned corporations such as Merck & Co., Inc. (NYSE:MRK), Johnson & Johnson (NYSE:JNJ), and Pfizer Inc. (NYSE:PFE) will be adversely impacted by the loss of patent exclusivity for some of their most profitable products. The bill also proposed a corporate minimum tax of 15% on large U.S. companies. The Wall Street Journal reported that Goldman Sachs sees this proposal having a major impact impact healthcare companies, stating that since these companies have low effective tax rates, they would be the most affected by this proposal. Goldman Sachs believes the bill may lower S&P 500 per-share earnings by 1% in 2023.
With price negotiations, loss of patent exclusivity, and the imposition of a 15% tax on corporations, many healthcare and big pharma companies are raising concerns that the bill could threaten their future investments in research and development. According to CNBC, several drugs like Eliquis and Revlimid, produced by Bristol-Myers Squibb Company (NYSE:BMY), and Johnson & Johnson’s (NYSE:JNJ) Xarelto were among the list of drugs Medicare spent over $1 billion on in 2020. These drugs continue to be hugely profitable for these companies, justifying the huge R&D expenditures it requires to bring them to market, something price negotiations will undoubtedly impact in a negative way for these companies.
Now then, let’s take a look at the 10 healthcare stocks to watch amid Senate’s healthcare bill.
Source: Unsplash
Our Methodology
We have selected stocks that are expected to gain or lose in the aftermath of the Inflation Reduction Act, based on how the bill will impact patent exclusivity and price negotiations moving forward. Using Insider Monkey’s hedge fund data, we have also gauged the popularity of these stocks among hedge funds in the first quarter of 2022. The stocks are ranked based on the number of hedge funds holding stakes in them, from the lowest to the highest. We have added analyst ratings and price targets for the mentioned stocks as well.
Healthcare Stocks to Watch Amid Senate’s Healthcare Bill
10. Sanofi (NYSE:SNY)
Number of Hedge Fund Holders: 19
Sanofi (NYSE:SNY) is a top insulin maker that may avoid being adversely impacted by the Inflation Reduction Act. Other healthcare companies such as Merck & Co., Inc. (NYSE:MRK), Johnson & Johnson (NYSE:JNJ), and Pfizer Inc. (NYSE:PFE) may not be as lucky.
Sanofi (NYSE:SNY) is a pharmaceutical company engaged in the research, development, manufacture, and marketing of therapeutic solutions. The company operates in the U.S., Europe, and internationally. It provides specialty care products, medicines for diabetes, and cardiovascular and established prescription products, among others.
This August, a ‘Buy’ rating was reiterated on Sanofi (NYSE:SNY) shares by Eric Le Berrigaud, an analyst at Stifel. The analyst also raised the price target on the stock to $121.80.
The recently passed Inflation Reduction Act failed to include a proposal that would have capped the price of insulin at $35 per month for privately insured patients. Top insulin makers such as Sanofi (NYSE:SNY) may thus be able to avoid the worst impacts of the act. Sanofi’s (NYSE:SNY) EPS in the second quarter was $0.90, beating estimates by $0.01, while its $10.3 billion in revenue also beat estimates, topping them by $256 million.
Out of 912 hedge funds that filed 13Fs in the first quarter, 19 were long Sanofi (NYSE:SNY), owning a total stake value of $1.6 billion. Fisher Asset Management is the largest stakeholder in the company as of June 30 out of the fund’s that have revealed their Q2 holdings thus far, owning 17.6 million SNY shares worth $881 million.
Dodge & Cox Stock Fund, an investment management firm, mentioned Sanofi (NYSE:SNY) in its third quarter 2021 investor letter. Here’s what it said about the company:
“Sanofi (3.5% position) is a diversified, global pharmaceuticals company with leading positions in vaccines, consumer health products, rare diseases, and emerging markets. Despite a favorable business mix, Sanofi has underperformed its peers in new product development, commercial execution, and profit growth. A new management team, recruited in 2018-19, has made progress turning the company around. Its drug pipeline is improving, targets for higher margins are being met, and earnings per share are growing. Sanofi also pays a 4% dividend yield, maintains a strong balance sheet, and has relatively low exposure to potential pressures from U.S. drug pricing.”
9. Novo Nordisk A/S (NYSE:NVO)
Number of Hedge Fund Holders: 31
Novo Nordisk A/S (NYSE:NVO) is another major insulin-making company. It engages in the research, development, manufacture, and marketing of pharmaceutical products across the globe. The company operates through its Diabetes and Obesity care and Biopharm segments. Emmanuel Papadakis at Barclays reiterated an ‘Overweight’ rating on Novo Nordisk A/S (NYSE:NVO) shares this August.
Like other major insulin-producing companies, Novo Nordisk A/S (NYSE:NVO) may be a winner even in the aftermath of the Inflation Reduction Bill because of the Republican party’s move to jettison the proposal for the sake of the insulin price cap being applied to privately insured patients. Morgan Stanley also noted last month that Novo Nordisk A/S (NYSE:NVO) would be one of the leaders in global obesity sales through 2030, which could reach $54 billion.
There were 31 hedge funds long Novo Nordisk A/S (NYSE:NVO) in the first quarter, compared to 28 funds in the previous quarter. Their total stake values were $4.5 billion and $4.4 billion respectively.
Rowan Street Capital LLC, an investment management firm, mentioned Novo Nordisk A/S (NYSE:NVO) in its second quarter 2022 investor letter. Here’s what the fund said:
“What did well for us in the first six months of 2022? It is tempting to observe ‘not a lot’ but here’s one of the five biggest positive contributors to performance: Novo Nordisk. NVO discovered that a drug it had developed for diabetics was also the world’s first really effective weight loss drug.”
8. Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN)
Number of Hedge Fund Holders: 44
Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) is a biotechnology company that discovers, invents, develops, manufactures, and commercializes medicine for treating a range of diseases. The company’s major products include the EYLEA injection for wet age-related macular degeneration and diabetic macular edema, among other conditions. It is based in Tarrytown, New York.
BMO Capital reiterated an ‘Outperform’ rating on Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) shares this month while placing a $788 price target on the stock. As of the close of the first quarter, 44 hedge funds held stakes in Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) worth a combined $1.7 billion. Bronte Capital is a major stakeholder in the company, owning 149,189 shares worth $88.2 million as of June 30. REGN ranks as one of the fund’s top three stock picks.
The Inflation Reduction Act will lead to several of the drugs that Medicare spends the most money on losing patent exclusivity, a development that is expected to harm pharma companies’ bottom lines. Regeneron Pharmaceuticals, Inc.’s (NASDAQ:REGN) Eylea is among those drugs, spelling a disadvantage for the company. Eylea contributed $2.5 billion in net product sales for Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) in the second quarter, so a loss of patent exclusivity for the drug may significantly harm the company.
Merck & Co., Inc. (NYSE:MRK), Johnson & Johnson (NYSE:JNJ), and Pfizer Inc. (NYSE:PFE), are some of the most renowned healthcare companies that may be hard hit by the Senate’s recent healthcare bill. Regeneron Pharmaceuticals, Inc. (NASDAQ:REGN) is yet another name on the same list.
7. AstraZeneca plc (NYSE:AZN)
Number of Hedge Fund Holders: 45
AstraZeneca plc (NYSE:AZN) is a biopharmaceutical company focusing on the discovery, development, manufacturing, and commercialization of prescription medicines. The company’s major products include Calquence, Enhertu, and Faslodex.
Mark Purcell at Morgan Stanley reiterated an ‘Overweight’ rating on AstraZeneca plc (NYSE:AZN) shares earlier this month. 45 hedge funds were long AZN on March 31, owning $4.6 billion in shares. Integral Health Asset Management held 234,830 shares in the company, worth $15.5 million as of June 30.
According to an analysis from SVB Securities’ David Risinger, AstraZeneca plc (NYSE:AZN) will be one of the drugmakers hit hard by the Inflation Reduction Act. The company’s blood-cancer treatment Calquence may find itself open to a negotiated price by 2026, six years before it was supposed to lose exclusivity. Another product, Ultomiris, may also see a negotiated price by 2031, four years before its exclusivity window was to end. Ultomiris sales rose by 23% year-over-year to $434 million in the second quarter, so AstraZeneca plc (NYSE:AZN) will undoubtedly suffer in the long term if it loses patent exclusivity for those and other drugs before 2035.
Carillon Tower Advisers, an investment management firm, mentioned AstraZeneca plc (NYSE:AZN) in its first quarter 2022 investor letter. Here’s what the firm said:
“AstraZeneca (NYSE:AZN) performed strongly and reported encouraging fourth-quarter earnings and initial 2022 guidance. AstraZeneca also announced positive clinical data for two drugs within its oncology business that should serve as important long-term growth drivers.”
6. Eli Lilly and Company (NYSE:LLY)
Number of Hedge Fund Holders: 53
Like other major insulin producers, Eli Lilly and Company (NYSE:LLY) might be able to avoid the worst of the Inflation Reduction Act. Eli Lilly and Company (NYSE:LLY) is a healthcare company that discovers, develops, and markets human pharmaceuticals worldwide. The company offers a range of products such as Basaglar, Humalog, and insulin medicines. It is currently one of the most significant insulin producers in the world.
Morgan Stanley analyst Terence Flynn reiterated an ‘Overweight’ rating on Eli Lilly and Company (NYSE:LLY) shares this August. Flynn also has a $395 price target on the shares. Flynn projects Eli Lilly and Company (NYSE:LLY) to nearly double its EPS by 2025, believing that the company’s mixed second quarter results present a buying opportunity for investors while the stock is weak.
Our hedge fund data for the first quarter shows 53 funds long Eli Lilly and Company (NYSE:LLY), compared to 61 hedge funds in the previous quarter. Their total stake values were $5.1 billion and $5.3 billion respectively.
Eli Lilly and Company (NYSE:LLY), like Merck & Co., Inc. (NYSE:MRK), Johnson & Johnson (NYSE:JNJ), and Pfizer Inc. (NYSE:PFE), is a top healthcare stock to keep an eye on in light of the Inflation Reduction Act.
Click to continue reading and see the 5 Healthcare Stocks to Watch Amid Senate’s Healthcare Bill.
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Disclosure: None. 10 Healthcare Stocks to Watch Amid Senate’s Healthcare Bill is originally published on Insider Monkey.
