Biotech
Thursday, December 28th, 2023 12:12 am EDT
Key Points
- Sector Recovery and Mixed Outlook: The health-care sector has experienced a notable recovery, erasing a significant portion of its losses for the year in the December market rally, with particular strength seen in beaten-down biotech and medical device companies. However, analysts and strategists hold a mixed outlook for the sector in 2024, citing overhead resistance and potential concerns among investors about growth prospects.
- Challenges and Opportunities in Specific Segments: The article highlights key challenges and opportunities in specific segments of the health industry for the upcoming year. In Big Pharma, focus is on the Inflation Reduction Act’s drug price negotiations, with concerns raised about potential impacts on research and development timelines for drugs like cancer treatments. Health insurers face regulatory pressures, particularly in their pharmacy benefits management divisions, but analysts anticipate improving fundamentals, identifying Humana as a top pick. Medical device makers, initially impacted by concerns about the popularity of obesity medications, are expected to rebound, with signs of bottoming observed in October. Biotech and life science tools have seen a rally, with expectations of continued momentum in 2024.
- Political and Economic Influences: The health-care sector’s performance is intricately tied to political and economic factors. The article notes the historical lag of the S&P 500 health-care sector behind the broader market in presidential cycles and emphasizes the potential impact of increased regulatory focus on drug prices. The challenges faced by various subsectors, such as the lawsuit by drugmakers against the administration and the regulatory pressure on pharmacy benefits management divisions, underscore the complex landscape shaped by political and economic developments. Additionally, the article discusses the relief expected for smaller biotech firms and life science tools companies as interest rates stabilize, easing funding challenges.
The health-care sector has witnessed a significant recovery, erasing a substantial portion of its losses for the year during the December market rally, with beaten-down biotech and medical device companies experiencing a notable rebound. Despite this positive trend, analysts express a mixed outlook for the health-care sector in 2024, citing challenges such as overhead resistance and the need to address investor concerns about growth potential. The upcoming JPMorgan health-care conference in San Francisco in the second week of January is anticipated to bring crucial developments, with major industry CEOs providing updates on earnings guidance and clinical trial research.
One of the major challenges facing the health-care sector in 2024 is the political calendar, as the S&P 500 health-care sector has lagged behind the S&P 500 in four of the last six presidential cycles. Increased regulatory focus on drug prices could contribute to another year of underperformance. The sector is on track for a second consecutive annual loss, influenced by declines in Covid vaccine makers Moderna and Pfizer, whereas Eli Lilly stands out as the sector’s biggest gainer, driven by demand for its diabetes and obesity drugs.
Analysts delve into specific segments of the health industry to provide insights into their prospects for 2024. In the realm of Big Pharma, the Inflation Reduction Act’s drug price negotiations take center stage, with Medicare officials set to make initial offers on the first 10 drugs in discussions starting February 1. Concerns about potential impacts on research and development timelines for drugs, such as cancer treatments, are raised, and the extent of discounts demanded by the Biden administration remains a crucial question for investors.
Health insurers, particularly pharmacy benefits management divisions, face regulatory pressures, but analysts at Bank of America anticipate improving fundamentals in 2024. Humana is identified as a top pick, given its positioning for strong gains. The medical devices sector, initially hit by concerns about the popularity of obesity medications, is expected to rebound in 2024, with signs of bottoming observed. Insulin pump makers and continuous glucose monitoring device manufacturers have experienced gains, and new products on the horizon may fuel further growth.
The beaten-down biotech sector has recovered its losses during the recent rally, with expectations of continued momentum in 2024. RBC analyst Brian Abrahams sees potential benefits and reduced overshadowing as GLP-1 drugmakers like Eli Lilly and Novo Nordisk capitalize on increased cash flows. Smaller biotech firms, previously facing a cash crunch due to rising interest rates, are expected to experience relief in the coming year. Analysts at Goldman Sachs project stronger gains for life science tools in 2024, anticipating a stabilization and upward revision cycle for revenue and earnings, with top picks including Thermo Fisher, Avantor, and Qiagen. Overall, the health-care sector navigates a complex landscape with both challenges and opportunities in the year ahead.
For the full original article on CNBC, please click here: https://www.cnbc.com/2023/12/22/health-sector-themes-to-watch-in-2024.html
