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Quarter-End Insights

Healthcare: We See Value in the Drug and Biotech Industries

Overblown concerns over drug pricing in the U.S. are creating attractive valuations for the more innovative drug companies.

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  • Despite continued uncertainty surrounding potential for drug pricing reforms, market valuations in healthcare have stayed relatively flat over the past quarter with a recent aggregate price to fair value of 0.94, in line with last quarter, but we still see selective opportunities with several underappreciated stocks, including  Allergan (AGN),  Roche (RHHBY), and  Elekta (EKTA B).    
  • While presidential rhetoric remains elevated regarding plans to lower U.S. drug prices, we expect pricing power for drug and biotech companies to remain strong, especially for innovative new drugs.
  • Research-and-development productivity continues at a rapid pace, supporting strong drug launches and rapidly progressing clinical data with a focus in specialty-care areas, such as oncology and immunology.
  • Mergers and acquisitions continue at a steady pace, as large conglomerates look for external innovation and opportunities in smaller firms to redeploy capital to increase growth. 

 

Damien Conover does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.