Replies to post #74337 on Biotech Values

[DewDiligence]

[OT] Friday’s WSJ on GE’s credit upgrade, er, downgrade :- )

#msg-36254493

[DewDiligence]

Market Rally Rolls On

[The big news today was the surprising 22% jump in seasonally-adjusted housing starts in Feb 2009 vs Feb 2008. This figure will probably turn out to be an outlier, but it’s a psychological boost that year-over-year housing starts are up to any degree.]

http://online.wsj.com/article/SB123728885950354167.html

›MARCH 17, 2009, 5:57 P.M. ET
By PETER A. MCKAY, ROB CURRAN and GEOFFREY ROGOW

Stocks jumped, closing at their highs for the session after a glimmer of hope from the housing market helped continue the resurgence of beaten-down banking and consumer stocks and tech stocks jumped.

The Dow Jones Industrial Average rose 178.73 points, or 2.5%, to end trade at 7395.70, the highest close since Feb. 19. The average has now climbed in five of the last six trading sessions, is up 4.7% this month, and up 13% from its 12-year closing low of 6547.05 hit on March 9.

The S&P 500 Index jumped 24.23 points, or 3.2%, to 778.12, also its highest close since Feb. 19. The Nasdaq Composite Index leapt by 58.09 points, or 4.1%, to 1462.11, the highest close since Feb. 18, as Google, Cisco Systems and Research In Motion bounced.

"With each round of gains that we see, the odds are increasing that we've seen the bear-market lows," said Wachovia Securities strategist Al Goldman, who said he tweaked his advice to clients last week, advising them to become more aggressive and even buy into rallies if necessary.

Leslie Barbagallo, executive vice president of SunGard Trading in New York, said recent activity in the options markets suggests that institutional investors have been coming back to stocks after a period in which volumes had waned.

"The question of whether it's a good thing or a bad thing to have the institutions back is a separate matter," said Ms. Barbagallo, alluding to the volatility hedge funds and other large investors caused late last year. But increased participation by some of the market's smartest players could signal the gains will continue.

Structurally, the rally is encouraging because the gains are gradual and holding steady, said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research. But he said Schaeffer's is skeptical because sentiment has changed too quickly.

Financial stocks helped lead the rally, with the S&P 500's financial sector jumping 6.5% as banks including Citigroup, U.S. Bancorp and SunTrust Banks rose. Financials led the broader market off its bear-market lows last week as a number of banks said the first two months of the year had been profitable.

Sean Simko, head of SEI Fixed Income Management, said that fixed-income spreads have tightened in particular areas, with some of the unwind of money in credit being put into bank stocks. Still, a flood of cash from Treasurys into equities, which would drive even more banking gains, is unlikely in the short term as traders await clarity from the Federal Reserve.

The Fed, which begins a two-day policy meeting on Tuesday, isn't expected to alter interest rates. Investors will be listening for hints that the central bank will buy long-term Treasurys, though expectations that the central bank will adopt a policy of "quantitative easing" have recently been fading. Treasurys dropped as stocks rose on Tuesday; the 10-year yield rose to about 3.01%.

Investors say that they'd need to start seeing economic trends improve before buying stocks with any conviction, especially when it comes to banks. "Though we're seeing pieces of light at the end of the tunnel with the bank disclosures in the past week, we're nowhere near out of this yet," said Mr. Simko.

Consumer-discretionary stocks climbed 4.8% after data showed housing starts jumped 22.2% in February. Building permits also rose. The PHLX Housing Sector Index jumped 5.7%. Home Depot shares jumped 6.7% and Wal-Mart Stores gained 2.5%.

Anthony Conroy, head trader at BNY ConvergEx, said the most important development of the day for traders was the report on housing starts. "There are some signs of life in the housing market, which is very important because that's the epicenter of a lot of the problems the market has," said Mr. Conroy.

Harry Strunk, managing director at Treflie Capital Management, which tracks shorts, said such participants remain on the defensive for now. He estimated that the typical short portfolio rose about 10% in the first two months of the year, but bearish fund managers have been taking money off the table since.

Etc.‹

[DewDiligence]

‘Big Medtech’ is on sale, as one can see from looking at the charts of such
companies as MDT, SYK, and ZMH. The fear outweighs the reality, IMO.

http://online.wsj.com/article/SB123734983291066875.html

›Medical Device Makers Face Healthcare-Reform Pressures

MARCH 18, 2009
By JON KAMP

The prospects of U.S. health-care reform and cuts to medical spending have sparked big worries about a squeeze on medical-device companies, and the sector's stocks have tumbled sharply since the White House's budget proposal late last month.

The fiscal 2010 proposal didn't spell out any direct impact for products like heart devices or replacement hips, but it did inflame long-running worries that pressure on product prices could emerge. While some observers believe the share sell-off went too far, with device companies swept up in a mass dumping of health-care stocks, these worries may prove hard to shake.

"We have entered an extended period of policy and reimbursement uncertainty," said Leerink Swann analyst Rick Wise. Until there's a clear sense of direction, "and until investors can thoughtfully discount these issues, the stocks could remain under pressure."

Mr. Wise also covered device companies in the early 1990s when the health-care reform push under President Bill Clinton similarly hurt stocks amid pricing worries. They bounced back when the reform effort sputtered.

This time around, the Obama administration's recent budget plan was short on precise details, giving investors leeway to fret about how the blanks may be filled.

Investors have telegraphed their concerns. Through late trading on Tuesday, two Dow Jones Wilshire indexes tracking device companies and other medical suppliers had fallen about 6% and 9% since the White House unveiled its budget proposal on Feb. 26, with some losses recouped amid the market run-up in recent days. By comparison, the Standard & Poor's 500 index is flat since the budget came out.

That is poor performance for a sector often viewed as a safe haven in a recession, because serious diseases don't depend on consumer confidence. JPMorgan called the market fallout "way overstated and largely misplaced."

Similarly, Michael Mussallem, chief executive at replacement-heart-valve maker Edwards Lifesciences Corp., said the budget proposal "in no way justifies" the sector's swoon.

People have reacted more to an "imagined" impact than any real, fresh threat, and have lost sight of how the push for reform will really work, Mr. Mussallem said, adding that the budget was still in proposal stage.

But Mr. Mussallem, who is also chairman of the Advanced Medical Technology Association, the industry's Washington-based group, has witnessed how the budget proposal has spooked investors. At recent meetings, investors "were focused on the macro issues," rather than company-specific topics, he said.

"I think the worry is out there that there is some kind of a trickle-down effect" that could hit pricing, he said.

A recurring devices-sector question involves whether manufacturers can maintain high product prices and profit margins. Tiny drug-coated stents that prop open heart arteries, for example, cost around $2,000 each in the U.S, while replacement hips fetch about $6,600.

Overall, companies making heart and orthopedic devices enjoy gross profits in the 70% range, Mr. Wise said. The device heavyweights include Medtronic Inc., Boston Scientific Corp., Zimmer Holdings Inc. and Stryker Corp.

The Obama administration has signaled interest in clamping down on areas such as prescription drug prices and payments to Medicare insurers. In such an environment, pricey devices may become more conspicuous.

"Long-term, current rates of medical inflation are unsustainable, and pricing pressures appear inevitable," Morgan Stanley analysts said in a recent note. They called medical technology the least exposed to the Obama administration's proposals but added that "the 'no impact' view misses the mark, as risks have certainly increased."

The White House currently aims to use a combination of spending cuts and higher taxes to put a $634 billion down payment on universal health coverage.

The government doesn't directly control the prices paid for medical devices, which are typically sold to hospitals. But it can influence prices under a complex system Medicare uses to reimburse hospitals for medical procedures that often include devices. Because elderly patients are major device recipients, and Medicare often sets trends for private insurers, this is a crucially important system.

Industry observers and Mr. Mussallem, however, believe big changes to the Medicare reimbursement system are unlikely in the short term. Moreover, JPMorgan noted that "pricing pressure in devices is almost always a function of competition, and not reimbursement."

Nonetheless, William Peck, who directs the Center for Health Policy at Washington University in St. Louis, sees reimbursement risks three or four years down the road "when it becomes clear the other strategies to restrain costs aren't working."‹