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Leerink Suggests 4 Health Care Plays On Recent Weakness

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Leerink Suggests 4 Health Care Plays On Recent Weakness
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Health care stocks for the most part traded notably lower Tuesday in reaction to the formation of a new not-for-profit company spearheaded by Amazon.com, Inc. (NASDAQ: AMZN)'s Jeff Bezos, JPMorgan Chase & Co. (NYSE: JPM)'s Jamie Dimon and Berkshire Hathaway Inc. (NYSE: BRK.A) (NYSE: BRK.B)'s Warren Buffett. But this may have created an opportunity for investors, according to Leerink.

The Analyst

Leerink's Ana Gupte says the following stocks are attractive after Tuesday's weakness:

  • UnitedHealth Group Inc (NYSE: UNH)
  • Anthem Inc (NYSE: ANTM)
  • CIGNA Corporation (NYSE: CIG)
  • Humana Inc (NYSE: HUM).

The Thesis

The drug supply chain business is "ripe for disruption" and the best company to disrupt the system may be Amazon, Gupte said in a Wednesday note. (See the analyst's track record here.) 

Amazon boasts the necessary knowledge to improve drug costs and transparency for its employees, but the ultimate timing of such a disruption is over the medium- to long-term, the analyst said. 

President Donald Trump's State of the Union address Tuesday highlighted drug pricing and affordability and suggested changes could come to generic drug approvals — areas that are likely to be a "key focus" of the new health care partnership, Gupte said. 

Managed Care A 'Solid' Buying Opportunity

The managed care space appears attractive, and the sell-off on Tuesday was "overdone," particularly for UnitedHealth, Anthem, Cigna and Humana, the analyst said. The commentary from Bezos, Dimon, and Buffett does not fully reflect the progress that has "been made in moderating employer sponsored health care costs and broader national healthcare spending trends," she said. And employer medical cost trends have "moderated to a greater degree" than the market sell-off would imply, Gupte said. 

Related Link: JPMorgan-Amazon-Berkshire Hathaway Health Care Effort Is 'Brilliant,' Says Techonomy CEO

UnitedHealth A Standout

UnitedHealth is already a health benefits supplier to both Berkshire and JPMorgan and has led the way in driving moderation of health care cost trends across integrated medical and pharmacy benefits, the analyst said. The company has introduced value-based care and mix shifting of procedures and services outside the inpatient setting, she said. 

Amazon's Potential Game Plan

Amazon's near- to medium-term aspiration within the pharmacy value chain could be as follows, Gupte said: 

  • 12-18 Months: cash pay mail order pharmacy service.
  • Near-tomedium-term: full-service, mail-order pharmacy for cash and third-party customers.
  • Near-to-medium term: full-service pharmacy benefit manager, mail-order pharmacy with retail fill.
  • Medium-term: disruptive service PBM, in-house bricks-and-clicks pharmacy powerhouse.

Related Link:

Mark Cuban Thinks Amazon, Berkshire, JPMorgan Collab Could Pressure Congress To Act

Latest Ratings for ANTM

DateFirmActionFromTo
Dec 2018Cantor FitzgeraldMaintainsOverweightOverweight
Dec 2018JefferiesMaintainsBuyBuy
Nov 2018CitigroupMaintainsNeutralNeutral

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