The reputation of healthcare stocks as a shelter in stormy times is holding up,as long as you don’t rely on consumers.
Orange County’s big healthcare stocks largely are split between those that sell to hospitals and doctors with reimbursement from insurers and those that cater to
consumers or doctors doing elective
procedures.
It’s not hard to figure out which group is doing better.
Those that sell to healthcare providers with insurer reimbursement are holding
up because of the steady nature of their businesses.
Companies that sell to consumers or for elective procedures have been among the hardest hit stocks this year.
“Healthcare is an expenditure that most people think should be paid by somebody else,” said Dennis McCarthy, a managing director with B. Riley & Co., an investment bank with offices in Newport Beach and Los Angeles. “If it’s not, people may hold off on treatments.”
Santa Ana-based Advanced Medical Optics Inc., a maker of laser vision correction surgery gear and contact lens solutions, has been among the hardest hit of any local stocks this year.
As of last week, the company’s shares were down more than 75% for the year with a market value of $320 million.
Compare that to Standard & Poor’s healthcare index, off 22% for the year, or the S & P; 500, off 35%.
Advanced Medical gets about 40% of its $1.18 billion in yearly revenue from lasers and equipment used in elective eye surgeries. About 20% comes from contact lens solutions sold at stores.
Most of Advanced Medical’s decline came earlier this month when the company cut its 2008 sales and profit estimates.
The company cited a 25% decline in laser vision correction surgeries and an unexpected fall in lens solution sales amid lower consumer spending.
Advanced Medical previously said its solutions wouldn’t be hurt by an economic slump, according to Peter Bye, an analyst with Jefferies & Co., a New York-based investment bank.
Irvine-based Allergan Inc., which spun off Advanced Medical in 2002, also has been hampered by its reliance on elective procedures (see related story, page 1).
The company gets about half of its $4.5 billion in yearly sales from medical cosmetic products including Botox and breast implants.
Allergan’s shares are off 40% for the year with a market value of $11 billion last week.
The stock has been hit by concerns about consumers putting off cosmetic procedures.
“Our survey indicates that patients are experiencing credit issues and that appointment cancellations are increasing,” said Sean Lavin, an analyst with Lazard Capital Markets LLC of New York, in a recent report on Allergan.
Good News
It’s a different story at Irvine-based Edwards Lifesciences Corp., a maker of heart valves and related products paid for through health insurance.
Edwards’ shares have moderated in recent weeks but last week were up about 15% for the year with a market value of
$2.8 billion.
The stock was up as much as 45% for the year in July.
Part of the run-up comes from hopes for a new type of heart valve that doesn’t require major surgery. Some see the company’s less-invasive Sapien valve as a big boost in years to come.
The valve has small sales in Europe now and could go before the Food and Drug Administration for approval here in 2010.
There are anomalies among local healthcare stocks.
One is Fullerton-based Beckman Coulter Inc., which sells diagnostic machines and supplies to hospitals, medical testing laboratories and others.
While tests run on Beckman machines often are covered by health insurers, buyers of the machines lease or buy them from the company.
Some analysts wonder if hospitals and others are ready to ante up for new Beckman gear. But that doesn’t directly have to do with the economy,hospitals tend to buy equipment as needed, recession or not.
But the credit crunch could give hospitals pause, according to B. Riley’s McCarthy. If they can’t get favorable financing, they could stick with existing gear they’re satisfied with, he said.
“That’s a really big capital equipment item,” McCarthy said.
As of last week, Beckman’s shares were down about 20% for the year on a market value of $3 billion.
Another local healthcare company, Aliso Viejo-based drug maker Valeant Phar-maceuticals International, seems to be more influenced by its own trend.
The stock has gained in recent weeks, likely stoked by a turnaround plan that’s been playing out and a drug development deal with GlaxoSmithKline PLC.
Valeant’s drugs generally are covered by health insurers with patient co-payments.
Overall, Valeant shares are up 40% since January with a market value of $1.5 billion last week.
