Amid Steep Declines in Stocks, Investors Seek Winners in Health Care

By Sebastian Pellejero

Shares of many health-care companies have posted steep declines during this week's market rout. That has some investors looking for the bright spots.

Declines among health insurers, who could face higher-than-predicted medical costs, have been steep: UnitedHealth Group Inc. has fallen 17% for the week and Cigna Corp. has dropped 17%. Hospital operator HCA Healthcare Inc. has fallen 16%.

The S&P 500 health-care sector is down 12% this week, slightly less than the 13% decline in the broad stock index. As governments world-wide continue to prepare for the public health fallout, investors said they are seeking companies that might find business helping to treat the epidemic.

Regeneron Pharmaceuticals Inc., which has joined with the Department of Health and Human Services to develop antibody treatments for the coronavirus, has gained 6% this week. It is one of the few companies in the S&P 500 on track for a weekly gain.

The company also is benefiting from a competitor's stumble. Novartis this week launched a review of Beovu, a treatment for an eye disorder known as wet age-related macular degeneration, after a physicians' group raised concerns about side effects. Regeneron has a competing product, Eylea.

Regeneron shares jumped, but are also up 27% over the past month, around the time the coronavirus epidemic started spreading. It traded at about $336 on Jan. 30.

The company is looking at existing compounds it could adapt for vaccines for this specific strain of coronavirus, spokeswoman Hala Mizra said, and is also developing new compounds specifically for it. While stressing that the process is in its early days, the adapted vaccines could possibly be ready for testing in a few months, she said.

Another is telemedicine provider Teladoc Health Inc., up 7% this week. On Thursday, the company reported it added 14 million new members last year, in part due to a severe flu season that has sent 15,319 Americans to the hospital from October to Feb. 22, according to the Centers for Disease Control and Prevention.

Paying members can access Teladoc's virtual health care service, which lets them contact a variety of medical professionals through their mobile devices. If the coronavirus shows any similarity to the flu, "you can imagine that telemedicine might be a patient's first step," says Deutsche Bank health care analyst George Hill.

Biotech companies have suffered less than the market as a whole, with the Nasdaq Biotechnology index dropping 9.8% this week. Investors in biotech stocks are often attracted by the potential for outsize gains following research breakthroughs. But the shares can also be subject to steep declines, because those companies often have no income-generating products and biotech drugs in development have no guarantee of receiving government approval.

Shares of Meridian Bioscience Inc. rose sharply in late January after the company said some diagnostic companies and laboratories in China had been using its product in work related to the coronavirus. Meridian shares have risen about 3.5% this week.

With new coronavirus cases popping up from Pakistan to California, governments world-wide are taking further precautions. The continuing correction in the stock market is a buying opportunity in health-care, says David Kotok, chairman and chief investment officer at Cumberland Advisors, calling the coronavirus "a serious flu epidemic of a different type."

"What we're seeing is a development that becomes everyday more easily forecasted. There is a rollout world-wide of preventative medical structures, and that is happening every day," said Mr. Kotok. "I wouldn't buy the airlines, but I would buy the U.S. health care sector. We own it."

Write to Sebastian Pellejero at Sebastian.Pellejero@wsj.com

(END) Dow Jones Newswires

February 28, 2020 15:44 ET (20:44 GMT)

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