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Analyst Blog

The Presidential election is finally over and the stock market has reacted favorably to Donald Trump’s surprise win with the S&P 500 rising 1.1%, the Dow Jones Industrial Average surging 1.4%, and the NASDAQ gaining 1.1%.

Finance, energy, pharma, biotech, financial services and infrastructure were among the sectors that surged on Trump’s victory.

The pharma and biotech industry was among the biggest winners with the NYSE ARCA Pharmaceutical Index gaining 4.9% and the NASDAQ Biotechnology Index surging almost 9%, reflecting investor relief at a non-Clinton presidency. Companies like Allergan (8.7%), Biogen (8.2%), Pfizer (7.1%), Vertex (11.9%), Celgene (10.7%), Endo (12.2%) and Regeneron (13.8%) were some of the biggest gainers while stocks like AmerisourceBergen (9.5%), Express Scripts (7.1%) and McKesson (8.6%) also shot up.

Not surprisingly, hospital stocks were down following the election results on the prospect of Obamacare being repealed. Companies like Tenet Healthcare Corp. (24.9%), Universal Health Services Inc. (6.9%), Community Health Systems, Inc. (21.6%) and HCA Holdings, Inc. (10.8%) were all down yesterday.

The general opinion is that a Hillary Clinton win would have been a negative for pharma and biotech stocks given her stand on rising drug prices and her plans to address the excessive price hikes of treatments that have been available for years and to lower drug prices for all Americans. With Clinton’s frequent rhetoric regarding drug prices, biotech and pharma stocks have been under intense pressure for more than a year now.

Trump, on the other hand, has not been so vocal about drug pricing though he did call for price transparency from all healthcare providers and drug re-importation.

Medical - Biomedical and Genetics Industry Price Index

Trump’s focus has mostly been on Obamacare (Affordable Care Act, or ACA) – he has often expressed his intention to ask Congress to repeal and replace Obamacare, once elected. Currently, there is low visibility on how this plan will be executed though chances of a full repeal of Obamacare look low. The most likely scenario would be retaining the law but with major changes.

Meanwhile, Trump’s pro-business stand is also expected to benefit the sector. Major biotech and pharma companies should gain from Trump’s proposed tax plan and proposal to repatriate corporate profits held offshore at a one-time tax rate of 10%.

Our Picks

With pharma and biotech stocks receiving a boost from Trump’s win, it looks like a good time to invest in this sector. With the help of the Zacks Stock Screener, we have zeroed in on the following drug stocks that have a favorable Zacks Rank and look well-positioned.

Celgene Corporation (CELG - Free Report) : SUMMIT, NJ-based is focused on the discovery, development and commercialization of innovative treatments for cancer and inflammatory diseases. The Zacks Rank #2 (Buy) stock has a pretty good earnings track record having surpassed expectations in each of the last 3 quarters. The company’s key revenue generator, Revlimid, continues to perform well and Celgene raised its outlook for 2016. The company has a robust pipeline as well which bodes well for drive long-term growth.

CELGENE CORP Price, Consensus and EPS Surprise

Regeneron Pharmaceuticals, Inc. (REGN - Free Report) : Tarrytown, NY-based Regeneron is also a Zacks Rank #2 stock. The company has surpassed earnings expectations in all three quarters of 2016. The company is focused on the development and commercialization of treatments for serious medical conditions. Regeneron, known for its flagship eye drug, Eylea, has several candidates in its pipeline for a wide range of therapeutic areas including rheumatoid arthritis (RA), asthma, atopic dermatitis, pain, cancer, and infectious diseases.

REGENERON PHARM Price, Consensus and EPS Surprise

ARIAD Pharmaceuticals Inc. (ARIA - Free Report) : Cambridge, MA-based ARIAD is another company with an impressive earnings track record so far in 2016. ARIAD has one approved cancer drug, Iclusig in its portfolio but it could be on its way to becoming a two product commercial company in 2017 with brigatinib filed for FDA approval. ARIAD is also a Zacks Rank #2 stock and is often viewed as an acquisition target.

ARIAD PHARMA Price, Consensus and EPS Surprise

Incyte Corporation (INCY - Free Report) : Another Zacks Rank #2 stock, Wilmington, DE-based Incyte is focused on developing and commercializing proprietary therapeutics. Incyte’s third quarter results were better-than-expected with Jakafi continuing to perform well. The company has several candidates in its pipeline including for immuno-oncology.

INCYTE CORP Price, Consensus and EPS Surprise

AveXis, Inc. (AVXS - Free Report) : Bannockburn, IL-based AveXis is a clinical-stage gene therapy company focused on developing and commercializing gene therapy treatments for patients suffering from rare and life-threatening neurological genetic diseases. Shares of this Zacks Rank #2 stock, which started trading from Feb 2016, are up 282.4% so far this year. AveXis’s lead pipeline candidate is AVXS-101, which is scheduled to move into a pivotal study for spinal muscular atrophy (SMA) Type 1 in the first half of 2017. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AVEXIS INC Price, Consensus and EPS Surprise

While yesterday’s rally provides some relief to the pharma and biotech sector that has been under pressure for more than a year now, investors should nevertheless be prepared for some action on drug prices given the intense focus on this issue during the whole election cycle.

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