weiwentg (98.34)

Health care picks

January 03, 2010 – Comments (1) | RELATED TICKERS: GENZ.DL

Morningstar releases a market outlook piece every quarter. Here's their outlook for healthcare in general.

http://news.morningstar.com/articlenet/article.aspx?id=320381#page=0&part=2

They note that the least risky and most undervalued segments of the health care market are drug manufacturers, medical appliances and medical instruments.

One of M*'s top picks is Genzyme, which is a biotech firm focusing on rare diseases. This stock has accumulated a bit of hair due to manufacturing difficulties involving contamination. The healthcare industry in general seems to be moving to a focus on rare diseases, because there is less competition within each disease market for drugs. Additionally, customers are willing to pay. Genzyme is already there and it has a good pipeline.

In addition, the biogenerics legislation presently in the U.S House of Reps is deeply slanted in favor of the biotechs, with an exclusivity period of 12 years. The big biotech firms like Genzyme, Amgen and Biogen could quite frankly handle an exclusivity period of zero years, because biologics are difficulty to manufacture. Morningstar has said that 0-7 years would be acceptable for the biotechs. Europe's biogenerics bears this out; biogenerics firms have found it hard to compete. I do hope the exclusivity period goes down for the sake of general healthcare costs, but even if it does, firms like Genzyme will well be able to manage.

Other good picks that Morningstar has identified include Saint Jude, Abbott and Wellpoint. I still like Johnson and Johnson.