Fears Over Health Stocks Wipe Out $150 Billion in Four Days

The drubbing in the health care sector spread to pharmaceutical companies this week, with investors bloodied by a rout that left stocks trading near their lows of the year.

About $150 billion of market value was erased from companies in the S&P 500 Health Care Index in the four days through Thursday, when markets closed for the holiday weekend. The 4.4% decline left the gauge trading around lowest level since Jan. 3.

“This is third-worst that I’ve seen probably in the last 10 years,” Christian Fay, who helps manage $3.6 billion at BNP Paribas Asset Management, said in a telephone interview. “We’re just going to watch it, reassess it on Monday.”

The sell-off is being driven largely by competing policy proposals in Congress, including a move to replace private medical benefits with a government-run system, that threaten to bring a long period of uncertainty to the industry. While the broader industry index managed to eke out a small gain Thursday as technical indicators flashed oversold signals and analysts reiterated bullish calls, biotech and pharmaceutical stocks plunged.

Pfizer Inc. and Merck & Co. each fell about 1%. They were last year’s top gainers in the Dow Jones Industrial Average and now are among 2019’s biggest laggards — after UnitedHealth Group Inc. and Walgreens Boots Alliance Inc.

One Danger: Exposure to Medicare

Hospital and insurance stocks were among the week’s worst performers. HCA Healthcare Inc. slid 9.9% and traded at its lowest price since July.

“Clearly, huge stock impacts to HCA and managed care can’t be ignored and ‘collateral damage’ to sub-sectors like biopharma in the following days are reflective of a view that mutual funds are drawing down and souring” on health care, Jefferies analyst Michael Yee wrote in a note.

A Time to Buy?

Evercore ISI analyst Umer Raffat, in a research note to clients, tried to calm investors’ nerves, underscoring the high costs that proposals such as “Medicare for All” would entail, if passed.

“Sure — you can’t argue with the tide on drug pricing into elections next year — and perhaps that’s effectively what is driving the stock moves,” Raffat wrote. “But I seriously question how practical some of the proposals are.”

Leerink’s Ana Gupte, who has covered the managed-care industry for 12 years, called the recent weakness a “once in a decade opportunity” to get high-quality names at depressed valuations. “This time is indeed different,” she wrote in a research note.