How Healthy are Healthcare Stocks?

While the United States healthcare industry has seen a return to financial health since 2008, with several medical device manufacturers reporting higher year-over-year profits, the healthcare sector could faces numerous pressures in the new year, including a potential shake up following November’s presidential election and the impending fiscal cliff. However, drug development remains one constant pressure as pharmaceutical companies face the ever present need to develop and increase their drug pipelines.

On Tuesday, Oppenheimer downgraded Ariad Pharmaceuticals (NASDAQ:ARIA) from “Outperform” to “Perform” with a price target of $23. The firm lowered their rating because Ponatinib, the company’s potential treatment for chronic myeloid leukemia, has already been priced into the stock, and Ariad’s lung cancer drug AP26113 is not far enough along in development for analysts to determine its potential. Analysts at Jefferies Group also cut their target on the biopharmaceutical company from $28 to $27 in a research note to investors on Monday. Shares fell 2.5 percent following the downgrade.

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AstraZeneca (NYSE:AZN) and the small U.S. drug developer Ironwood Pharmaceuticals (NASDAQ:IRWD) announced Tuesday that the two companies would partner to develop and market Ironwood’s new drug for irritable bowel syndrome in China. The drug, linaclotide, was approved in August by the U.S. Food and Drug Administration, and is the company’s only approved product. The agreement dictates for AstraZeneca to give an upfront payment of $25 million to Ironwood, and the companies will split net profits and losses in China. Both companies traded down 1.6 percent after the agreement was announced.

Amarin (NASDAQ:IRWD), a biopharmaceutical company that develops cardiovascular treatments, was issued two patents by the U.S. Patent and Trademark Office, giving market protection to the company’s drug Vascepa until 2030. Shares of Amarin rose 1.6 percent following the news.

GlaxoSmithKline’s (NYSE:GSK) venture-capital fund, SR One, has announced plans to invest in a biotechnology company that has both a brain-imaging dye to detect early signs of Alzheimer’s and a treatment for the disease. The fund’s proposal indicates that the company has not stopped looking for possible treatments after Johnson & Johnson (NYSE:JNJ) and Pfizer’s (NYSE:PFE) bapineuzumab and Eli Lilly’s (NYSE:LLY) solanezumab failed to slow mental cognition in patients with an advanced form of the disease. Such a drug would have a large potential market, given that the number of Alzheimer’s cases is expected to double within 20 years as the world’s population ages, according to the World Health Organization.

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