OTCPicks Market Blog

President Obama’s Health Care Plan has arguably stirred more controversy than any of his other proposals to date. We at OTCPicks.com thought we would examine more closely the argument for and against this proposal… and what stocks could be influenced by his agenda.
Those that are AGAINST Obama’s Healthcare plan cite three main concerns:

• The reform will lower prices of drugs through Medicare and Medicaid which will eat away at corporate profits;
• It will allow the re-importation of prescription drugs from outside the United States;
• It will accelerate the approval of generic drugs and alter the tax code to limit the ability of U.S. companies to prevent overseas profits from taxation.

How any of the proposals in Obama's 2010 budget actually affect the healthcare and biotech sector, if at all, are far from clear. And there are many reasons why biotech's niche of developing life-saving drugs for serious diseases with unmet treatment needs won't suffer significant price or profit erosion.  

In fact, there are some policies that proponents argue could actually benefit the healthcare and biotech industries. Those that FAVOR the plan cite:

• support of research and development and potentially  larger budgets for the National Institutes of Health, the Food and Drug Administration, and other science-related agencies that pump billions in grants into research institutions;
• The idea of tax credits for research;
• His support for embryonic stem cell research.

Despite the many healthcare and biotech companies that have extremely favorable fundamentals (i.e. high earnings visibility and stable cash flows), broad investor fears could lead to pressure on many of these otherwise great companies.

Below are eight small and mid-cap stocks members may wish to add to their radars. We, at OTCPicks.com, feel their stock prices could be heavily influenced by the Obama Plan:

Bearish:

Celgene (CELG): A majority of the company's Revlimid and Thalomid sales are derived from Medicare recipients, placing the company at the higher end of the risk spectrum if Obama's health care reform plans significantly pinch drug pricing.

Amgen (AMGN): The Company benefits today from a relatively low tax rate of about 20%, in part because much of its business is conducted overseas. Details of Obama's corporate tax reform plan are scant, but if the administration prevents U.S. companies from shielding international profits from higher taxation, Amgen's tax rate would increase and its profitability would suffer. Amgen is also the most vulnerable to biogeneric competition.

Bullish:

Gilead Sciences (GILD): Early indications are that the U.S. government will increase funding for HIV prevention, testing and treatment, all of which are positives for Gilead and its stable of market-leading HIV drugs.

StemCells, Inc. (STEM): The Company is engaged in the discovery and development of cell-based therapeutics to treat damage to, or degeneration of, major organ systems. As one of the leading stem-cell stocks, Obama’s support for embryonic stem-cell research could be a boon for this company.

Neutral:

Genzyme (GENZ): About half of Genzyme’s business is conducted overseas, according to JP Morgan, making the company vulnerable to changes in tax laws. However, Genzyme has a relatively light exposure to Medicare and Medicaid. A large portion of Genzyme's profits come from the sale of high-priced drugs to treat rare, genetic diseases, but the business is global and relies very little on U.S. government reimbursement, according to Morgan Stanley research.

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