Health stocks up on U.S. vote, Fresenius jumps after California measure defeated

[November 07, 2018]  By Ben Hirschler

LONDON (Reuters) - Healthcare stocks rallied with the broader market in Europe on Wednesday as results of mid-term U.S. elections were seen reducing the likelihood of legislative action to cut medical costs in the world's biggest and most profitable market.

The Republicans lost control of the House of Representatives, a setback for President Donald Trump, but increased their grip on the Senate.

"This is probably the best-case outcome for pharmaceutical and biotech stocks," said Lorenzo Biasio, healthcare analyst at Credit Suisse's private banking unit.

"With a split Congress, the base case is that a limited amount of legislation will move forward. You are likely only going to see some very incremental changes to drug pricing legislation beyond the plans already floated."

Germany's Fresenius Medical Care <FMEG.DE>, the world's largest dialysis company, was the top gainer, rising 9 percent as California rejected a proposal that would have limited the rates dialysis clinics can charge commercially insured patients.

Chief Executive Rice Powell welcome the rejection of Proposition 8, which he said would have "dangerously reduced access for dialysis patients in California", the most populous U.S. state.

Denmark's Novo Nordisk <NOVOb.CO> was another notable winner, adding 2.5 percent. The world's top diabetes care group is heavily reliant on premium-priced U.S. drug sales and vulnerable to potential policy actions that might ratchet down spending.

Although the Democrats, who have talked tough on tackling rising healthcare costs, won control of the House, an expanded Republican majority in the Senate now points to political gridlock, which will make it difficult to pass legislation.

A Democratic sweep of both House and Senate could have sparked a sell-off in pharma, biotech and drug supply chain stocks, analysts said.

Goldman Sachs analysts now see the House as likely passing drug pricing legislation, which could then be blocked in the Senate. The issue is also complicated by Trump's support for drug price curbs, which might pressure Senate Republicans to reach a compromise on the issue.

Healthcare has served as something of a safe haven for U.S. investors in recent months, amid a sharp fall in tech stocks, with the sector rising nearly 10 percent so far this year against 3 percent for the overall S&P 500.

Elsewhere in the European healthcare sector, drugmakers Sanofi <SASY.PA>, Roche <ROG.S>, AstraZeneca <AZN.L> and GlaxoSmithKline <GSK.L> gained around 1 percent, as did medical devices group Smith & Nephew <SN.L>.

(Additional reporting by Ludwig Burger in Frankfurt and Lewis Krauskopf in New York; Editing by Peter Graff and Marie-Louise Gumuchian)

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