Health care stocks stumble a day after receiving boost from Massachusetts election

Health care stocks stumble with broader market

INDIANAPOLIS — Health care stocks slipped Wednesday on anxiety over the challenges that lie ahead regardless of whether a health care overhaul materializes in Washington.

The drop followed an earlier surge for several pharmaceutical and managed care companies, as investors anticipated either a Republican victory in the race for a Massachusetts Senate seat or a close vote that could derail the health care overhaul push.

Republican Scott Brown upset Democrat Martha Coakley Tuesday to take the late Edward M. Kennedy’s seat.

His surprise victory cast doubt on the future of President Obama’s health care initiative as Democrats will no longer have a 60-vote Senate majority. That number is key because it would have allowed Democrats a better shot and passing a law that would have provided coverage for millions of people who currently have none.

Investors had worried for months about the impact this reform push might have on health care businesses. Insurers, for instance, will be subjected to taxes, fees and increased regulation under the proposed measure.

Even though the shape of the nation’s health care system appears more blurry than it did at the start of the week, many health care companies that might benefit from a stalled bill dropped slightly Wednesday afternoon along with the broader market. The Standard & Poor’s 500 index fell 1.4 percent.

Shares of managed care company UnitedHealth Group Inc. fell 58 cents, or 1.6 percent, to $34.55; drugmaker Eli Lilly and Co. dropped 11 cents, or 0.29 percent, to $37.30, and insurer Humana Inc. fell 67 cents, or 1.3 percent, to $51.27.

Analysts still believe that drug companies and health insurers face daunting problems. Drug companies, for instance, have struggled to develop new medications on their own, and patents protecting several multibillion dollar drugs will expire in the next few years.

Health insurers are still dealing with enrollment losses caused by high unemployment. Medicare Advantage reimbursement cuts will squeeze profits for some companies, said Edward Jones analyst Steve Shubitz.

“The operating environment in 2010 is going to be challenging,” he said.

Aetna Inc. and UnitedHealth Group Inc. both have said they expect their 2010 operating earnings — which exclude one-time items like investment income — to be lower than last year.

Many stocks have seen strong rallies over the past few weeks, and some investors likely sold Wednesday to take a profit, BMO Capital Markets analyst Dave Shove said. He noted that UnitedHealth and WellPoint shares have risen 15 percent and 17 percent, respectively, since the start of 2010.

“There’s probably a little bit of earnings nervousness in here now too,” he said. “In a sense, now we have to get back to fundamentals.”

UnitedHealth reports earnings Thursday. That stock is considered a bellwether for the sector, and its performance can influence the shares of other insurers. Analysts who’ve seen decent gains from other health insurance stocks may be tempted to sell in case UnitedHealth offers disappointing guidance for the year ahead, Shove said.

On top of these concerns, Bannister also noted that the health care fight isn’t over.

“Even if we don’t get legislation today, you can’t say, ‘Well gosh we’re never gonna get legislation,’” she said. “We still have an issue in this country with access and cost and quality, so those fundamental issues need to be addressed.”