Health-Care Stocks Lead This Leg of Rally, After Tech Giants’ Stumbles

Health-care stocks have emerged as market leaders in the third quarter, helping push major U.S. indexes to new highs.

One reason: money managers are embracing the sector as a safety play, particularly after big technology stocks stumbled in September.

The S&P 500’s health-care sector is the best performer of the index’s 11 groups in the third quarter, up 13% and on pace for its strongest showing in more than five years. On a year-to-date basis, health-care stocks are trailing only the technology and consumer-discretionary sectors.

Hedge funds have built up their biggest position in health-care shares of the past five years. About 17% of their assets are in the sector, second only to shares of tech companies, according to Goldman Sachs Group Inc. data through June. Mutual-fund managers have also been shifting into health-care stocks, with many building outsize positions, according to Goldman’s data.

And flows into health-care-focused mutual funds and exchange-traded funds, which are popular with retail investors, are at their strongest in three years, according to Morningstar LLC.

Rising interest in the stocks coincides with surging profits across the industry. Plus, the health-care needs of an aging population are expected to insulate the companies from a downturn, and investors searching for attractively valued stocks after a nine-year bull market in the U.S. have embraced the shares.

The sector’s rally has been broad, with shares of pharmaceutical giants like Merck & Co. and Pfizer Inc., insurers including Humana Inc. and UnitedHealth Group Inc., and equipment suppliers like Abiomed Inc. and Align Technology Inc. all rising at least 20% in 2018.

“These stocks had been out of favor for a while,” said Tom Hancock, head of focused equity at Grantham, Mayo, Van Otterloo & Co., the Boston-based money-management firm founded by famed investor Jeremy Grantham.

“But we’ve been trying to find stocks that aren’t being inflated by this rising tide of economic good news,” Mr. Hancock added, referring to the strong U.S. growth that has helped fuel a broad stock-market upswing in recent years. “When that tide recedes, we’re looking for companies that will be OK in that environment.”

Big tech stocks that have led much of this year’s rally, including Amazon.com Inc., Google parent Alphabet Inc. and Apple Inc., which each fell more than 3% in September. Investors have cut their exposure amid concerns about new regulations in the wake of Facebook Inc.’s data mishap.

At firms like GMO, investors have been trimming their technology holdings to help fund their shifts into health care. GMO’s funds recently initiated a position in Merck, Mr. Hancock said, as the pharmaceutical giant has focused on further developing cancer-treatment drug Keytruda, which accounted for about 9% of the company’s total revenue last year. Merck shares have surged 26% this year and 17% in the third quarter alone.

GMO funds, meanwhile, trimmed stakes in Alibaba Group Holding Ltd. and Microsoft Corp. in the past six months, according to FactSet.

Similarly, hedge-fund manager Tudor Investment Corp. increased its stake in health insurer Aetna Inc. and initiated new positions in drugmakers Shire PLC and AbbVie Inc. all in the last six months, according to fund-holdings data compiled by FactSet. Millennium Management LLC, another hedge fund, added to its positions in medical-device makers Medtronic PLC and Boston Scientific Corp.

Tudor declined to comment through a spokesman. Millennium didn’t respond to a request for comment.

Some investors, though, question the timing of health care’s sudden appeal, citing its bouts of volatility when political debates over how Americans pay for health care intensify. The sector will likely see another jolt should Republicans retain control of Congress in November’s midterm elections and resume talks of a health-care overhaul, said Lewis Piantedosi, a vice president and portfolio manager for Eaton Vance Investment Managers, which has kept its allocation toward health-care stocks below its benchmark.

Still, the broader shift into health-care stocks suggests investors are eschewing risk after a long rally. Although the tax cut enacted in December led to an explosion in corporate profits that fueled the latest leg of the rally, Wall Street analysts and economists are increasingly convinced that the U.S. economy will start contracting as early as 2020.

Investors tend to view health-care stocks as a defensive investment because health insurers, pharmaceutical companies and medical-device makers usually hold up better in times of economic turbulence. That is because most medical expenses can’t be put off in a recession, and economic swings don’t typically curb the rollout of new drugs and devices. Valuations are also enticing, investors said, with health-care stocks in the S&P 500 trading at 16 times future earnings, compared with 17 times for the S&P 500 and 19 times for the tech sector, according to FactSet.

Biotech firms, however, are viewed as riskier and aren’t getting nearly as much attention from big money managers, some investors said, because those stocks can move dramatically based on drug approvals. Biotech shares in the S&P 500 aren’t seeing the same bump as pharmaceutical giants, insurers and medical suppliers.

“Not to say it can’t continue, but we’re in the longest bull market ever, ” said Matthew Watson, a portfolio manager and assistant vice president at James Advantage Funds, a mutual-fund manager that has boosted its positions in health-insurer Anthem Inc. and drugmaker Pfizer. “So from a risk standpoint, getting into health-care stocks, which tends to be defensive, makes sense for us too.”

https://www.marketscreener.com/GOLDMAN-SACHS-GROUP-12831/news/Health-Care-Stocks-Lead-This-Leg-of-Rally-After-Tech-Giants-Stumbles-27312148/?countview=0

Can Artificial Intelligence Make Us Smarter Traders?

There are some who would have you believe that trading is 80+% a function of your psychology.  All you need to do is sustain your mindset and discipline and remove your emotional blocks and you, too, can find the success of Market Wizards.

As a psychologist, a psychologist who has worked full-time with traders on trading floors, a psychologist who has consulted to trading firms across different markets and strategies, and as one who has traded himself for decades, I can assure you that there is a helluva lot more to success in markets than maintaining the right psychology.

A good way to put it is that the wrong psychology can derail anyone, but the right psychology does not substitute for insight, skill, and experience.  Psychology is necessary for success in any performance field–from athletics to trading–but it is not sufficient.

One of the most powerful observations I’ve encountered in my work with traders and portfolio managers is that cognitive skills and development account for as much success in markets as personality variables.  Superior traders have superior information processing skills.  Show me a good trader, and I will show you someone who–in some way–processes information more effectively and uniquely than his or her less successful counterparts.

I was part of a meeting recently in which a money management firm discussed the idea of requiring programming knowledge from all new hires.  Years ago, that could never have been a topic for discussion.  Now it is a serious proposal.

It makes sense.  When I look at the traders who have been particularly successful over the past couple of years, the majority are either entirely algorithmic or manage capital with a hybrid, “man-machine” interface.  Many make discretionary decisions–aided by signals generated by the machines.

Quite simply, machines–used properly–can process more information, more quickly than we can.  They can find patterns in multidimensional space that evade our naked eyes–and they can ensure that these patterns are not merely curve-fit.

It’s not that artificial intelligence (AI) necessarily succeeds by giving us better trades.  It is valuable in giving us more hypotheses to consider in framing trade ideas.  It identifies patterns that have set up in the most recent past so that we can make an informed judgment as to the potential for those patterns continuing into the immediate future.  It vastly expands our cognitive bandwidth.  For that reason, AI can help us more quickly adjust to shifting patterns in the instruments and markets that we trade.

On Saturday, October 20th, I’ll be in San Diego with the folks at Trade Ideas and several experienced market participants to discuss the potential for partnering with machines for better trading.  We’ll take a look at trading processes, as well as trading psychology, and how those can make the most of increased information bandwidth.  The automobile greatly expanded our travel capacity relative to the horse-and-buggy.  So, too, in the machine age, can we greatly enhance our decision making with a superior flow of supporting information.

http://traderfeed.blogspot.com/2018/09/can-artificial-intelligence-make-us.html

Sage depression drug to get FDA panel review on Nov. 2

The FDA earlier today announced a forthcoming public advisory committee meeting of the Psychopharmacologic Drugs Advisory Committee and the Drug Safety and Risk Management Advisory Committee. The committees will discuss the efficacy, safety, and benefit-risk profile of Sage Therapeutics’ new drug application for brexanolone for the proposed indication of postpartum depression on November 2.
https://thefly.com/landingPageNews.php?id=2795297

Concerns About Debt and Value Continue to Be Raised Over Takeda-Shire Merger

As the acquisition of Dublin-based Shire by Japan-based ​Takeda Pharmaceutical edges forward, yet another major Takeda shareholder has spoken out in opposition to the deal.

The $62.2 billion deal was originally announced in May. And immediately, numerous analysts and shareholders expressed skepticism and concern over the deal. Most were worried that Takeda was taking on too much of Shire’s debt, part of the deal that would push the price closer to $80 billion. CNN wrote at that time, “The price tag has alarmed investors in Takeda: Its shares are down 18 percent since it first revealed it was considering an approach for Shire in late March. The Japanese company has a market value of just $33 billion, stoking fears about how much debt it will have to take on to fund the acquisition.”

Then a shareholder group strongly opposed the deal. During a June annual meeting, the group of 130 Takeda shareholders expressed their opposition and took action, advancing a proposal that would require advance shareholder approval be required for large acquisitions. The proposal received about 10 percent of votes in favor, essentially failing to pick up wider opposition to the merger.

Earlier this month, a member of the Takeda family, Kazu Takeda, aligned himself with the oppositional group, telling The Times, “Hasty decisions on big deals should be avoided. It will lead to disaster if there are large-scale mergers and acquisitions without careful consideration.”

He also said part of his opposition was the feeling the deal would undermine one of the primary principles of “Takeda-ism,” which is that the company makes money by making people happy. He told The Times, “We understand that scaling up is necessary, but Takeda management has to think about the traditional corporate culture and the health of the company.”

And now, a third voice has been added into the mix, although none of the opposition appears to be making headway in scuttling the deal. The Sunday Times reported this weekend that an unidentified investor, one of the top 10 shareholders in Takeda, expressed skepticism that value will be created from the takeover. The shareholder said, “There will be some value distraction from the deal. That’s why we are skeptical.”

The investor also said he believes that the combined value of the two companies is less than their individual value.

Takeda and its chief executive officer, Christophe Weber, are reported to have a plan to deal with the debt. There are possible plans to sell Shire’s Xiidra eye treatment once the deal is completed, and possibly sell its Natpara, a drug used to control blood calcium levels.

Bloomberg indicates Takeda is currently finishing the country regulatory approvals necessary for the deal, “most recently getting passage for the takeover in China. Further regulatory approvals remain before the companies’ shareholders will get a vote.”

Bloomberg News surveyed 25 “M&A and event-driven desks, equity analysts and fund managers,” to get their views on the deal. They expect the acquisition to be finished in March, in keeping with the company’s original guidance.

The combined companies will have headquarters in Japan. Takeda shareholders will own approximately 50 percent of the merged companies. They will have a combined workforce of about 52,000 people worldwide. The merged companies have projected job cuts of 6 to 7 percent, or low to mid 3,000s. Takeda is also considering consolidating Shire’s operations into its own in Boston, Switzerland and Singapore.

Takeda would gain more access to the U.S. market. Shire would gain more exposure in Japan and emerging markets.

The deal will require a positive vote of 75 percent of Shire’s voting shareholders. At this point, the original opposition group represents about 1 percent of voting shareholders. It remains to be seen whether continued criticism by major shareholders will gain any steam.

https://www.biospace.com/article/concerns-over-debt-and-value-continue-to-be-raised-over-takeda-shire-merger/

Medtronic Device Helps Paralyzed Patients Walk Again in Clinical Studies

A commercially-available medical device developed by Medtronic is helping paralyzed patients walk again.

The device, which stimulates the spinal cord through electrical pulses, has been successful in helping some individuals who lost the ability to walk through injuries to their spine, regain the ability to walk in a limited fashion. Three of four patients treated at the Kentucky Spinal Cord Injury Research Center with the device have regained some mobility. They are able to walk again with the assistance of the implanted device and a walker. An additional study conducted by the Mayo Institute documented the results of a single individual who had the device implanted. He was able to stand independently and walk 102 meters with a walker, Forbes reported this morning.

Following the patient’s positive experiences, the studies were published in the New England Journal of Medicine and in Nature Medicine.

Kendall Lee, the co-principal investigator from the Mayo Clinic, said the study has shown that the “networks of neurons below a spinal cord injury still can function after paralysis.” Kristin Zhao, also a co-principal investigator, said the next challenge is fully understanding how this happened, why it happened and which patients will best respond to the device.

As Forbes touts the patient successes in the spinal implant trial. Medtronic this morning announced the commercial launch of a new spinal cord treatment. The company launched the Infinity Occipitocervical-Upper Thoracic (OCT) System that is designed to simplify posterior cervical spine surgery. The Infinity OCT System is a “complete procedural solution that integrates navigation and biologics with Medtronic’s comprehensive devices and instrumentation to create efficiency in fusion procedure workflows for the upper back and neck,” the company said.

The new system is used to immobilize and stabilize the spine while it fuses. Medtronic said. There are innovative components including a multi-axial screw with 60 degrees of angulation in any direction, a set screw (locking cap) with a quick-start thread to minimize cross threading, and 3.0mm and 5.5mm diameter screws for expanded patient demographics and clinical applications, according to company data.

When paired with other Medtronic devices, the O-arm Imaging System and StealthStation Navigation System, Medtronic said the Infinity OCT System “provides a fully-enabled procedural solution designed to bring efficiency and simplicity to even the most complex posterior cervical procedures.”

Doug King, the president of Medtronic’s spine division, said the company has spent the past 35 years advancing new technologies aimed at improving spinal patient outcomes.

“We engineered every component of the Infinity OCT System to perform efficiently during the most complex spine procedures, as well as to integrate seamlessly with our market-leading imaging and navigation technologies,” King said in a statement.

The Infinity OCT System is indicated for certain conditions including degenerative disc disease, instability or deformity, tumors, and traumatic spinal fractures or traumatic dislocations. Spine trauma can sometimes result in a spinal cord injury.

Medtronic anticipates the global commercial availability of the new system in the later part of 2018 and in 2019.

https://www.biospace.com/article/cp8r-medtronic-device-helps-paralyzed-patients-walk-again-in-clinical-studies/

Oasmia Gets Positive Opinion for Apealea(R) (paclitaxel micellar) in EU

Apealea receives positive CHMP opinion in the European Union for treatment of platinum-sensitive epithelial ovarian cancer, primary peritoneal cancer and fallopian tube cancer in combination with carboplatin in first relapse

Uppsala, Sweden, September 21, 2018 – Oasmia Pharmaceutical ABOASM, +22.98% today announce that the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA) has adopted a positive opinion recommending approval of Apealea in combination with carboplatin for treatment of adult patients with first relapse of platinum-sensitive epithelial ovarian cancer, primary peritoneal cancer and fallopian tube cancer. The CHMP considers that the product Apealea in combination with carboplatin has a positive benefit-risk balance and is considered approvable for the above-mentioned indication.

The CHMP’s positive opinion will now be considered by the European Commission. If the CHMP opinion is affirmed, the European Commission will grant a centralized marketing authorization with unified labelling that is valid in 28 countries of the European Union (EU), as well as the European Economic Area members, Iceland, Lichtenstein and Norway.

https://www.marketwatch.com/press-release/oasmia-pharmaceutical-receives-positive-chmp-opinion-for-apealear-paclitaxel-micellar-in-the-european-union-2018-09-21

Wells Fargo Bullish On Applied Genetic Technologies Ahead Of Program Update

The bullish case for Applied Genetic Technologies Corp AGTC 19.34%, a nano-cap biotech conducting human clinical trials of adeno-associated virus-based gene therapies, can be made on the basis of an encouraging pipeline and valuation reasons, according to Wells Fargo.

The Analyst

Wells Fargo's Jim Birchenough upgraded Applied Genetic Technologies from Market Perform to Outperform with a price target lifted from $6 to $20.

The Thesis

Applied Genetic's peer Nightstar Therapeutics PLC NITE 2.49% released initial data from a Phase 1/2 study of its product candidate NSR-RPGR that showed multiple patients achieved an improvement in microperimetry, Birchenough said in the upgrade note. (See his track record here.)
This is notable, as Nightstar's efficacy in visual fields validates Applied Genetic's ongoing Phase 1/2 trial with its partner Biogen Inc BIIB 0.24%, the analyst said. There's evidence of higher gene expression with Applied Genetic's vector than with Nightstar's AAV8 vector, he said.
Nightstar's data release should be well-received by investors ahead of Applied Genetic's data flow and program updates in its X-linked retinitis pigmentosa trials, Birchenough said.
With the stock is trading below its cash on hand and at a discount to Nightstar, Applied Genetic has favorable risk-reward profile, according to Wells Fargo.
https://www.benzinga.com/analyst-ratings/analyst-color/18/09/12394892/wells-fargo-bullish-on-applied-genetic-technologies-ahe