CNBC’s Jim Cramer on Thursday told investors why it’s hard to be bullish about healthcare stocks, citing challenges stemming from government action and lack of innovation.
“We could really use some strength in the downtrodden health care sector, which accounts for just 13% of the S&P 500 even though it’s 18% of the economy,” Cramer said. “That mismatch is because there’s so much going wrong in the group.”
According to Cramer, the healthcare sector is “in the crosshairs” of the U.S. government because of the upcoming election. The Biden Administration passed legislation last year that would allow Medicare to negotiate the price of some prescription medications, which Cramer said he thinks could hurt drug makers’ revenues. Johnson & Johnson and Bristol Meyers are among several drug makers to file lawsuits against the government, broadly arguing that the pricing measures are unconstitutional.
The Federal Trade Commission is doing its best to block mergers in the sector, Cramer said. He said he was worried that drug outfits attempting mergers — namely Cigna and Humana— are wasting their time and getting distracted from more important endeavors. Aside form drug makers, Cramer added that medical device companies haven’t seen their business pick up since Covid, also hurting the sector overall.
Cramer also asserted a lack of innovation at certain healthcare companies makes their stocks less desirable. He was pessimistic about AbbVie’s Thursday announcement it would acquire Immunogen, which is known for its ovarian cancer drug. He said the deal seemed to be less about Immunogen’s prospects and more about Abbvie “losing exclusivity on big drugs.”
“All the drug companies have to worry about patent cliffs. But only Eli Lilly, with its blockbuster diabetes and weight loss drug, along with its Alzheimer’s formulation, seems to do anything but buying smaller companies with so called ‘blockbuster’ products,” he said. “Homegrown is what we want. We can’t seem to get it, though.”
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Disclaimer The CNBC Investing Club Charitable Trust holds shares of Humana and Eli Lilly.