The Obama administration is the latest to step up to the plate and take a swing. And with Congress currently chewing over the details of its plan, it has healthcare investors shaking in the knees, wondering how an overhaul of the system will impact biotech, pharma, medical devices, insurers and other medical stocks.

Are their fears rational? And what are the best stocks to play? I’ve got three for you…

An American Healthcare Utopia

Imagine a world where poor Americans no longer have to ration their medication. A world where parents don’t have to worry about how to pay for their sick child’s medical bills. A world where preventative and educational programs will hopefully keep people from getting ill in the first place.

Great aims, of course.

But what does it mean for the biotech sector?

Investors worried about how an insurance revamp will affect biotechs should know that the impact will be limited. Insurance already covers most high-priced biotech drugs.

In addition, many companies have programs in place to help patients who can’t afford the medicine.

In fact, if everyone has healthcare insurance, biotech companies could theoretically even see a bump up in revenue, as those patients previously receiving assistance would now be covered.

There is another provision, however that has the potential to roil biotech stocks…

The Waxman Way

Representative Henry Waxman (D-California) wants to see lower prices for high-priced biotech drugs.

As you may know, some biotech drugs can be exorbitantly expensive. For example, it’s not uncommon for cancer therapies to cost in the tens of thousands of dollars for a full cycle of treatment. And drugs that treat rare diseases can costs six figures per year.

To combat this, Waxman wants to see…

~ The introduction of generic biologics in the marketplace. But he wants it quicker than is possible right now.

~ The allowance of generic drugs onto the market after five years. Industry trade groups, on the other hand, want to see biotech patent exclusivity for at least 12 years.

This second proposal in particular is a problem for biotechs…

The “All Risk-No Reward” Plan

Having such a short timeframe for them to capitalize on their drug discoveries will likely dissuade them and their financial backers from pouring the cast amounts of necessary capital into the R&D for a drug.

Consider, for example, that it takes an average of $800 million and 8-10 years for a biotech company to bring a drug to market. It’s therefore ludicrous that they’d spend longer studying the drug than they would be allowed market exclusivity on it.

In addition, in the first year or two following FDA approval, a company very often goes to considerable effort to educate doctors about the benefits and risks of the new drug. So it typically takes a few years for sales of the drug to climb – and in many cases, the company may only be hitting its peak sales after five years.

To pull the rug from under them, just when employees and investors are being rewarded for years of patience and hard work, makes no sense.

There’s another problem with Waxman’s logic…

Note To Henry: Biotech Is Not The Same As Pharma

Waxman’s insistence that generic biotech drugs get to market faster could have serious ramifications on patients’ health.

Remember that biotech drugs are very different from pharmaceutical drugs. They’re made from living cells and are thus much more difficult to replicate than a traditional synthetic pharmaceutical product. So any slight difference in the manufacturing process can produce disastrous results.

With that said, you might think that the future for biotechs looks a little shaky. After all, just because something makes common sense, it doesn’t mean the government will follow.

So for that reason, I think it is apropos to consider some investments that should do well even if Waxman’s proposal becomes law.

Three “Wax-Beating” Biotech Investments

• TEVA Pharmaceuticals (Nasdaq: TEVA): This is the best generic drug maker and should become a big player as generic biotech drugs gain momentum. TEVA isn’t cheap, but the company is expected to grow its earnings by nearly 20% per year over the next five years.

• BioMarin (Nasdaq: BMRN): I’m a fan of biotech companies that specialize in treating rare diseases. Firms like this can navigate past Waxman’s proposals because with the market for rare diseases being so small, it will likely not be in a generic drug maker’s financial interest to go after that market with a lower priced offering.In this area, consider BioMarin, which has three drugs on the market that treat rare diseases and affect tiny patient populations. For example, MPS VI is a debilitating disease that causes severe deformities, stunted growth and other problems. BioMarin’s Naglazyme is the only drug on the market for the 2,000 known patients in the developed world affected by MPS VI. The drug costs $350,000 per year per patient.

• Genzyme (Nasdaq: GENZ): This is a large-cap biotech company that conducts research in many different areas. It also has drugs that treat rare genetic disorders, including Fabry’s disease and Gaucher disease. Like TEVA, GENZ shares are pricey, but you get what you pay for. Genzyme is also a best-in-class biotech company, particularly in enzyme replacement therapy.

Good investing,

Marc Lichtenfeld

Source: Not Even Government Interference Will Damage These Three Stocks

Actually, it’s not fear. It’s pure irrationality, as top-quality stocks have been spanked down to bargain-basement levels, despite no discernable change in their businesses.

But business is still booming in the biotech sector…

Over that time, we’ve seen three huge buyouts occur in the Big Pharma/biotech area…

It started in January, with the news that Pfizer (NYSE: PFE) would shell out $68 billion to buy Wyeth (NYSE: WYE).

And things really got rolling this week, with the news that Merck (NYSE: MRK) will acquire Schering-Plough (NYSE: SGP) for $48 billion and that Roche and Genentech (NYSE: DNA) have finally concluded protracted negotiations that will see Roche buy the biotech superpower for $47 billion.

Total value of done deals: $163 billion. And in a market where access to capital has supposedly dried up.

The question is: Could these Big Pharma mergers signal a shift in sentiment and a bottom for the broader stock market?

If you’re looking for a simple, one-word answer… no.

But if you don’t take your investment advice from such in-depth, hard-hitting features as the “Lightning Round,” I invite you to keep reading…

The Credit Is There… But Only For The Right Deal

There’s no doubt that it’s tough to get credit these days. But as the merger deals above show, capital is clearly available for the right deals.

For example, in order to finance its deal with Genentech, Roche issued nearly $33 billion in notes. In addition, Pfizer received over $22 billion in loan commitments from various banks to complete its transaction. And similarly, J.P. Morgan (NYSE: JPM) slapped down $8.5 billion so Merck could fund its deal with Schering-Plough.

Again, this has occurred during one of the most fear and panic-ridden periods in stock market history. And it’s come despite frequent comparisons of the Depression Era. Listen to the media too much and you’d expect to see the world in a grainy, brown hue every time you look out the window.

Don’t get me wrong here: I’m keenly aware that the economy is in bad shape. No one has ever accused me of being a Polyanna. But my point is that it’s not necessarily all doom-and-gloom (as some would like you to believe).

These healthcare/biotech mergers indicate the beginning of a thaw in credit markets and hopefully the start of a healing process for the markets. Notice that I’m not calling it a “bottoming process” because as I said last week, I do believe we’ll see new stock market lows.

But as more deals get done, investor and lender confidence will slowly return to the market. And I do think more acquisitions are imminent – particularly within the biotech sector…

The Biotech Sector – A Wave of Consolidation

The biotech sector is likely in store for a wave of consolidation. While the above-mentioned Big Pharma companies have boosted their pipelines and created massive biopharma companies with their acquisitions, there are still many pharmaceutical companies that desperately need to fill their pipelines.

And that bodes well for biotech – particularly when you consider that the largest biotech company after Genentech is Amgen (Nasdaq: AMGN), which boasts a market cap of $48 billion.

After that, Gilead Sciences (Nasdaq: GILD), which just announced a $1.4 billion takeover of CV Therapeutics (Nasdaq: CVTX), is next at $40 billion. Then the market thins considerably, with only three companies that have market caps over $10 billion and 11 companies with market caps of $1 billion or more.

For example, Merck could buy Biogen (Nasdaq: BIIB) and Genzyme (Nasdaq: GENZ) for less than it cost the firm to buy Schering-Plough.

The point is: Even though the biotech sector has outperformed the S&P 500 during the bear market, many biotech stocks have become cheap.

In fact, pharmaceutical companies wouldn’t even need to raise capital to buy a BioMarin (Nasdaq: BMRN), or Xcelerated Profits Report portfolio member Medivation (Nasdaq: MDVN) and many others like them.

Our 2 Favorite Emotional Friends: Fear And Greed

When managements are scared they hunker down and hang on to capital. But when opportunistic executives add to their businesses – even during downturns – that kind of optimism and activity is healthy. They’re essentially expressing their confidence that conditions will improve.

Remember… emotions control the stock market as much as fundamentals. And as we’ve mentioned in previous columns, fear and greed are the two main players. So when investors see this kind of activity, they start to think about their own opportunities, rather than cowering in the corner in the fetal position like so many have for the past few months.

Big Pharma Falls For Attractive Biotech

As we’ve seen recently, Big Pharma has already fallen for some of the most attractive biotech names. And as some more choice companies begin to get snapped up, you might see a rush into the sector by other Big Pharma firms to grab the existing quality companies before someone else does.

Mix in this momentum with some speculation and that could kick prices higher, causing Big Pharma executives to pull the trigger before valuations get too expensive.

The economy is still bleeding, but these recent acquisitions indicate that the patient is no longer spurting blood all over the emergency room floor. Eventually, it will stabilize and walk on its own again.

When it does, the strongest drug companies will be the ones that took advantage of this unique opportunity to fill their pipelines with products from inexpensive biotech companies.

Source: The Biotech Sector: Big Mergers Could Mean Big Gains For Biotechnology