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Health Care's Golden Children

By Brian Orelli, PhD - Updated Apr 5, 2017 at 7:51PM

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The whole industry wasn't down this year.

So much for health care being recession-proof.

From pharmaceuticals to drug developers to medical-device companies to health insurers, the health-care industry has been rocked this year -- in many cases, more than other industries. Here's a sampling of how bad things got this year:

Company

Category

Decrease (YTD)

Intuitive Surgical

Medical instruments

(63%)

Pfizer (NYSE:PFE)

Big pharma

(19%)

Exelixis

Biotech

(46%)

UnitedHealth Group (NYSE:UNH)

Health care services

(56%)

Source: Morningstar. Returns through Dec. 29.

But not every health care company got pummeled by investors in 2008. Let's take a look at some of this year's winners and see if their lofty ventures can continue into next year.

Diagnosing the results
First off, two diagnostic test makers are up on the year, but for entirely different reasons.

Myriad Genetics (NASDAQ:MYGN), half diagnostic test maker and half drug developer, had a crummy year doing the latter, but investors didn't seem to mind. The stock gained some 40% for the year. Myraid's Alzheimer's drug, Flurizan, failed in the clinic, but most investors had already figured it was a long shot at best. Better yet, the drugmaker covered most of its expenses when it made perhaps the deal of the century by getting European pharma H. Lundbeck A/S to pay $100 million for the European rights to the drug before the phase 3 trial results were released.

The other half of Myraid is on fire. Sales of its genetics tests were up 52% year over year in the most recent quarter, and the company launched a new test last week to check the status of PTEN, which has been implicated in causing resistance or sensitivity to different cancer treatments.

Fools interested in just the molecular diagnostic part of Myraid, without the money-sucking drug development half, are in luck. The company announced earlier this year that it plans to split in two.

Sequenom (NASDAQ:SQNM) doesn't have a clinical diagnostic test on the market, but that didn't stop shares from doubling in price over the year. The company's been buoyed by the Down syndrome test it's developing. The test will allow women to forgo the usual amniocentesis -- and the complications that come with it -- and instead get the readout with a simple blood test. The current tests using the mother's blood aren't particularly accurate, but Sequenom's test has proven to be very good at identifying positive samples while avoiding false positives.

As long as results from the larger batch of samples follow the same trend as the early results, next year's launch should result in another successful year for Sequenom.

Approved for higher returns
Genentech (NYSE:DNA) started the year off right with a conditional approval to market its cancer drug, Avastin, as a treatment for breast cancer, and it never really looked back. Shares have pulled back considerably from the highs -- at one point up 47% -- they experienced after Roche said it wanted to buy the 44% it didn't already own. Whether the deal gets done -- and for how much -- is anyone's guess, but Genentech nonetheless deserves the stellar year it's had.

Amgen (NASDAQ:AMGN) is up over 22% this year, but it probably has less to do with the approval of its blood clot disorder drug Nplate than with the potential of osteoporosis drug denosumab. Nplate is treating a fairly small market and already has competition from GlaxoSmithKline's (NYSE:GSK) and Ligand Pharmaceuticals' Promacta, but the osteoporosis market is huge, and Amgen's twice-yearly drug could do well if it's approved next year.

Amgen's share price strength might also come from the possible bottoming out of falling sales of its anemia drugs. Last quarter, sales of Aranesp were down just 8% (at constant currencies and excluding returns), versus a drop of 29% in the first quarter. And sales of Epogen were actually up 5% in Q3 year over year, compared to a drop of 11% in Q1.

More of the same in 2009?
My crystal ball is in the shop, so I'm having trouble determining whether health care will rebound in 2009. I do know that many companies are trading well below where they usually trade based on earnings and free cash flow. That's not likely to continue forever, but it's a little hard to predict when the industry might turn around.

And even in the most down years, there will always be standouts. That's just the nature of drug development.

GlaxoSmithKline and Pfizer are Motley Fool Income Investor picks. UnitedHealth and Pfizer are Inside Value selections. Exelixis and Intuitive Surgical are Rule Breakers picks. UnitedHealth is also a Stock Advisor recommendation. The Fool owns shares of UnitedHealth, Pfizer, and Exelixis. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Brian Orelli, Ph.D., doesn't own shares of any company mentioned in this article. The Fool has a disclosure policy.

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Stocks Mentioned

Pfizer Inc. Stock Quote
Pfizer Inc.
PFE
$49.41 (-0.73%) $0.36
UnitedHealth Group Incorporated Stock Quote
UnitedHealth Group Incorporated
UNH
$536.30 (-0.18%) $0.96
GSK Stock Quote
GSK
GSK
$38.15 (-4.70%) $-1.88
Amgen Inc. Stock Quote
Amgen Inc.
AMGN
$248.81 (0.18%) $0.45
Myriad Genetics, Inc. Stock Quote
Myriad Genetics, Inc.
MYGN
$27.02 (3.11%) $0.81

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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