President Obama was sworn into office for a second term a few days ago. And while a continued Obama presidency affects several areas of the investing world, perhaps none is more apparent than healthcare.
I expect certain areas of healthcare to do well, as Obama’s re-election makes the road to broader insurance coverage inevitable, with the potential for 30 million uninsured to be covered starting in 2014. This ultimately means more money flowing through the system.
I think now is a good time to get into a couple areas of healthcare, including generic drugs and heart disease treatment. Generic drug prices are much more affordable for patients and, more importantly, for the insurance companies and government entities paying for the medications. And as long as heart disease is around, there will be a strong demand for companies that have products to fight it.
Based on those thoughts, here are a couple stocks I like:
Insurers, of course, want to save money however they can, which is one reason I really like a company you might not have heard of: Lannett (AMEX:LCI).
Lannett develops, makes and sells generic drugs — an industry that should see strong growth as healthcare reform moves ahead in Obama’s second term. The election provides a nice tailwind for a company already in solid growth mode, with revenues increasing 70% from fiscal 2008 to fiscal 2012 (which ended in June).
LCI has approximately 30 products on the market. The top five are the real workhorses, bringing in nearly 70% of revenues in the last fiscal year, with the top two contributing 50%. They are levothyroxine sodium tablets (a generic version of the thyroid treatments Synthroid and Levoxyl) and digoxin (a generic version of the congestive heart failure drug Lanoxin). Both products are part of a distribution agreement Lannett entered in 2004 with Jerome Stevens Pharmaceuticals. That agreement ends in two years, and the companies have entered preliminary talks to extend it. A successful outcome should be a nice catalyst for the stock.
Another possible catalyst is the large number of developing products, including several in late-stage testing that have large potential markets. In total, LCI has 40 drugs in development, and 15 of them are waiting on approval at the FDA. Several would expand the company’s pain management franchise. There’s also a potential new generic version of thalidomide; the branded version — Celgene‘s (NASDAQ:CELG) Thalomid — has annual sales of $339 million globally. If it is approved, LCI would receive higher-than-normal margins because it is the first generic company to file for approval.
Vascular Solutions (NASDAQ:VASC) is on my list of companies to benefit as well. VASC is a little-known medical device company that is leading the fight against heart disease — the No. 1 killer in America, and something that even a global economic slowdown can’t stop.
VASC is an innovator in the field of cardiovascular medical intervention devices, has a strong history of developing products that meet unmet needs, and stands to benefit from the growth of the entire industry.
What’s great about this company is that it doesn’t just have one product. Vascular Solutions has quite a few that fall into three main categories: catheters, hemostasis products and vein products.
- Catheters and related products are the biggest source of VASC’s revenue, accounting for 53% of sales in 2010. The company makes a variety of devices used in minimally invasive catheterization procedures to diagnose and treat vascular conditions. Its top-selling catheters are under the Pronto brand name, and they feature a proprietary tip and large extraction opening that can be inserted into arteries to remove blood clots using simple vacuum suction. Sales of catheters took a leap forward five years ago with the introduction of the company’s third-generation catheters, the Pronto V3. As we’ll talk about in a moment, the fourth-generation Pronto was just recently released.
- Hemostasis products, which help stop blood flow, brought in 31% of revenues last year. VASC makes unique bandages (called “D-Stat”) and related products that rely on the clotting power of thrombin, a naturally occurring protein in humans. This provides a natural way to stop bleeding, whereas competitors’ products use mechanical means (e.g. pressure). One clinical trial showed that D-Stat worked 50% faster than bandages that merely applied pressure.
- Vein products are the third major part of the business. The company’s leader here is a laser treatment (called Vari-Lase) for varicose veins. It consists of the laser console, procedure kits and accessories. More than 1 million people in the U.S. suffer from varicose veins, and if left untreated, they can be painful and also result in limited mobility and venous ulcers. Vari-Lase is an outpatient procedure, making it more cost-effective, and it takes only about an hour.