Healthcare investors will have plenty to chew on following the results of Tuesday's mid-term elections.
Not only could they affect the government's short-term stance towards drug prices and health care costs and policies, but there could be implications further out as well.
"This midterm has the potential for even more impact given the 2020 Presidential election and could even lead to a Democratic supermajority," wrote Leerink Partners LLC analyst Ana Gupte in an Oct. note. Here's how the midterms might affect stocks in the biotech and managed care realm.
RBC Capital Markets LLC analysts wrote in a note in October that they view a divided Congress as the most probable outcome of the polls. Such a result could make the implementation of President Donald Trump's blueprint to bring down drug prices more difficult, they said.
"Coming out of the midterms, our base/best case of a mixed House/Senate would result in the continuation of status quo politics and make it challenging for Trump to implement meaningful policy initiatives through consensus legislation -- a scenario that could improve investors' comfort owning biotechs, particularly large-cap companies, and catalyze some appreciation," they wrote.
If the Republicans maintain control of both chambers of Congress, the biotech sector could see upside, analysts said, pointing to perceptions by investors of Republicans' more flexible stance towards the pharmaceutical sector's value to the economy.
If Democrats take control of both the House and Senate, however, there could be increased risk for the biotech industry, analysts said.
"[W]hile we don't necessarily believe Trump and the Democrats would be able to cooperate in this environment to enact meaningful changes, it could yield a more hostile political climate for drug manufacturers through the 2020 election, especially if a Democrat were elected President and the majority were maintained, and thus we would expect sector downside in this scenario," they wrote.
If Democrats take both chambers, managed Medicaid stocks such as Centene Corp. (CNC - Get Report) and Molina Healthcare Inc. (MOH - Get Report) , and healthcare facility stocks such as HCA Healthcare Inc. (HCA - Get Report) could see upside, Leerink's Gupte wrote in an Oct. 3 note.
"A Blue Wave portends further Red state Medicaid expansions including FL, ME, ID, NE, and UT as well as protection from future SCOTUS judicial or legislative downside on exchanges under a potential Democratic supermajority post-2020," she wrote.
A scenario in which Republicans retain control of the two chambers could be positive for Medicare Advantage player Humana Inc. (HUM - Get Report) , Gupte said. "Republicans are more positive on the privatization of Medicare," she noted in a Nov. 2 interview.
Under all three scenarios -- the Democrats taking the House but not the Senate, the Democrats taking both chambers and the Republicans maintaining control of both -- Gupte recommended diversified managed care organizations with captive pharmacy benefit managers such as UnitedHealth Group Inc. (UNH - Get Report) , Anthem Inc. (ANTM - Get Report) and Cigna Corp. (CI - Get Report) , whose purchase of PBM Express Scripts Holding Co. (ESRX) is expected to close by year-end.
Explaining the stock picks, Gupte wrote that she views the fears of Medicare for All even after a potential Democratic supermajority in 2020 as "overblown." Employer-sponsored insurance continues to be the backbone of health insurance in the U.S., covering about 155 million people, she noted.
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