Dow Sinks Below 12000, Despite Big Gains in Healthcare

March 11, 2011

Stocks sank this week, buffeted by grim news from around the globe, with the Dow Jones Industrial Average sinking beneath 12000. But HCA's record-breaking IPO and the approval of the first new drug to treat lupus in more than 50 years lifted the healthcare sector.

Stocks pulled back sharply this week, buffeted by grim news from around the globe, with the Dow Jones Industrial Average sinking beneath 12000. But HCA Inc.’s record-breaking initial public offering and the approval of the first new drug to treat lupus in more than 50 years lifted the healthcre sector.

The Dow industrial average sank 228.48 points, or 1.9% to 11984.61 on Thursday, its biggest one-day drop since August 2010 and the first time it’s traded below 12000 since retaking that milestone in late January.

Global markets have been rattled all week by a string of troubling events, the most recent being Japan’s massive 8.9 earthquake Friday, the biggest ever to hit the country and the 5th largest on record. The quake triggered a 33-foot high tsunami in its wake, killing hundreds of people and leaving utter devastation in its path, according to Reuters.

Earlier in the week, news of growing tension in Libya and Saudi Arabia exacerbated worries in the U.S. about higher oil prices, and a downgrade in Spain’s credit rating by Moody’s Investors Service renewed fears about Europe’s sovereign debt woes. A batch of disappointing U.S. data added to the uncertainty, raising questions about the country’s economic recovery and sending equity investors fleeing for so-called safe-haven investments.

Despite the U.S. market slump, certain healthcare stocks received a boost from encouraging news in the sector. HCA Holdings Inc. (NYSE: HCA), the largest publicly traded hospital chain in the U.S., rose 3.9% on its first day of trading after completing a $3.79 billion, private equity-backed initial public offering, the Wall Street Journal reported. Shares of HCA were trading at $31.20 Friday.

Investment analysts were encouraged by HCA’s record-setting IPO, in light of the fact that the Nashville-based chain was highly leveraged, with $28.3 billion of debt by end of 2010.

"If you can price a $3 billion deal for a hospital operator that has a few warts and do so successfully, there are a lot of deals that could be done right now," Bill Buhr, an IPO strategist at investment research firm Morningstar, told Reuters.

Meanwhile, news of an historic drug approval lifted stocks in the biotech sector. On Thursdsay, the U.S. Food and Drug Administration approved the first new drug to treat lupus in more than 50 years. The drug, Benlysta, was developed by Human Genome Sciences Inc. (NSDQ: HGSI) and GlaxoSmithKline PLC (NYSE: GSK) of the U.K. The approval sent shares of Human Genome soaring on speculation that GlaxoSmithKline or some other Big Pharma player will try to buy the Rockville, Md.-based company.

The FDA approval of Benlysta was historic in two ways, according to the Wall Street Journal: Benlysta is the first new drug for treating the autoimmune disease lupus in more than 50 years, and it’s the first approved drug derived from genomics, the study of genes and their functions.

Human Genome said it expects to market the drug for about $35,000 per patient, per year, and analysts expect sales to eventually top $1 billion a year. In trading Friday, shares of Human Genome were at $28.15; while GlaxoSmithKline shares closed at $38.46.

In other market-moving news:

Amgen Inc. (NSDAQ: AMGN) shares climbed following reports that the company was buying a manufacturing plant in Ireland from Pfizer Inc. (NYSE: PFE). Shares of Amgen, of Thousand Oaks, Calif., were at $53.62 Friday, while shares of New York-based Pfizer were at $19.35.

Johnson & Johnson (NYSE: JNJ) continued to struggle with a series of recalls and regulatory scrutiny of its manufacturing operations. On Thursday, it signed a consent decree with the FDA that puts its McNeil Consumer Healthcare unit under five years of tight scrutiny by regulators, though no fines or plant shut downs were imposed. J&J shares were at $59.32.