In theory investor demand for any given stock should be driven largely by consumer demand for whatever product or service the company provides and the resulting earnings.  In practice what drives the price is not consumer demand for the product but rather investor demand for the stock itself based on “market sentiment” about the present or future status of the stock’s earnings. 
This explains the phenomenon some newcomers to share market investing find puzzling.  How is it that the stock of a newly listed company without any revenue or profit can catch fire?  The answer is perception of future value trumps reality of present value, or lack of it.  
Company news announced to the world more often than not acts as a catalyst, propelling stock price in either direction, depending on market perception of the news.  News that upon further due diligence appears to have little if anything of substance to alter company earnings over the long haul can present a buying opportunity.  In addition it can provide a shorting opportunity for investors bold and bright enough to employ that strategy. Shorting is essentially a bet the price of a stock will decline.
In the last month several healthcare stocks have been in the news with price movements accompanying the announcements.  One example is especially worthy of note.
On 22 December of last year a Wall Street Journal (WSJ) report raised the spectre of conflicts of interest issues regarding the nominee for the cabinet post of the US Department of Health and Human Services (HHS), orthopedic surgeon and member of the US House of Representatives Tom Price. 
It seems Representative Price, or his agents, have been trading in healthcare stocks that could be affected by healthcare legislation in which he was involved in the US Congress.  Among his holdings is ASX listed Innate Immunotherapeutics’ (IIL).  Apparently Mr. Price bought between $US60,000 and $US110, 000 in shares of Innate spanning four trades in 2015 and 2016. According to the WSJ the share price of IIL has more than doubled since his last purchase in August of 2016.  Here is the price movement chart.

The share price got another boost following a 13 January article in the New York Times. The times pointed to the fact Innate has yet to have any approved drugs and appears to have no interest from any high profile venture capital firm.  The article highlighted the company’s multiple flirtations with diminishing capital and the prospect of “closing its doors.”  Another influential member of the US House of Representatives is Innate’s largest shareholder and sits on the company’s board, according to the NYT.
On 16 January The Australian jumped into the conversation with its own article centering on the reaction of Innate’s CEO and Chairman of the Board, both of whom stated “they had never heard of many of the prominent US investors who have bought stock in the company.”  The article goes on to note Innate has one drug under development, a treatment for patients with an advanced form of multiple sclerosis. The drug is undergoing clinical trials in both Australia and New Zealand with results expected to be released in the middle of this year.  According to The Australian Innate offered shares to “sophisticated US investors” at a discount and the price of the stock has quintupled since the offering.  The stock trades in the US OTC market with a symbol of INNMF.
Innate apparently is hoping to attract a big pharma suitor and the market sentiment certainly seems to indicate the company’s well connected shareholders can help.
The positive sentiment driving the price seems to be based on the belief that the impressive list of US shareholders means there is something to the company, which as yet has nothing more than promise, although earlier Phase 1 and preliminary Phase 2 trials were successful enough to take the next step.  Given the paucity of the company’s pipeline, the risk of poor results from the upcoming trials would seem to make IIL a highly speculative investment, despite its influential backers.
There are other healthcare stocks making news of late that are worth mentioning, although none of them can match the price movement of IIL.  The following table lists the stocks of interest.

Two of the stocks in the table – Primary Healthcare Limited (PRY) and Sirtex Medical Limited (SRX) – both lost the company CEO under the cloud of investigation.  However, there are significant differences between the two investigations.
The CEO of Primary was under investigation for actions taken while working for Leighton Holdings, now CIMIC Group Limited (CIM).  The Sirtex CEO was dismissed for trading activities from October of 2016 that purportedly drove down the company share price.  The CEO dumped $2 million in shares not quite one and a half months before Sirtex issued a profit downgrade that saw the share price drop from $28 to $14.  Here is a two year price movement chart.

Note that Sirtex shareholders have been through dramatic drops before, with the stock shedding around $1 billion in market value back in March of 2015.  Sirtex markets a successful treatment for liver cancer, but it is considered a “salvage” treatment as it is used as a last resort in the event traditional chemotherapy does not work.  The company had a study underway with the hope of showing its treatment could be used effectively in earlier stages.  The results disappointed investors eager to see an expansion of the company’s target market.  Sirtex is still at it, with two additional studies underway, FoxFire Global and SARAH that could get the stock price moving forward again.  
Navigating news like the removal of a CEO requires understanding the potential impact on the company’s earnings.  In the case of Sirtex, it appears non-existent at best and minimal at worst.
Regulatory concerns saw Primary Healthcare assume a place on the ASX Top Ten Short list for much of 2015 but the stock price has recovered admirably over the last year. Here is a five year price movement chart for PRY.

The share price began its recovery in February of 2016 following the release of Half Year Results that were moderately positive despite changes in government funding schemes for the company’s medical, pathology, and diagnostic imaging centres.  
Revenues were up a modest 4.6% and in Net Profit after Tax (NPAT) rose 28.5% increase due to the sale of assets.  Net profit excluding one-offs fell 9%.  Full Year Results reported in August were similar, with rising revenues and a small drop in profit.  However, the company has reduced its debt and was the subject of takeover rumours during 2016, which seemed to have contributed to the share price increase.
The resignation of the PRY CEO for actions taken while not with the company should not affect the fundamentals of the business although market sentiment did push down the stock price about 3%, from $3.97 to $3.80.
On 11 January the new US President, Donald Trump, held a press conference during which he added the US pharmaceutical industry to the sectors drawing his ire when he claimed the big pharma’s were “getting away with murder” and went on to promise “billions of dollars” in savings due to new procedures for negotiating drug prices.
Trump made soaring prices of prescription drugs in the US an issue during the campaign so the statement did not come as a surprise. The immediate impact in the US was a 2% decline in the sector and the following day some ASX stocks followed suit, among them Mayne Pharma Group (MYX).  
Mayne has traded on the ASX since 2007 and shareholders have been rewarded with an average annual rate of total shareholder return of 39.3% over five years and 21.7% over three years.  The company has manufacturing facilities in Australia and in the US, making both branded prescription and over the counter drugs as well as a growing number of generics following its acquisition of generic drug portfolios in the US from Teva Pharmaceuticals and Allergan.  The deal vaulted Mayne into the top 25 of US generic drug manufacturers and directly into the crosshairs of the US Department of Justice.
President Trump is not the only powerful figure in the US casting a wary eye on drug prices, even the lower priced generics. The antitrust division of the US DOJ has been investigating allegations of price-fixing in the generic drug sector and Mayne Pharma was one of many companies receiving a subpoena in November of 2016.  By mid-December Bloomberg was reporting two executives from small generic manufacturers had pleaded guilty, fueling the fires of the investigation.  On 16 December, 20 states in the US filed a lawsuit alleging a conspiracy to fix prices on two drugs against six generic manufacturers, among them Mayne Pharmaceutical.
The share price dropped about 16% in response.  The following price movement chart tracks the rise in price following the expansion of the company’s US generic market followed by the decline as more bad news surfaced regarding the DOJ investigation and the lawsuit.

The entire US Healthcare Sector is under the microscope.  The Pharmaceutical industry has a powerful lobbying presence with the US Congress so Trump’s threats may be difficult to translate into action.  Generic drugs are far less costly in the US than their prescription counterparts and the growing fury over drug prices may lead to streamlining the generic approval process, which would be good for Mayne.  But the massive uncertainty in the US Healthcare Sector suggests adopting a “wait and see” attitude towards MYX for risk-averse investors.  However, the company has stated that its balance sheet is strong enough to withstand any financial penalties that might be assessed, making the current price attractive for risk tolerant investors focusing on the company’s substantial long term growth potential.

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