US Healthcare Year Ahead...Buy ACAD, AGN, ANTM, CELG, CVS, DHR, EW, EVHC, RARE, REGN, WBA

The US team is out with their 2017 Year Ahead this morning (link) running through ALL sub-sectors with each analysts top pick into the new year. op Picks — ACAD, AGN, ANTM, CELG, CVS, DHR, EW, EVHC, RARE, REGN, WBA Washington DC Backdrop Given the clean sweep by the GOP & uncertainty around the ACA, key attention is paid by Andy Bressler to a review of the various scenarios that could play out early next year. With a repeal likely to happen well before a replace (essentially via the Budget Reconciliation process in Jan/Feb), Andy notes this is likely to include a repeal of both health insurance exchange subsidies & a phase-down of Medicaid expansion funding (albeit with a two or three year transition period). He also expects a repeal of many of the larger HC related taxes in the ACA, including the HIX ($14.3bn in 2018), Medtech Tax (2.3%), pharma industry tax ($4.1bn in 2018) & Cadillac tax (effective 2020). As for the views by analysts... Biotech (+) — believe sector will outperform largely as pricing risk has diminished (although will remain in pockets) but pipelines/growth remains. Ying's top picks are CELG & REGN; Tazeen's top picks are kCAD & RARE. Spec Pharma (-) — headwinds remain w/ Sumant's top pick AGN given lower risk to reimbursement pressures & an underappreciated pipeline. Leverage & CF remain the key focus for investors. Tools/Animal Health (=) — Derik notes more "headline" than "real" risks from policy which will create opportunities for a group growing MSD, although valuations remain above peers. (US 1 name) top pick, also A, ZTS in Animal Health, in Diagnostics & in Services. Medtech (=) — Hopkins' expects a mixed bag in 2017 w/ stocks trading close to 5yr valuation lows; EW top pick given best growth / purest innovation story. Facilities (-) — Fischbeck notes that uncertainty will remain an overhang for hospitals as repeal/replace a negative for the group (est losing 2-3mm Medicaid lives & 2-3mm exchange lives would be a 1-2% EBITDA hit on avg). Focus on company-specific stories like MCOs (+) — Fischbeck generally +ve under Trump (especially around MA given historical support from GOP) w/ tailwinds from corporate tax & rising rates. top pick in given valuation & tailwinds. Distribution/Tech (=) — Valiquette prefers pharmacies ,,,'VS/WBA given benefits from decelerating generic prices (which will remain an overhang for Distributors). HHS appointment a —ve for HCIT.

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