Pair Trade: Pharma Long vs. HMO Short

Healthcare


Pair Trade: Specialty Pharma/ Biotech vs. HMOs
Long: 
Mallinckrodt plc (MNK), Salix Pharmaceuticals Ltd. (SLXP), Mylan Inc (MYL), Endo International plc (ENDP)
Short: Humana Inc. (HUM), WellPoint Inc. (WLP), UnitedHealth Group Incorporated (UNH)

Highlights

Shares of biotech and specialty pharmaceuticals companies have been among the best performers in the market over the recent past, largely driven by global M&A creating substantial tax savings, and pricing. The presenter thinks the recent pull-back offers investors an opportunity to step in and buy some of the better names in the group. However, there are a plethora of risks in this niche segment of the healthcare industry, including frothy IPOs, insider selling, the FDA, and international tax laws, among others. That being said, he thinks it is only the 5th inning of the tax inversion game for biotech and specialty pharma companies, and investors can utilize a short position in certain health management organizations (HMOs) to help offset downside risk. This trade can be put on immediately and held through earnings, and there is the potential to win on both sides of the bet, he added.

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Idea Discussion

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