by Caroline Atkins

Created on: June 19, 2008

HEALTH CARE STOCKS include health care service providers, health care equipment manufacturers, pharmaceutical companies, and biotechnology companies. Health care is a huge industry. In the U.S., pharmaceutical companies alone spend $19 billion a year on marketing and advertising.

WHY HEALTH CARE STOCKS?

Usually, health care stocks fare a little better than the rest of the market, and are viewed as a safe sector. This is probably due to the fact that people will always get sick and need medical care. It doesn't matter how weak the economy is. Consumers place health care as a top priority, and will pay for it before just about anything else. 75 million baby boomers are now beginning to age and need health care.

POPULAR HEALTH CARE STOCKS

One of the top rated health care stocks is Applied Biosystems Inc (ABI). This Foster City, CA based company is focused on basic research, commercial research (pharmaceutical and biotechnology) and standardized testing, including forensic human identification, paternity testing and food testing. The company was founded by two engineers from Hewlett Packard.

King Pharmaceuticals (KG), a drug manufacturer based in Bristol Tennesse, which produces many drugs, including Altace for heart attack prevention, Levoxyl for hypothyroidism, Sonata, a sleeping aid, and Skelaxin, a muscle relaxant. King Pharmaceuticals employees 2,700 people and is the world's 39th largest pharmaceutical company.

ROLE OF THE FEDERAL DRUG ADMINISTRATION ("FDA")

In recent years, the FDA has been taking more time to approve new drugs, partly due the painkiller drug Vioxx (Rofecoxib) being pulled off the market on September 30, 2004 for increased risk of heart attack and stroke. Since then, the FDA has been exceedingly cautious. They have realized that drugs will be used by patients other than those intended.

ROLE OF PATENTS (INTELLECTUAL PROPERTY)

Patents play a large role in the volatility of stocks in the health care sector. Pharmaceutical patents in the United States last for 17 years. During this 17 year period, only the original developer can legally produce the drug covered by the patent. After a patent expires, other drug companies can produce "generic" versions of the drug, usually for much cheaper. The companies hurt by the generic drugs are the pharmaceutical companies which produce the drugs.

An expiring patent can have a huge effect on stock prices. For example, Merck's patent for Fosamax expired in early February of 2008. With the expiration, Merck was forced to say goodbye to $3 billion in annual sales. Merck expected sales would decline by at least half. Merck is still dealing with the Vioxx settlement, which will cost them more than $4.5 billion.

INVESTING IN HEALTH CARE STOCKS GOING FORWARD

The growing percentage of Americans over age 65, along with growing technological advances, are indicators of more spending on health care going forward. These rapid advances create huge investment opportunities. If you are going to invest in health care stocks, do your homework. You may be able to reap huge rewards, albeit with some risk.

Look for companies that fill a void in the industry, or provide low-cost drugs, devices or services. Because there are so many backups at the FDA right now, there may be some pharmaceutical companies about to make huge breakthroughs in the industry. Don't miss your opportunity to be a part of something huge!

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