Moderna, Illumina lead healthcare gains in September as medtech drags

Healthcare stocks underperformed the broader market in September, with the Health Care Select Sector SPDR Fund (XLV) falling 1.89% while the SPDR S&P 500 ETF Trust (SPY) gained 0.27%.

The sector's weakness was broad-based across medical devices, healthcare equipment, and selected healthcare services names. At the same time, biotechnology and life-science tools stocks posted some of the strongest gains, led by Moderna (MRNA), Illumina (ILMN) and Revvity (RVTY).

Healthcare Sector Scorecard

Sector Return: -1.89% in September

Best Performer: Moderna (MRNA) +37.22%

Top Detractor: CooperCompanies (COO) -19.35%

Top Theme: Biotechnology and life-science tools outperformed, while medical-device and healthcare-equipment stocks came under pressure.

Best performers in September

Moderna (MRNA) surged 37.2% in September as investors continued to digest positive Phase 3 results for its personalized mRNA cancer vaccine, developed with Merck (MRK).

Stephen Ayers, an analyst at Seeking Alpha, said, "Following the August 19 melanoma data, Moderna's (MRNA) stock continued to run. But investors are paying for a figure they haven't seen yet. I think the ESMO presentation needs to show a hazard ratio close to the Phase 2b result (0.51) to justify at least part of this rally."

Illumina (ILMN) gained 28.11% on strong results and an improved outlook, while Revvity (RVTY) advanced 18.82% after upbeat results. Agilent Technologies (A) rose 12.21% on a stronger outlook, while Thermo Fisher Scientific (TMO) added 9.39% on improving demand expectations.

"Illumina's (ILMN) rally may have been sparked by its S&P inclusion on September 21, which was announced earlier in the month. Inclusion forces passive buying from index funds. It also helps that Illumina's last six earnings reports featured beats on revenue and EPS." Ayers said.

On Revvity, he said, "Revvity (RVTY) is an interesting one. It looks like its move was about margin credibility and early Type 1 diabetes screening. Revvity supplies newborn screening labs worldwide. So, adding a new test for Type 1 diabetes lets those same labs screen children using a finger-prick blood spot before potentially life-threatening complications can arise."

Top 5 gainers:

• Moderna (MRNA): +37.22%
• Illumina (ILMN): +28.11%
• Revvity (RVTY): +18.82%
• Agilent Technologies (A): +12.21%
• Thermo Fisher Scientific (TMO): +9.39%

Detractors in September

CooperCompanies (COO) fell 19.35% after weaker-than-expected revenue and the decision to retain CooperSurgical following a strategic review.

Ayers said, "Meanwhile, The Cooper Companies (COO) ended its strategic review by keeping CooperSurgical. Investors may have been pricing in a deal."

Stryker (SYK) declined 14.95% on continued supply constraints, while Insulet (PODD) fell 12.24% after lowering its full-year revenue outlook. Zimmer Biomet (ZBH) dropped 11.21% and Abbott Laboratories (ABT) lost 10.45%, adding to broad weakness across medical-device stocks.

Regarding Insulet (PODD), Ayers said, "Regarding the laggards, early signs suggest that the Type 2 diabetes market may be less lucrative than Insulet (PODD) investors had hoped. Type 2 patients have more options (e.g., GLP-1s) than Type 1 patients. So, the need for insulin pumps is not as high, lowering retention and utilization."

On Stryker (SYK), the analyst said, "Stryker is still reeling from a March cyberattack that impacted manufacturing and shipping. If their products aren't available, hospitals must switch to a competitor. So, even a temporary setback could result in Stryker losing an account."

Top 5 losers:

• CooperCompanies (COO): -19.35%
• Stryker (SYK): -14.95%
• Insulet (PODD): -12.24%
• Zimmer Biomet (ZBH): -11.21%
• Abbott Laboratories (ABT): -10.45%

"Overall, September was largely a continuation of August in the healthcare sector. The exception was medtech. The cyber-related disruptions at Stryker and Boston Scientific (BSX) triggered a selloff across device names," Ayers added.