Mylan posted strong sales increases for its North American
generic drugs and its EpiPen product for severe allergic
reactions, while some analysts said Mylan’s struggling European
business showed signs of improving. Shares of the drugmaker,
which also backed its 2012 and 2013 profit forecasts, were up
4.6 percent in late morning trading.

U.S. sales of a generic version of a big-selling blood-clot
preventer helped drive Watson’s profit, while some analysts also
cited operating cost controls as a benefit. The drugmaker plans
to close its acquisition of Actavis in the fourth quarter, which
will greatly expand its international presence. Watson shares
were 1.7 percent higher.

Mylan and Watson are two of the world’s biggest generic
drugmakers, along with Teva Pharmaceutical Industries Ltd
and the Sandoz unit of Novartis AG.

Mylan’s quarterly net income was $138.6 million, or 33 cents
per share, compared with $146.4 million, or 33 cents per share,
a year ago.

Excluding items, earnings of 60 cents were 5 cents ahead of
the average estimate of analysts, according to Thomson Reuters
I/B/E/S.

Revenue at the Pittsburgh-based company rose 7.5 percent to
$1.69 billion.

Sales for Mylan’s generic drugs in North America rose 12.8
percent to $845.3 million, helped by sales of new products
including a generic version of Warner Chilcott’s Doryx
acne drug.

Mylan’s generic sales in the Europe, Middle East and Africa
region fell 13.7 percent to $326.6 million. Excluding currency
effects, the decline would have only been 3 percent.

JPMorgan analyst Chris Schott called the European results “a
marked improvement from the roughly 10 percent decline seen over
the past few quarters.”

European economic weakness is pressuring drug sales in the
region. Mylan cited pricing pressure in a number of European
markets, mainly France and Germany.

Mylan’s specialty sales jumped more than 50 percent to
$198.6 million, driven by EpiPen.

Mylan backed its 2012 earnings forecast of a range of $2.45
to $2.55 per share. Analysts are looking for $2.47.

It is targeting 2013 earnings of $2.75 per share.

New Jersey-based Watson posted a second-quarter loss of
$62.2 million, or 49 cents per share. That compared with net
income of $52.7 million, or 42 cents per share, a year ago.

Results in the recent quarter were weighed down by charges
from its pending acquisition of Swiss-based Actavis.

Excluding special items, earnings of $1.42 per share were 4
cents ahead of analysts’ average estimate.

Revenue jumped 25 percent to nearly $1.36 billion, about $10
million ahead of estimates.

Its generic drug revenue rose 26 percent to $995 million.

Watson forecast 2012 earnings in a range of $5.65 to $5.85
per share, up from its prior view of $5.55 to $5.80. Analysts
are looking for $5.76.

Compared to Mylan, Morningstar analyst Michael Waterhouse
said, “I think you have a lot more clarity on the earnings
potential for Watson going forward due to their fairly
attractive pipeline products.”

The findings published in the New England Journal of
Medicine could fuel a political furor over new plans for a
nationwide expansion of Medicaid that erupted after the U.S.
Supreme Court’s ruling to uphold President Barack Obama’s
healthcare law in late June.

In an unexpected move, the high court ruling also left it up
to states to decide whether to participate in the law’s broader
eligibility criteria for Medicaid that would extend insurance
coverage to as many as 16 million more Americans starting in
2014. At least five Republican governors who opposed the
healthcare law have vowed to opt out of the expansion, saying
the program will pose a huge financial burden.

The lead author of the study was Benjamin Sommers, an
assistant professor in health policy and economics at the
Harvard School of Public Health who is temporarily working as an
advisor to the U.S. Department of Health and Human Services.
According to a disclosure note in the study, the paper was
conceived and drafted while Sommers was employed at Harvard and
the findings do not reflect official U.S. government policy.

The study examined three states that substantially broadened
Medicaid eligibility for adults since 2000 — New York, Maine
and Arizona. They were compared to ne ighboring s tates that did
not implement expansions — Pennsylvania (for New York), New
Hampshire (for Maine) and Nevada and New Mexico (for Arizona).

Adults between the ages of 20 and 64 years old were studied
for five years before and after the expansion, using data from
the U.S. Centers for Disease Control and Prevention.

Medicaid expansions were associated with a reduction in
mortality from all causes, by 19.6 deaths per 100,000 adults,
for a 6.1 percent decrease compared to the states without
expansions.

The mortality declines were greatest among adults between
ages 35 and 64, minorities and residents of poor c ounties.

The expansions also led to decreased rates of uninsurance,
lower rates of delayed care because of costs, and an increase in
the rate of people reporting their health status as “excellent”
or “very good”.

“The takeaway is that state expansions of Medicaid coverage
to adults appear to be effective at improving both access to
care and health for low-income Americans,” Sommers said in an
interview.

The results corresponded to 2,840 deaths prevented per year
in the states with Medicaid expansions. That figure suggests
that 176 additional adults would need to be covered by Medicaid
in order to prevent one death per year, according to the study.

The second-largest health insurer by market value said its
medical cost trends would likely come in at the high end of its
forecast, while intense competition among health plans was
pressuring its enrollment.

“We are disappointed with the need to lower our guidance,
but believe it is the right action to take, given the
challenging market we see,” Chief Executive Officer Angela Braly
said in a statement.

Several analysts said it was particularly discouraging that
WellPoint was cutting its forecast only after backing it a
couple weeks ago, when it announced its $4.5 billion acquisition
of Medicaid specialist Amerigroup Inc.

Shares of rivals UnitedHealth Group Inc and Aetna
Inc were both off more than 2 percent after WellPoint’s
report.

WellPoint’s second-quarter net income fell to $643.6
million, or $1.94 per share, from $701.6 million, or $1.89 per
share, a year earlier, when the company had more outstanding
stock.

Excluding items, WellPoint reported earnings of $2.04 per
share, 4 cents below analysts’ average estimate, according to
Thomson Reuters I/B/E/S.

Revenue rose 2 percent to $15.17 billion, about $100 million
below analyst estimates.

WellPoint said it saw an increase in use of medical services
during the quarter, stemming from an increase in physician
office visits.

Americans’ low use of healthcare services has proved to be a
boon for health insurers over the past two years by reducing
their medical claim costs and increasing profits. But investors
have been bracing for utilization to start rising again.

“While other insurers have noted a rise in outpatient visits
this year, WellPoint’s lowered guidance suggests the problem is
more acute for it relative to guidance,” Wells Fargo analyst
Peter Costa said in a research note.

Larger rival UnitedHealth last week also highlighted tough
competition among health plans, as well as a challenging climate
for Medicare and Medicaid reimbursement. The executives’
comments sent UnitedHealth’s shares down, even though the
insurer reported a higher-than-expected profit and slightly
raised its forecast.

LOWER ENROLLMENT VIEW

WellPoint’s latest setbacks come after other recent
struggles for the company involving high costs for its Medicare
plans for seniors that led to weaker results.

WellPoint forecast 2012 earnings per share in a range of
$7.30 to $7.40. In June, it said it expected earnings of at
least $7.57 per share.

The company’s enrollment totaled 33.5 million at the end of
June, down about 1.9 percent from a year earlier. It projects
year-end enrollment of about 33.4 million, down about 200,000
members from its prior view.

Leerink Swann analyst Jason Gurda said the changes to
enrollment and cost trend estimates “appear fairly modest and
suggest to us that WellPoint’s full-year guidance may not have
been particularly conservative to begin with.”

The new profit forecast includes about 15 cents per share in
costs related to financing the Amerigroup deal, which is a major
bet on the expansion of private industry’s role in the Medicaid
U.S. government health plan for poor Americans.

It comes on the heels of the U.S. Supreme Court’s decision
to uphold President Barack Obama’s healthcare law, which is set
to expand Medicaid eligibility by about 16 million people
largely by raising income limits for the program.

WellPoint is the second health insurer to post results since
the court upheld the law in late June. Large health insurance
shares have fallen since the decision on the legislation, which
tightens regulations and adds new fees on the industry while
also potentially paving the way for millions of new customers by
expanding coverage to the uninsured.

WellPoint shares slumped 8 percent to $56.50 in premarket
trading. Through Tuesday, WellPoint shares had fallen about 7
percent this year, underperforming a 1 percent decline for the
Standard & Poor’s Managed Health Care index of large insurers
.

(Reuters) – Walgreen Co will soon be able to fill prescriptions for Express Scripts Holding Co patients after the two corporate giants settled their long-running dispute, removing a concern that has weighed on the drugstore chain’s shares for a year.

Walgreen, the largest U.S. drugstore chain, will be part of the broadest network of drugstores available to clients of pharmacy benefit manager Express Scripts, as of September 15, the companies said on Thursday.

Walgreen’s sales have suffered since it stopped filling prescriptions for consumers with Express Scripts coverage at the end of 2011 due to a contract dispute between the companies. Express Scripts has gained even more scale due to its recent acquisition of rival Medco.

While the new multi-year agreement brings Walgreen and Express Scripts back together, it is not clear how many of Express Scripts’ clients will sign up for the broad network that will include Walgreen. Also, it is unclear what Walgreen will do to entice patients who have filled prescriptions elsewhere since the beginning of 2012 to return to its 7,907 U.S. stores.

Shares of Walgreen jumped 10 percent following the announcement, while Express Scripts shares rose 2.2 percent. Shares of Walgreen are still about 23 percent below their price on June 20, 2011, the day before it said it planned to leave Express Scripts’ network after unsuccessful contract talks.

“I think Walgreens completely had miscalculated how this was going to impact their business and they just were getting no traction in keeping scripts in house,” said David Heupel, healthcare analyst with Thrivent Investment Management.

Walgreen estimated that leaving Express Scripts’ network would wipe about $5.3 billion in annual sales from its books. Since January, its sales at existing stores have fallen every month. Quarterly profits have also suffered due to the impasse.

There was also the possibility that talks about Walgreen’s contract with Medco, which is now owned by Express Scripts, would have added more pressure on Walgreen, analysts said.

“The deal also alleviates renewal fears concerning WAG’s upcoming contract with Medco … that expires Dec 31,” S&P Capital IQ analyst Herman Saftlas said.

Pharmacy benefits managers, or PBMs, such as Express Scripts administer drug benefits for employers and health plans and run large mail order pharmacies.

When Walgreens stores stopped filling prescriptions for Express Scripts patients, rival drugstores such as CVS gained some of that business.

The rift had less of an impact on Express Scripts. In its first-quarter earnings report in May, Express Scripts said it retained 97 percent of its clients despite losing Walgreen from the network.

NEXT STEPS

Now it is up to Express Scripts clients, such as employers, to decide whether to include Walgreen in their networks going forward. Express Scripts does not disclose how many of its clients are in each type of network it offers.

“We believe a number of plan sponsors have already signed narrow network agreements that exclude Walgreens, which will remain in place,” JP Morgan analyst Lisa Gill said in a research note.

The broadest retail network is believed to represent close to 90 percent of Express Scripts’ total customer base, according to Barclays Capital analyst Lawrence Marsh.

The broadest Express Scripts network will now offer more than 64,000 pharmacies nationwide, including Walgreens, the companies said.

Shares of CVS Caremark Corp, a rival drugstore chain and pharmacy benefit manager, fell 5.4 percent. CVS said it expects to keep at least half of the business it gained during the nine month dispute between its rivals.

While CVS shares “will naturally experience some profit-taking on the news,” its outlook remains sound, said Lazard Capital Markets analyst Tom Gallucci, who has “buy” ratings on CVS and Express Scripts.

Meanwhile, shares of Rite Aid Corp, the No. 3 U.S. drugstore behind Walgreen and CVS, dropped 7.8 percent.

In May, CVS raised its full-year profit forecast due in part to its success in winning over former patrons of Walgreen and its chief executive said that the boost from his rivals’ fallout could be long lasting.

“The longer the impasse lasts, the stickier that customer is going to be,” CVS CEO Larry Merlo said in May. “They’re going to have an opportunity to visit a CVS multiple times and begin to establish a relationship with the CVS pharmacists.”

CVS expects to retain at least 50 percent of the business it gains during the impasse and said it should add about 5 cents per share to its profit in the second half of 2012.

During the dispute with Express Scripts, Walgreen looked for other growth opportunities. It is expanding outside the United States into Europe, taking a stake in health and beauty group Alliance Boots Holding Ltd. Walgreen is also set to pay $438 million to buy small U.S. chains such as USA Drug.

(Reporting by Lewis Krauskopf in New York and Jessica Wohl in Chicago; Editing by Gerald E. McCormick, Bernadette Baum, Sofina Mirza-Reid, Andrew Hay, Gary Hill)

The biggest U.S. health insurer by market value also
slightly raised its forecast for full-year earnings, and was the
first insurer to report results since the Supreme Court upheld
President Barack Obama’s healthcare law late last month.

UnitedHealth’s shares rose 2 percent to $57.49 in premarket
trading.

Shares of large health insurers have underperformed the
broader market since the landmark ruling on the law, which more
tightly regulates the industry and adds new fees.

Investors have also been wary about the industry after a
spotty first quarter earnings season, in which several top
companies – though not UnitedHealth – reported profits short of
analyst estimates.

The second-quarter report from UnitedHealth, considered a
bellwether because of its size and diversity of plans, “should
calm investor fear given the tumultuous (first quarter) peppered
by misses by most of UNH peers,” Sanford Bernstein analyst Ana
Gupte said in a research note.

UnitedHealth’s second-quarter net income rose to $1.34
billion, or $1.27 per share, from $1.27 billion, or $1.16 per
share, a year earlier. Analysts, on average, expected it to
earn $1.19 per share, according to Thomson Reuters I/B/E/S.

Revenue grew 8 percent to $27.3 billion.

Enrollment in UnitedHealth’s plans stood at nearly 35.9
million at the end of June, up about 5 percent. Enrollment
increased in its Medicare plans for older people, Medicaid plans
for low-income Americans and fee-based plans for employers for
which it administers services.

UnitedHealth shares have outperformed those of rivals
WellPoint Inc and Aetna Inc this year and trade
at a more than 35-percent premium to them based on
price-to-earnings ratios.

Investors have been encouraged by UnitedHealth’s broad range
of health plans, including its big business in Medicaid and
Medicare, and a diverse profit stream from other healthcare
service offerings such as pharmacy benefits and data and
analytics products.

In the quarter, the company spent 81.3 percent of its
premiums on medical claims, compared with 81.4 percent a year
ago. That was a touch lower than the 81.8 percent expected by
Wells Fargo analyst Peter Costa.

Americans’ low use of healthcare services has proved to be a
boon for health insurers over the past two years, by reducing
their medical claim costs and increasing profits. But investors
have been bracing for such utilization of healthcare services to
start rising again.

UnitedHealth forecast full-year earnings of $4.90 to $5.00
per share, higher than its previously forecast $4.80 to $4.95 a
share. It was the second time the company has boosted its 2012
forecast. Analysts expect it to earn $4.99 a share.

The company expects revenue of $110 billion for 2012.

The $50-a-share deal represents a nearly 37 percent premium
over Par’s closing price on Friday.

Under terms of the deal, Par may seek superior bids from
third parties through Aug. 24, and Par said its board would
actively solicit proposals. If no better arrangement is found,
the TPG deal is expected to close this year.

Par’s top shareholder, Ralph Whitworth’s Relational
Investors, urged the company in May to consider a sale.

Par shares rose to $50.40 after the deal was announced, just
above the offer price.

“Even at $50 I still think there’s still some value left at
the company that is not being realized,” Gabelli & Co analyst
Kevin Kedra said, adding that he believed Par could be worth as
much as $67 a share in a takeover.

Par ranked as the sixth-largest generic drugmaker by 2011
sales, according to pharmaceutical information company IMS
Health. It has been seen as a takeover candidate for companies
wanting to expand their presence in the U.S. generics market.

“A lot of the names would probably be companies outside the
U.S. looking to get into the U.S.,” Kedra said.

Teva Pharmaceutical Industries Ltd , Mylan
Inc, Watson Pharmaceuticals Inc and the Sandoz
division of Novartis are the biggest players in the
U.S. generics market.

Kedra was skeptical that any of the bigger companies would
be interested in Par, with the possible exception of Sandoz.

“They’re not looking in the U.S.,” he said. “They’re all
pretty strong there. Par wouldn’t do too much for them.”

For its size, Kedra said, Par has a strong portfolio of
patent challenges, which potentially allow it six months as the
exclusive seller of generics. Such exclusivity periods can be
valuable profit generators for generic drug companies.

Par, which posted 2011 revenue of $926 million, also sells
niche brand medicines through its Strativa division.

Relational Investors, which has a nearly 10 percent stake in
Par, said in May the company’s shares were trading – and would
continue to trade – at a substantial discount to the value
available in a strategic sale to a larger company with similar
products. Substantial cost savings could be achieved in such a
deal, it said.

The acquisition of Par comes after larger U.S. rival Watson
agreed in April to buy Actavis Group for at least $5.6 billion
to cement its status as one of the world’s largest generic drug
companies.

JPMorgan served as financial adviser to Par, while Orrick,
Herrington & Sutcliffe was legal adviser. TPG’s financial
advisers were Bank of America Merrill Lynch, Deutsche Bank
Securities and Goldman Sachs, while Ropes & Gray served as legal
adviser.

(Reuters) – Bristol-Myers Squibb Co stands to become a stronger player in diabetes through its expensive acquisition of Amylin Pharmaceuticals Inc but its earnings and pricy shares remain vulnerable to the loss of its two biggest drugs.

Bristol announced a $5.3 billion deal for Amylin late on Friday, teaming up with AstraZeneca Plc to make the purchase through an unusually structured deal. The companies are paying a 101 percent premium to Amylin’s share price in late March, before the initial reports that Bristol was bidding for the company.

“It is higher than what we believe Amylin is worth on a standalone basis,” Morningstar analyst Damien Conover said. “However, when you layer in these products to these Big Pharma firms it really offers a lot of opportunity for cost savings.”

Bristol lost U.S. patent protection in May on Plavix, its $7 billion-a-year blood-clot preventer, paving the way for cheap generics to erode sales. The company will suffer another blow in 2015, when it cedes rights to its $2.5 billion-a-year Abilify anti-psychotic.

“They lose their two biggest products over the next four years,” MKM Partners analyst Jon LeCroy said. “They need as many new things as possible to fill that in.”

Even with Amylin’s sales, LeCroy estimates Bristol’s revenue will fall by at least $1 billion next year, due largely to the Plavix loss.

Bristol shares were off 0.2 percent to $35.87 on Monday, the first trading day since announcing the $31-a-share deal for Amylin. Amylin rose 8.9 percent to $30.70.

Amylin sells two main diabetes treatments, Byetta and a new, longer-acting version called Bydureon that is expected to be the bigger seller going forward.

Bristol historically has been a significant player in diabetes — it sold the older, widely used medicine Glucophage, also known as metformin — and has two other medicines in different categories than Byetta and Bydureon, making them potentially complementary. But Bristol’s more recent diabetes products have struggled.

The company, along with Astra, sells a pill called Onglyza that has failed to register substantial sales due to competition from a rival product from Merck & Co. A second medicine developed with Astra, dapagliflozin, has faced regulatory delays in the United States.

JP Morgan analyst Chris Schott said Byetta and Bydureon need to reach $1.5 billion to $2 billion in peak sales to justify the transaction, though he notes that target is “not out of the question.”

Amylin posted $517.7 million in Byetta sales last year, and $6.9 million in first-quarter sales for Bydureon, which was just approved in January.

On a conference call with analysts on Monday, Bristol executives said that while Amylin’s sales force had targeted endocrinologists, the combined sales forces of the three companies would be able to widen their presence to cover primary care physicians.

Bristol also touted Bydureon’s place as a therapy that only needs to be taken once a week.

MKM analyst LeCroy said the transaction was one of the most expensive mid-cap biotech deals on record — about 10.4 times estimated sales.

“For a company with almost no pipeline, we feel this was extremely expensive,” LeCroy said. “Other companies have been sold in the 4-to-6 times range.”

Atlantic Equities analyst Richard Purkiss said the Amylin acquisition fits into Bristol’s message to Wall Street that next year will be a low point for the company’s profits

“At least in part, what they’re trying to achieve is smooth out the mid-decade earnings difficulty,” Purkiss said. “This goes some of the way.”

At 19.8 times next year’s expected earnings, Bristol’s shares trade at a 60 percent premium to its U.S. pharmaceutical peers, according to LeCroy.

The stock is benefiting from the promise of new drugs such as its Yervoy melanoma treatment, and experimental medicines such as its Eliquis blood-clot preventer, which suffered a surprising U.S. delay last week.

“When a company gets this expensive relative to its peers, longer term it sets them up for disappointment,” said LeCroy, who rates the shares a “sell.” “The company has to do everything perfectly, or at least close to it.” (Editing by Phil Berlowitz)

(Reuters) – Carl Icahn’s lead nominee for Forest Laboratories Inc’s board has an incentive to help the billionaire investor make a profit of more than $340 million, or 37 percent, according to recent regulatory and court filings, as the activist investor steps up his proxy fight against the U.S. drugmaker.

Icahn owns 26.4 million shares, or 9.92 percent of Forest, making him the second-largest investor in the company. Icahn sued Forest in Delaware’s Court of Chancery on Thursday, demanding more information about its succession planning.

The court filing revealed that the Forest stake cost him around $912 million, implying an average price of about $34.55 per share.

The investor has given Eric Ende, his nominee to lead the proxy battle against Forest, an incentive to achieve at least $47.50 per share, a May 30 regulatory filing shows. Ende, president of Ende BioMedical Consulting Group, stands to get 1 percent of Icahn’s profits above $47.50 per share.

That means if Icahn sells his Forest stock at $50 apiece, for example, Ende would get about $659,000, the filings show. Ende separately also gets a fee of $65,000 per month during the proxy contest.

Forest shares were up 2.3 percent at $34.89 during afternoon trading on Friday on the New York Stock Exchange.

Ende is a former Merrill Lynch biotechnology analyst who also served on Genzyme Corp’s board before it was bought by France’s Sanofi last year. He referred all questions about the agreement to Icahn’s office. Icahn was not immediately available for comment.

Icahn has intensified pressure on Forest in recent weeks, restarting a fight that he lost last year. The investor is seeking to place four members on the company’s board.

The other three nominees are Pierre Legault, who until recently was CEO of biotechnology firm Prosidion Ltd, a unit of Astellas Pharma; Daniel Ninivaggi, president of Icahn Enterprises; and Andrew Fromkin, former CEO of Clinical Data Inc, a company Forest bought last year.

Icahn has not yet said what he wants to do with the company, but in the past he has typically pushed his targets to sell. Forest’s annual meeting is set for August 15.

ICAHN LAWSUIT

For now, Icahn is taking aim at Forest mostly over corporate governance issues. In the lawsuit and in a letter to the company, he said the company’s longtime chief, Howard Solomon, may hand over the reins to his son, David Solomon, who is senior vice president for corporate development and strategic planning.

“Howard Solomon and this board, who collectively own less than 2 percent of this great company, must be made to realize that Forest Labs is not a dynasty to be despotically handed down from father to son,” Icahn said in the letter, which was filed with the U.S. Securities and Exchange Commission on Friday.

Forest dismissed Icahn’s criticism and said it was “engaged in ongoing succession planning.” The company’s independent directors have retained an executive search firm to help evaluate candidates inside and outside the company.

Regarding the 84-year-old Howard Solomon, who has led the company for about 35 years, Forest said: “It would be both inappropriate and unusual to announce his successor at this time.”

Icahn filed the lawsuit seeking internal records “to determine whether they should bring suit against Mr. Solomon, the Forest directors and perhaps others” for breaching their fiduciary duties to shareholders.

Icahn also seeks information relating to “a peculiar stock repurchase program” in 2011 that the lawsuit said might have been arranged to “ward off a proxy contest by the Icahn Parties.”

The complaint also demanded records regarding a recent Forest announcement slashing its earnings guidance.

Icahn brought a similar lawsuit seeking internal Forest documents a year ago. The parties reached a confidential settlement.

The case is High River Limited Partnership et al v Forest Laboratories Inc, Delaware Court of Chancery, No. 7663.

(Reporting by Lewis Krauskopf and Paritosh Bansal in New York and Tom Hals in Wilmington, Del.; Editing by Matthew Lewis and John Wallace)

The ruling paves the way for hospitals to see a massive influx of insured customers from the law which is expected to broaden coverage to more than 30 million uninsured Americans.

And although the judges allowed states to opt out of an expansion of Medicaid benefits for the poor, investors and some industry experts saw the impact as minor.

Large insurers also are expected to see increased enrollment as Americans are now required to obtain health coverage. But the 2010 law heaps more stringent regulations and fees onto the industry, and the decision dashed hopes among some investors that the court might strike down the legislation.

The reaction on Wall Street was immediate as the court’s decision was reported early on Thursday. Hospital operators HCA Holdings Inc shares closed nearly 11 percent higher and Community Health Systems Inc gained 8 percent.

Medicaid specialist Amerigroup Corp gained 4.9 percent and rival Molina Healthcare Inc ended up 8.6 percent. But shares of two of the biggest insurance companies, WellPoint and Aetna Inc, fell 5.2 percent and 2.7 percent respectively.

“There was a little bit of momentum in the (insurer) group thinking that they might get the whole thing thrown out,” said David Heupel, a healthcare analyst with Thrivent Investment Management. “You didn’t get the worst case, but you certainly didn’t get the best case today.”

A Jefferies & Co survey released last week of more than 100 investors found that 77 percent expected the law to be altered in a “material way,” such as striking down the mandate requiring all Americans to have insurance or overturning the whole law.

Widening the pool of paying patients stands to benefit hospital companies, which are often left to cover the high medical bills of the sick who have no coverage.

“It’s good for us,” said Alan Miller, chief executive of Universal Health Services Inc, which runs acute and mental health hospitals. “You’ve got a lot of people now who are going to be covered and they’re going to pay their bills, or the federal government or the state or somebody is going to pay their bills.”

Medicaid insurers saw their stocks rise despite the court allowing states to opt out of expansion of that program.

“It didn’t hurt Medicaid HMOs because people aren’t worried about a bunch of states refusing Medicaid money,” said Robert Laszewski, who consults for health insurers as president of Health Policy and Strategy Associates. “Maybe one state turns it down.”

AVOIDING THE WORST CASE

Large health insurers avoided the worst case scenario from a possible decision of striking down just the individual mandate. Such a ruling would have forced insurers to cover high-cost patients without having healthy enrollees to balance the insurance pool, potentially driving up costs.

Under the law, insurers face government review of premium rate increases, new requirements for spending on medical care and fees on the sector starting in 2014. But the companies also should see their insurance rolls grow.

“It is actually very mixed,” Mike McCallister, chief executive of insurer Humana, said of the law. “It is good to have more customers and this will generate more customers. Some of the regulatory changes, even if they are good policy … (will face) challenges for implementation.”

WellPoint shares fell the most of the large insurers. Morningstar analyst Matthew Coffina said the company had the most exposure to plans for individuals and small business that are most affected by the law.

By contrast, shares of UnitedHealth Group Inc, the largest health insurer by market value, which also has a big Medicaid business, managed a 0.5 percent gain by the end of trading on Thursday.

CRT Capital analyst Sheryl Skolnick called the sell-off in health insurers unwarranted.

“The way I look at it, the health plans just got handed 30 million lives on a silver platter,” Skolnick said.

Shares of home healthcare companies fell after the ruling, with Amedisys Inc ending the day down 9.1 percent.

Skolnick called it a “dreadful decision” for home health companies. The law, she said, “imposes significant reimbursement cuts on that industry over a period of 10 years, more significant than any other sector.”

Shares of medical device companies, which face taxes on their products under the new law, also declined modestly, with Boston Scientific Corp closing down 1.6 percent.

Healthcare investors had been eagerly anticipating the ruling on the law, which heaps new regulations – some small, some sweeping – on virtually every industry.

While some investors devised complex options strategies to play the decision, the more risk-averse were wary of buying ahead of the event, and instead waited for more certainty on the regulatory landscape before choosing where to invest.

“This gives us clarity, which is what markets needed,” said Todd Schoenberger, managing principal at the Blackbay Group.

Shares of five different healthcare companies were temporarily halted, some more than once, after the ruling was announced, due to sharp moves. Those stocks were: Tenet Healthcare, WellPoint, Community Health, HCA and Health Management Associates Inc.

(Additional reporting by Bill Berkrot, Ryan Vlastelica and Chuck Mikolajczak in New York and Debra Sherman in Chicago; Editing by Michele Gershberg, Jeffrey Benkoe, Matthew Lewis and Tim Dobbyn)

In a 5-4 decision, the court backed the component of the law that requires that most Americans buy insurance by 2014 or pay a financial penalty. The 2010 law aims to broaden coverage to more than 30 million uninsured Americans, through state-based insurance exchanges where people can shop for coverage and through an expansion of the Medicaid program for low-income Americans.

Widening the pool of paying patients stands to benefit hospital companies, which are often left to cover the high medical bills of the sick who have no coverage.

“For hospitals, this is a huge win,” said Michael Wiederhorn, an analyst with Oppenheimer & Co. “In the short and the long term, it will reduce bad debt.”

Shares of HCA Holdings Inc and Community Health Systems Inc, the two largest hospital companies, each rose sharply. HCA was up 8.8 percent at $28.95 and Community Health Systems was up 9.3 percent $27.87 around midday.

“It’s good for us,” said Alan Miller, chief executive of Universal Health Services Inc, which runs acute and mental health hospitals. “You’ve got a lot of people now who are going to be covered and they’re going to pay their bills, or the federal government or the state or somebody is going to pay their bills.”

Shares of large, diversified health insurers such as Aetna Inc and WellPoint Inc were off about 4 percent and 6 percent, respectively. Investors might have viewed overturning the law as a better outcome for the companies, Goldman Sachs analysts said, leading to the selling pressure.

Under the law, insurers face government review of premium rate increases, new requirements for spending on medical care and fees on the sector starting in 2014. But the companies also stand to see increased volume of customers as more Americans become insured.

“We think this is the best outcome for health insurers, not that you’d know that from the stock reaction,” said Morningstar analyst Matthew Coffina. “There’s a perception in the marketplace that (the law) is bad for insurers. We don’t think that’s the case.”

STATES GIVEN REINS ON MEDICAID EXPANSION

Shares of insurers that specialize in Medicaid plans jumped, with Amerigroup Corp climbing 5.2 percent to $65.63, and Molina Healthcare Inc up 3.5 percent at $22.06.

The court did strike down the provision of the law that requires the states to dramatically expand the Medicaid health insurance program for the poor.

Goldman Sachs called the ruling “net positive” for the Medicaid stocks because the coverage expansion survives, “even though the Court apparently has given states the ability to ‘opt out’ of the expansion.”

“It didn’t hurt Medicaid HMOs because people aren’t worried about a bunch of states refusing Medicaid money,” said Robert Laszewski, who consults for health insurers as president of Health Policy and Strategy Associates. “Maybe one state turns it down.”

Healthcare investors had been eagerly anticipating the ruling on the law, which heaps new regulations – some small, some sweeping – on virtually every industry.

While some investors devised complex options strategies to play the decision, the more risk-averse were wary of buying ahead of the event, and instead waited for more certainty on the regulatory landscape before choosing where to invest.

“This gives us clarity, which is what markets needed,” said Todd Schoenberger, managing principal at the Blackbay Group.

Shares of five different healthcare companies were temporarily halted, some more than once, after the ruling was announced, due to sharp moves. Those stocks were: Tenet Healthcare, WellPoint, Community Health, HCA and Health Management Associates Inc.

Before the court heard oral arguments about the law in late March, investors were generally assuming the legislation would be upheld. But the tone of questioning from the high court’s justices led investors and analysts to project it was more likely the Supreme Court would overturn the individual mandate.

A Jefferies & Co survey released last week of more than 100 investors found that 77 percent expected the law to be altered in a “material way,” such as striking down the mandate or overturning the whole law.

(Additional reporting by Bill Berkrot, Ryan Vlastelica and Chuck Mikolajczak in New York and Debra Sherman in Chicago; editing by Michele Gershberg, Jeffrey Benkoe and Matthew Lewis)