The Trend

What Just Happened to Biotech?

“Price gouging like this in the specialty drug market is outrageous. Tomorrow I’ll lay out a plan to take it on…”

That’s what Hillary Clinton tweeted in September 2015.

The impact of such news on biotech was devastating.

The iShares NASDAQ Biotech ETF (IBB) slipped from a high of $300 to less than $270 within months.  The fear was palpable. 

What many investors failed to take notice of was the fact that a great deal of political risk was being priced in. It took the Hillary Clinton loss to really drive that fact home.

In fact, when Clinton lost the election, biotech stocks ran from $270 lows back to $295.

Gone, were the fears of legislation that would rein in high drug costs.

Gone, were the fears that he biotech boom was over.

Excessive sector fear morphed into excessive greed.  Everywhere you looked was another biotech winner.

That is, until the morning of December 7, 2016.

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“I’m going to bring down drug prices,” Donald Trump told Time magazine.  “I don’t like what has happened with drug prices.”

Those 16 words were enough to pull the IBB down 2% that morning.

While the Time story did not provide any additional information about how Trump may rein in high drug prices, he was critical and proposed that Medicare be allowed to negotiate drug prices, and noted that drugs could also be imported from abroad.

However, while it’s a near-term negative, the long-term trajectory for biotech is up.

For one, the multiple catalysts are still firmly in place.

We have 80 million retiring baby boomers, newly insured Americans, new innovation, heavy demand, and explosive M&A activity that is not likely to disappear.

Most of all, even if new legislation were passed, it could take years for pricing changes and regulation to kick in.  We also have to remember that pricing concerns are not new.

At this point, it’s a wait-and-see.

While biotech may pull back near-term on this shock, the long-term growth story is still firmly intact.  Trade accordingly.