Biotech stocks and exchange-traded funds (ETFs) including iShares Nasdaq Biotechnology Index (ETF) (NASDAQ:IBB) and SPDR S&P Biotech (ETF) (NYSEARCA:XBI) dropped like a rock today in the wake of President-elect Donald Trump’s comments about drug prices during a scheduled press conference.
“There’s very little bidding on drugs,” Trump said. “We’re the largest buyer of drugs in the world. And yet we don’t bid properly. We’re going to start bidding.”
The IBB and XBI were off about 4% each, while the leveraged Direxion Daily S&P Biotech Bear 3x Shares (NYSEARCA:LABD) jumped a whopping 13%.
But it wasn’t just biotech stocks getting creamed. Even Big Pharma took a shot, illustrated by the 3%-plus fall in the iShares U.S. Pharmaceuticals ETF (NYSEARCA:IHE), which holds the likes of Pfizer Inc. (NYSE:PFE) and Eli Lilly and Co (NYSE:LLY), which were down substantially.
All of this is opportunity knocking loudly at your door.
Allowing federal programs (specifically Medicare) to negotiate drug prices is an idea heavily favored not by Republicans, but by the party across the aisle from Trump. President Barack Obama stumped for this numerous times during his two terms.
The risk? Without a plan to replace the Affordable Care Act, Republicans could lean on this pillar to help defray some of the collateral damage done by yanking healthcare away from millions of Americans.
But I think it’s a risk worth taking.
As Vox points out, a heavy pharmaceutical lobby has mostly helped to keep at bay any sort of reform on this front. That’s likely not going to change when Washington shifts from blue rule to red. In fact, pharma could hold even more sway. Wrote Politico’s Paul Demko and Sarah Karlin in 2015:
“In the 2012 election cycle, more than 60 percent of PhRMA’s spending went toward Republican candidates, compared to 25 percent of contributions to Democrats, according to the Center for Responsive Politics.”
Don’t buy into the panic. While going after drugmakers on pricing is a popular refrain, to date, there’s been a great deal of bluster but very little substance, outside of a couple Congressional ruckuses to appease an angry public. But everything has been done on a single-company basis … not wholesale reform.
The likes of IBB and XBI remain well below their frothy 2015 highs, and have been rangebound for at least a year after working off those overbought levels. The water is certainly murky now, but when it clears, biotech stocks will enjoy a natural lift once more.
Kyle Woodley is the Managing Editor of InvestorPlace.com. As of this writing, he was long XBI. Follow him on Twitter at @KyleWoodley.
