There are rough waters ahead for pharmaceutical stocks as the industry has fallen under heavy fire for its drug-pricing tactics. Not only that, but the Trump administration and its trade policies have the potential to shake things up for drug makers whose profits come from other countries. Add those new threats to an already competitive environment where patent battles dictate whether a company will be profitable, and you have a very unstable industry.
With several unknowns causing traders to shy away from the sector, there are many deals to be had. However, some firms are up against too many obstacles to be considered good investments.
Acorda Therapeutics Inc (NASDAQ:ACOR), Express Scripts Holding Company (NASDAQ:ESRX) and Illumina, Inc. (NASDAQ:ILMN) are three such stocks that are all likely to feel the pressure in the coming months.
Risk and uncertainty can sometimes unlock major deals for investors who are willing to take the plunge, but in this case, the chance of getting a substantial reward any time soon is very slim.
Pharmaceutical Stocks to Sell: Acorda Therapeutics Inc (ACOR)
ACOR stock has fallen 40% over the past month. While that may sound like it has created a bargain to some, investors should be wary of the firm until its patent battle over a generic version of its drug Ampyra is over.
Acorda’s multiple sclerosis drug Ampyra will face harsh competition in the coming year from generics due to the courts’ decision to invalidate the patents covering the drug. That’s a big deal because Ampyra sales are the bread and butter of ACOR’s business.
At the moment, Acorda stock is trading at just over $16 per share because investors are worried about where the firm is headed. Acorda is going to challenge the patent decision, but that could take months. As far as new drugs, ACOR does have a Parkinson’s drug, but approval from the Food and Drug Administration to get the drug on the shelves is unlikely before 2018.
The company could overcome this by winning an appeal or successfully getting its Parkinson’s drug to market, but both of those outcomes require time that Acorda may not have. Some are worried that reduced revenue from Ampyra will create a cash flow problem for ACOR, which could hurt shareholders.
Pharmaceutical Stocks to Sell: Express Scripts Holding Company (ESRX)
ESRX stock has been on a rollercoaster ride over the past year as the pharmaceutical industry took the spotlight during the presidential race.
While Republicans and Democrats don’t agree on much, both sides of the aisle agreed that drug prices in the U.S. are getting out of hand. While there are many different reasons for the sometimes outrageous price hikes, companies like ESRX will probably be the ones that pay the price in Washington.
Express Scripts is a pharmacy benefit manager and as such, the firm has a great deal of control over the prescription drug industry. Insurers use ESRX to negotiate drug prices with companies and determine which treatments will be covered under their plans. That means that Express Scripts is a very easy target in the battle to lower drug prices.
It’s unclear exactly how Trump and his administration plan to tackle drug prices in the U.S., but it’s certainly a likely scenario that they go after middle-men like ESRX. For that reason, Express Scripts is an extremely risky play until the sector settles and lawmakers have decided how to handle the drug price problem.
Pharmaceutical Stocks to Sell: Illumina, Inc. (ILMN)
So far this year ILMN stock has risen more than 40% in large part because the firm’s genomic-sequencing technology is pretty amazing. It’s NovaSeq system was met with a lot of enthusiasm as the system has been well received and is expected to help the firm gain marketshare due to the cost savings and flexibility that it offers ILMN customers.
However, investors should keep in mind that ILMN is still very vulnerable to President Trump’s protectionism policies and the firm will find itself in rough seas should things go south between the U.S. and China. For now, Trump and his Chinese counterpart Xi Jinping are playing nice. However with trouble in North Korea and a rift with Russia on the cards, things may not remain placid for the next four years.
Investors should keep in mind that a huge chunk of ILMN’s revenue comes from Asia, and that a lot of the company’s growth potential is heavily dependent on the U.S. and China maintaining a trade relationship. For now, ILMN’s 40% gain may be all investors see until the United States’ foreign policies become more clear.
As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.