The post-election rebound in biotech and healthcare stocks has been running out of gas lately. On Wednesday it hit a wall.
Time published its Person of the Year cover story on President-Elect Donald Trump Wednesday morning, and it took just a few sentences late in a 6,000 word magazine article to put a big dent in biotech stocks:
He also suggests that some stock analysts may have misread his intentions. The value of biotechnology stocks, for example, which enjoy large profit margins under current law, rose 9% in the day after Trump’s election, a rally of relief that the price controls Clinton had proposed would not happen. But Trump says his goal has not wavered. “I’m going to bring down drug prices,” he says. “I don’t like what has happened with drug prices.”
Trump's remarks were a jarring contrast to his constant promises to repeal and replace the Affordable Care Act (Obamacare). That effort, if successful, could give drug companies a freer hand to maintain or continue increase pricing. Instead, Trump is saying that whatever the outcome of efforts to scuttle the existing legislation, drug prices are still in his cross-hairs.
The result was a steep drop in healthcare stocks Wednesday, chiefly in the biotech arena. The iShares Nasdaq Biotechnology ETF (IBB) fell almost 4% and the 12 worst-performing stocks in the S&P 500 were all in the healthcare sector, worst among them
The irony in Wednesday's developments came from the fact that the market had been full of cheerleaders for biotech and healthcare stocks since election day, largely because Trump was viewed as less interested in grappling with the industry's pricing power than his opponent Hillary Clinton.
It was Clinton who tweeted in September 2015 that "price gouging" in the specialty pharmaceuticals space needed to be addressed, prompting a big fall in a stock group that had been a home run for investors in the preceding years.
At last week's Forbes Healthcare Summit, Allergan CEO Brent Saunders warned that Trump's victory would not change the American public's frustration with consistently more expensive healthcare:
Let’s not fool ourselves. The outcome on November 8 didn’t change the fact that many Americans are angry about the rising cost of healthcare and their medicines. This anger will fuel the discussion about affordability well into the future.
Does A Trump Administration Equal Status Quo for Drug Pricing? Think Again
After Trump's Election Day victory, the IBB gained 9% on Nov. 9, sparking hope that another ascent for the volatile industry could be at hand. With Wednesday morning's slide, the group has surrendered all but a few points of its post-election advance. (See "The Great Donald Trump Trade: Biotech Stocks.")