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Trump Tweet on Drug Pricing Hits Biotech and Pharma ETFs
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The pharma and biotech industry has been hit badly by concerns over high drug prices in the past few years. The initial panic was triggered in September 2015 when the Democratic presidential candidate Hillary Clinton tweeted about "price gouging" and laid out a proposal for combating skyrocketing drug prices. Her tweet eroded about $40 billion in market value in a single trading session (read: How Hillary Clinton Crushed Biotech ETFs with One Tweet).
In an action replay, President Donald Trump’s March 7 tweet on increasing competition and lowering drug prices sent fresh shockwaves across the industry. Trump tweeted: I am working on a new system where there will be competition in the Drug Industry. Pricing for the American people will come way down!
This is not the first time that Trump has criticized drugmakers for high prices. In late January, before his inauguration, Trump said drugmakers are "getting away with murder" by charging too much for their products. As Americans consume the maximum amount of pharmaceutical drugs in the world, Trump pledged to initiate a bidding process for drug prices. This move had wiped out about $25 billion in value from the nine biggest pharmaceutical companies of the S&P 500 on that single day (read: Trump Attacks Biotech & Pharma: ETFs Bleed).
Further, the drug pricing tweet came a day after Republicans unveiled their long-awaited bill to repeal and replace the Affordable Care Act.
Market Reactions
Following the tweet, the biotech and pharma space turned red in yesterday’s trading session. The ultra-popular biotech ETF iShares Nasdaq Biotechnology ETF (IBB - Free Report) shed 1.6% at the close while ALPS Medical Breakthroughs ETF SBIOand BioShares Biotechnology Clinical Trials Fund (BBC - Free Report) were the biggest laggards in the biotech sector, tumbling more than 2% at the close.
Pharma ETF - VanEck Vectors Generic Drugs ETF GNRX- grabbed eyeballs with 1.7% decline while the popular SPDR S&P Pharmaceuticals ETF XPH, VanEck Vectors Pharmaceutical ETF PPHandPowerShares Dynamic Pharmaceuticals Fund PJPlost nearly 1%.
Coming to drug manufacturers, the biggest loser was specialty drug firm Supernus Pharmaceuticals (SUPN - Free Report) , which lost 11.3% on the day followed by Ionis Pharmaceuticals Inc.’s (IONS - Free Report) declines of 7.3%.Valeant Pharmaceuticals International and Endo International plc lost 5.6% and 4.4%, respectively. Among other notable players, Johnson & Johnson (JNJ - Free Report) managed to stand out and added 0.1% at the close. However, Pfizer (PFE - Free Report) , Novartis (NVS - Free Report) , Bristol-Myers Squibb Company (BMY - Free Report) , Eli Lilly and Company (LLY - Free Report) , Allegan were all down more than 1% (see: all the Health care ETFs here).
What’s Ahead?
Despite the slide, the outlook for the sector looks promising. Biotech ETFs and pharma ETFs are still up so far this year given that IBB and XPH gained 11.2% and 5.3%, respectively, in the same time frame.
The sector has impressed investors with solid Q4 earnings results and has been benefiting from encouraging trends. Some of these include hopes of increased M&A activity, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, growing middle class, an insatiable demand for new drugs, and ever-increasing health care spending. Further, the steep decline in stock prices over the past few years has made these stocks and ETFs cheaper and tempting for investors.
If these were not enough, Trump’s slew of actions on reducing federal regulations by 75–80% and streamlining the Food & Drug Administration (FDA) approval process, will make it potentially easier for biotech and pharma companies to bring new products to the market. Trump’s proposed tax reforms and cash repatriation policy will also provide some strength (read: Hit ETFs & Stocks from the Top Sector of February).
Further, the ETFs in the industry have a favorable Zacks Rank of 3 or ‘Hold’ rating, suggesting room for upside in the coming months.
Given the solid outlook but somewhat bearish near-term sentiments, investors may want to consider staying on the sidelines for the time being. However, risk-tolerant long-term investors may want to consider this recent slump a buying opportunity, should they have the patience for extreme volatility.
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Trump Tweet on Drug Pricing Hits Biotech and Pharma ETFs
The pharma and biotech industry has been hit badly by concerns over high drug prices in the past few years. The initial panic was triggered in September 2015 when the Democratic presidential candidate Hillary Clinton tweeted about "price gouging" and laid out a proposal for combating skyrocketing drug prices. Her tweet eroded about $40 billion in market value in a single trading session (read: How Hillary Clinton Crushed Biotech ETFs with One Tweet).
In an action replay, President Donald Trump’s March 7 tweet on increasing competition and lowering drug prices sent fresh shockwaves across the industry. Trump tweeted: I am working on a new system where there will be competition in the Drug Industry. Pricing for the American people will come way down!
This is not the first time that Trump has criticized drugmakers for high prices. In late January, before his inauguration, Trump said drugmakers are "getting away with murder" by charging too much for their products. As Americans consume the maximum amount of pharmaceutical drugs in the world, Trump pledged to initiate a bidding process for drug prices. This move had wiped out about $25 billion in value from the nine biggest pharmaceutical companies of the S&P 500 on that single day (read: Trump Attacks Biotech & Pharma: ETFs Bleed).
Further, the drug pricing tweet came a day after Republicans unveiled their long-awaited bill to repeal and replace the Affordable Care Act.
Market Reactions
Following the tweet, the biotech and pharma space turned red in yesterday’s trading session. The ultra-popular biotech ETF iShares Nasdaq Biotechnology ETF (IBB - Free Report) shed 1.6% at the close while ALPS Medical Breakthroughs ETF SBIO and BioShares Biotechnology Clinical Trials Fund (BBC - Free Report) were the biggest laggards in the biotech sector, tumbling more than 2% at the close.
Pharma ETF - VanEck Vectors Generic Drugs ETF GNRX- grabbed eyeballs with 1.7% decline while the popular SPDR S&P Pharmaceuticals ETF XPH, VanEck Vectors Pharmaceutical ETF PPH andPowerShares Dynamic Pharmaceuticals Fund PJP lost nearly 1%.
Coming to drug manufacturers, the biggest loser was specialty drug firm Supernus Pharmaceuticals (SUPN - Free Report) , which lost 11.3% on the day followed by Ionis Pharmaceuticals Inc.’s (IONS - Free Report) declines of 7.3%.Valeant Pharmaceuticals International and Endo International plc lost 5.6% and 4.4%, respectively. Among other notable players, Johnson & Johnson (JNJ - Free Report) managed to stand out and added 0.1% at the close. However, Pfizer (PFE - Free Report) , Novartis (NVS - Free Report) , Bristol-Myers Squibb Company (BMY - Free Report) , Eli Lilly and Company (LLY - Free Report) , Allegan were all down more than 1% (see: all the Health care ETFs here).
What’s Ahead?
Despite the slide, the outlook for the sector looks promising. Biotech ETFs and pharma ETFs are still up so far this year given that IBB and XPH gained 11.2% and 5.3%, respectively, in the same time frame.
The sector has impressed investors with solid Q4 earnings results and has been benefiting from encouraging trends. Some of these include hopes of increased M&A activity, an accelerated pace of innovation, promising drug launches, growing importance of biosimilars, cost-cutting efforts, an aging population, expanding insurance coverage, growing middle class, an insatiable demand for new drugs, and ever-increasing health care spending. Further, the steep decline in stock prices over the past few years has made these stocks and ETFs cheaper and tempting for investors.
If these were not enough, Trump’s slew of actions on reducing federal regulations by 75–80% and streamlining the Food & Drug Administration (FDA) approval process, will make it potentially easier for biotech and pharma companies to bring new products to the market. Trump’s proposed tax reforms and cash repatriation policy will also provide some strength (read: Hit ETFs & Stocks from the Top Sector of February).
Further, the ETFs in the industry have a favorable Zacks Rank of 3 or ‘Hold’ rating, suggesting room for upside in the coming months.
Given the solid outlook but somewhat bearish near-term sentiments, investors may want to consider staying on the sidelines for the time being. However, risk-tolerant long-term investors may want to consider this recent slump a buying opportunity, should they have the patience for extreme volatility.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>