US biotechnology stocks have surrendered much of the gains accrued in the wake of last month’s presidential election after comments from Donald Trump stoked concerns that the incoming administration will crack down on rising drug prices.
The Nasdaq biotechnology index has skidded almost 4 per cent from Tuesday’s closing level after the president-elect told Time Magazine that he does not “like what has happened with drug prices” and vowed to bring them down.
The fall has cut the index’s rise since election day to only 1 per cent, down from a peak of almost 12 per cent. The broader Nasdaq Composite has climbed 4.2 per cent to a new record high in that time.
Mr Trump’s remarks have raised the spectre of heightened US regulation to curb the rising price of treatments. Hillary Clinton, Mr Trump’s opponent in the election, had admonished pharmaceutical groups for what she claimed is profiteering at the expense of taxpayers and patients.
After the property developer’s unexpected win, some analysts had projected that the billionaire businessman, who has frequently argued that regulations were a drag on corporate America and the broader economy, will take a more lenient approach than his opponent would have.
“There was a false sense of optimism that a Trump victory would magically make the pressure on drug companies to contain prices would go away,” said Alan Gayle, director of asset allocation at RidgeWorth Investments. “Investors like to put issues in a black or white light and in this case that was mistaken.
Jeffrey Loo, a healthcare analyst at CFRA Research, said that while Mr Trump had made negative comments about drug prices on the campaign trail, his pointed words were “somewhat of a surprise” to investors who have been trying to determine “how aggressively he will pursue” regulations to tame the increase.
Mr Loo said that the knee-jerk response represented an “overreaction”, partially because he reckons that even if Mr Trump planned fresh regulations, he would probably face opposition in a Republican-controlled Congress.
However, the broader healthcare sector may face more acute pressure from Mr Trump’s policies, particularly his objection to the Affordable Care Act, the controversial law that set up a marketplace for health insurance and requires Americans to be insured or face a tax penalty.
The ACA, or Obamacare as it is often called, has been a significant boon to healthcare groups, particularly hospitals, since it has lifted the ranks of insured Americans by some 20m people.
The S&P 500 healthcare sector has fallen by 1.1 per cent since election day, trailing the broader benchmark that has risen by 4.8 per cent over the same timeframe.
“Healthcare is the one sector that might not benefit from the deregulation theme, so it is the odd group out and the Trump comments did not help,” said Dennis DeBusschere, head of portfolio strategy at Evercore ISI.
Fitch Ratings echoed that sentiment in a report this week, warning that “uncertainty and turmoil have been persistent throughout the ACA’s nearly seven-year history, and the industry is in for more of the same in 2017”.
“Healthcare providers, specifically acute care hospital companies, have the most to lose if the ACA insurance expansion is gutted because it has resulted in more paying customers for the sector,” the rating agency noted.
Healthcare “investors are going to be in for a rollercoaster ride”, Mr Loo said.