Biotech & Pharma ETFs to Suffer in 2017 Too?
Be it Clinton or Trump, there seems to be no relief for biotech and pharma stocks and ETFs. Clinton’s presidential candidature had hammered the sapce as she was vehemently against the price gouging issue in the pharma sector (read: How Hillary Clinton Crushed Biotech ETFs with One Tweet).
While the space got a break from controversies post Trump’s win, albeit for a shorter period, it again succumbed to a fall on December 7 after he pledged to lower drug costs. iShares Nasdaq Biotechnology ETF IBB was off over 2.9% on December 7. SPDR S&P Pharmaceuticals ETF XPH lost over 2%.
Inside Painful Past ofBiotech & Pharma ETFs
The space has been under trouble since September 2015 following Clinton’s tweet about a 5,455% price hike (in about two months) of a drug called Daraprim, used to treat malaria and toxoplasmosis. This gigantic leap in pricing action was taken by a privately held biotech company Turing Pharmaceuticals. Later, EpiPen allergy shot maker Mylan NV and Valeant Pharmaceuticals also suffered public outrage over the price gouging issue (read: Biotech ETFs in Focus After Mylan's EpiPen Controversy).
As a result, biotech and pharma ETFs were crushed on election uncertainty since Clinton’s tweet in September 2015 with IBB and XPH losing about 22% and 32%, respectively (as of December 7, 2016). So far this year (as of December 7, 2016), XPH is off 24.7% and IBB has retreated 21.3%, respectively, triggering the question whether 2017 be another year of underperformance for the space.
Trump’s Step Toward Lowering Drug Prices
The space had a short peaceful period post election only to be at gunpoint all over again as Trump announced that he will cut down prescription drug prices. As per an article published on Bloomberg, “drug-company executives and industry observers have already said that Trump may scrutinize their prices as a populist issue.”
As per CNBC, Trump is in favor of reduced regulations and “prescription drugs are possibly the most regulated products in America.” Trump also commented that “renegotiating Medicare prices would save $300 billion a year as the government is the biggest purchaser of prescription drugs.” Plus, the possibility of a repeal of Obamacare in the Trump presidency may hurt drug companies.
Thanks to these uncertainties, most of the ETFs in the space were in the red. ALPS Medical Breakthroughs ETF SBIO, SPDR S&P Biotech ETF XBI and Loncar Cancer Immunotherapy ETF CNCR lost in the range of 4% to 4.2% (see all healthcare ETFs here).
What Lies Ahead?
Though it is too early to predict how harsh Trump will be to the sector, investors are likely to stay away from it for the coming few days. Investors should note that things are not too bad for the sector either as corporate tax reform and cash access may facilitate biotech stocks and ETFs in the Trump presidency.
In his campaign, Trump indicated that he will reduce corporate tax to 15% and provide a one-time repatriation holiday of 10%. This lower tax rate would do wonders for big biotech companies like Biogen which can see EPS rising by about 10%, as per an article published on barrons.com.
Smaller-cap biotech firms would be especially benefited as they are so cash-stripped that their present cash holdings can fund just 11 months of research, as per Reuters. This new-found source of cash would help several biotech companies to indulge in merger and acquisition activities (read: 5 Reasons to Buy 5 Low P/E Biotech ETFs).
Are There Any Healthcare ETF Survivors?
Amid all these upheavals, iShares U.S. Medical Devices ETF IHI (down just 0.2% on December 7) and SPDR S&P Health Care Equipment ETF XHE (up 0.1% on December 7) have managed to stay afloat. IHI and XHE are up 7.4% and 11.2%, respectively, so far this year (as of December 7) and may see relatively smooth trading ahead.
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ISHARES NDQ BIO (IBB): ETF Research Reports
LONCAR CANCER (CNCR): ETF Research Reports
ISHARS-US MED D (IHI): ETF Research Reports
SPDR-SP HC EQPT (XHE): ETF Research Reports
SPDR-SP PHARMA (XPH): ETF Research Reports
SPDR-SP BIOTECH (XBI): ETF Research Reports
ALPS-MED BRKTH (SBIO): ETF Research Reports
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