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Biotech Stocks Fall As Clinton Tweets On 'Price Gouging'

Biotech stocks tumbled Monday after presidential candidate Hillary Clinton said she would propose a plan to address high drug prices on Tuesday.

"Price gouging like this in the specialty drug market is outrageous," Clinton wrote on her Twitter account Monday morning. "Tomorrow I'll lay out a plan to take it on." Clinton linked to a New York Times article about Daraprim, a drug whose price was hiked more than 50-fold after it was acquired by privately held Turing Pharmaceuticals.

RBC Capital Markets analyst Michael Yee wrote in a note that among other reasons for biotechs' rough Monday was confirmation of another progressive multifocal leukoencephalopathy (PML) case associated with Biogen's (BIIB) multiple-sclerosis franchise. Also, he said biotechs have been trading inversely to crude prices, which jumped Monday.

Biotechs Lead Drug Sell-Off

The iShares Nasdaq Biotech ETF (IBB) fell 4.5% Monday. Biogen stock skidded 5.6%. Gilead Sciences (GILD), which started the day up slightly after reporting good drug trial news, lost 2.5%.

Regeneron (REGN) fell 3.8% and Amgen (AMGN) 2.3%. Regeneron — with partner Sanofi (SNY) — and Amgen recently won separate approvals for a new class of cholesterol fighters.

Leaders in other drug groups also fell. Allergan (AGN) sank 3.2% and Valeant Pharmaceuticals (VRX), whose drug-pricing policy has drawn criticism, retreated 5.4%.

Politicians have been criticizing drug costs for years, but prices have kept going up, especially in the specialty drug segment, i.e., drugs prescribed by specialists instead of primary-care doctors. Gilead's Sovaldi was a target of such criticism in March 2014 after the company priced it at $84,000 for a 12-week round.

"I have written extensively about the specialty-drug segment, which accounts for 1% of prescriptions in the U.S., but 31% of the dollar spend vs. 18% four years ago," Leonard Yaffe, who manages a health care hedge fund at Kessel Capital Management, wrote in an email. "Given the dramatic rise in spending for these drugs (averaging about 20% annually over the past decade), and their annual cost often in excess of $50,000 per year, they represent an easy target for criticism.

Clinton Impact Seen Limited

Ultimately though, the political furor over Sovaldi didn't lead to actual legislation. It wasn't the government that drove down Sovaldi's price but the competition. After AbbVie (ABBV) unveiled a rival regimen in December, the companies got into a rebate war.

So can Clinton really make a difference? Terry Haines, Evercore ISI's D.C. policy analyst and a former Washington lobbyist, finds it unlikely.

"Even if a Democratic president is assumed, a 2017 Congress almost certainly would not approve drug pricing regulation legislation," Haines wrote in a note to clients.

Still, it wasn't what drug stocks needed as they struggle to recover. IBD's Medical-Biotech group dived 26% from its July 20 high to the Aug. 24 low amid broader macroeconomic and valuation concerns. Analyst Yee wrote that this could continue in the current environment.

"We warn investors to prepare for this drug-pricing volatility and noise as we go into 2016 and we have said that drug-pricing noise could turn up in 2016 due to the election year," he wrote.