US Biotech Stocks Fall in Reaction to Clinton Announcement

At an Iowa campaign stop on Tuesday, United States presidential candidate Hillary Clinton outlined a plan that if enacted would cap out of pocket prices on prescription drugs at $250 per month. The plan was proposed on the heels of a recent controversy regarding Turing Pharmaceutical AG’s acquisition of exclusive manufacturing rights to the toxoplasmosis drug Daraprim. The firm’s increase of the price per pill from $13.50 to $750 has drawn sharp criticism, as well as calls for a general review of the pharmaceutical industry in the US.

Mrs. Clinton’s plan did not stop at price caps on medication. She has also suggested that pharmaceutical companies be required by law to spend a certain amount, as yet unspecified, of their annual earnings on research and development, a move which directly targets firms such as Turing which acquire right to existing medications. Furthermore, the Democratic front runner has proposed that advertising spending for drug companies no longer be counted as a business expense with regards to taxation. This would cost the American pharmaceutical industry billions of dollars in additional taxes over the next several years, many analysts say.

Despite the fact that Mrs. Clinton currently holds no office and could therefore only enact such reforms if elected president, response from investors has been sharp and overwhelmingly negative. After her initial comments on Monday, biotech and pharmaceutical stocks on the NASDAQ exchange lost nearly $40 billion in equity, with some firms losing as much as 10% of their total share price. Tuesday proved similarly challenging for the industry, as drops continued early in the day before eventually experiencing a slight reversal shortly before close.

Amid this market volatility, much criticism has been leveled at Mrs. Clinton for proposing a plan that would not only increase government control over private business, but also harm the pharmaceutical industry at large. Many representatives of the biotech industry have suggested that the increased costs and decreased profits that would occur if the Clinton plan were to be enacted would make it difficult for medical innovation and research to continue at its current rate. Many, including PhRMA president John Castellani, have suggested that the plan would also ultimately reduce the availability of treatment to patients.

Most analysts caution against sudden selloffs of biotech stocks, on the basis that while the enactment of this plan would be disastrous for the pharmaceutical industry, it is very unlikely to ever become law. To begin with, any forward motion on this proposal requires Mrs. Clinton to win the White House in 2016. It also would require a Congress willing to pass such measures into law. At present, the US Congress is controlled by Mrs. Clinton’s opposition in the Republican Party, which has been outspoken against further intrusion of the government into medical industries.