IBB: Proposed Self-Regulation On Drug Price Increases May Be A Tailwind For 2017

January 13, 2017

Published by Seeking Alpha 11JAN17

Due to copyright agreement with Seeking Alpha - Post is limited to the first paragraph with corresponding hyperlink below: 

http://seekingalpha.com/article/4035995-ibb-proposed-self-regulation-drug-price-increases-may-tailwind-2017 

 

Summary

 

Allergan CEO Brent Saunders has led the charge in the proposed self-regulation of drug price increases, vowing to limit drug price increases.

 

Novo Nordisk fell in-line with a similar commitment: “This has become a responsibility that needs to be shared among all those involved in healthcare."

 

Johnson & Johnson announced it will publish a report on drug price increases in the U.S. next month, saying the company is a “responsible actor in healthcare.”.

 

Will the confluence of the new administration, potential merger and acquisition activity, and proposed self-regulation be the answer for the biotech cohort?

 

IBB sold off by more than 20% in 2016 and 40% from its 2015 highs of around $400 per share. 2017 appears to be a much more favorable environment for IBB.

 

Will the proposed self-regulation with regard to future drug price hikes be the right prescription for the healthcare cohort? The political uncertainty has abated in terms of which political agenda we'll be faced with in the White House. With a perceived pro-industry administration, potential merger and acquisition activity may heat up and serve as a tailwind due to chronically depressed valuations as a result of the 2016 biotech sell-off. Much of this sell-off was due to the public and political distaste for surging drug prices on a whole while singling out a few bad actors in the process.

The biotech cohort saw a very tumultuous 2016 as the political backdrop, drug pricing debate and presidential election grabbed the spotlight. Biotech stocks were volatile to any news that would have a potential impact on the cohort. Since Donald Trump voiced his concerns over drug pricing during his interview with Time, the initial rally in biotech has largely eroded to pre-election levels.

The iShares Nasdaq Biotechnology Index (NASDAQ:IBB) traded in a wide range throughout 2016 with pronounced volatility throughout the presidential election cycle logging a range of ~$240 to $344 or a 104-point range (Figure 1). Will the confluence of the new administration, potential merger and acquisition activity and proposed self-regulation be the answer for the biotech cohort?

 

 

 

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