Both candidates have pledged to bring down the cost of drugs, which could hit some pharmaceutical stocks and benefit others. Trump has also pledged to remove barriers to medical imports, potentially benefiting foreign (ie, non-US pharma companies), but this remains up for debate – both candidates are pledged to tackle price gouging, it would seem.

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For example, pharma stocks were hit in late august on comments from Clinton.

Specifically referencing Mylan (MYL) raising the cost of allergy treatment EpiPens, she promised a clampdown on excessive charges:

“It’s wrong when drug companies put profits ahead of patients, raising prices without justifying the value behind them.

That’s why I’ve put forward a plan ... to address exorbitant drug price hikes like these. As part of my plan, I’ve made clear that pharmaceutical manufacturers should be required to explain significant price increases, and prove that any additional costs are linked to additional patient benefits and better value. Since there is no apparent justification in this case, I am calling on Mylan to immediately reduce the price of EpiPens.”

Mylan has raised the price of EpiPens 17 times by a total of 548% and has subsequently reached a settlement with the Justice Department.

Biotechs such as Amgen (AMGN), Biogen (BIIB) and Celgene (CELG) are among those seen being most under pressure if Clinton does go after price gouging.

Hikma (HIK), Shire (SHP), AstraZeneca (AZN) and GlaxoSmithKline (GSK) all dropped as UK firms were caught in the mix.

In September 2015, biotech stocks tumbled after Clinton tweeted about "price gouging" in biotech drugs. Prices surged overnight to $750 from just $13.50 each for a drug called Daraprim.

US drug pricing is an issue but serious price gouging seems to be restricted to a few – Mylan and Valeant are among the offenders.

Solid European and UK pharma stocks with a strong pipeline shouldn’t be affected too badly. It’s interesting that shares in GSK and AstraZeneca have surged since last September, when the first attacks on gouging appeared. Indeed we can see something of a trans-Atlantic split for pharma stocks since last summer, although overall and longer term this is a sector that seems to know only way.

Longer term, with an ageing population and spending on the up, it’s hard to be overly bearish on innovative pharma stocks, even if there is some concern that some are overvalued and may be due a correction that the election could provide. Barack Obama’s reforms have driven growth in the sector, with the US now spending 18% of GDP on healthcare. Clinton plans to expand it, and Trump, even if he scraps Obamacare on day one, will be hard pressed to reduce overall spending on health.

US focus – Even with its recent troubles, Nasdaq data shows analyst firms making recommendations on MYL are all either buy or hold. Likewise AMGN. So while investors are rightly concerned about what the election will mean for these companies, analysts are more upbeat. We will see if any of these views are altered after the election when policy priorities will be clearer.

UK focus – Pharmaceuticals companies in the UK have also benefitted from their defensive nature since the Brexit vote in June 2016 and this has to be accounted for going forward.

GSK and AZN are among the top dividend paying stocks, with a yield around 5% that is pretty safe looking compared to peers. In a world of low and negative yielding bonds, these stocks always look appealing.

GSK - As of September 2016, the majority of broker notes said ‘buy’ or ‘hold’ for GSK (SocGen was sell and Exane BNP Paribas listed as ‘underperform’). Consensus target was about 1,800-1,900, around 10-15% above where it was trading as of September 22nd.

AZN - As of September 2016, the majority of broker notes said ‘buy’ or ‘hold’. Price targets ranged from 5,200 (a little above where the stock was on September 22nd) and 7,000, which would represent a near 40% increase from current levels.

SHP – Of the six brokers consulted, 5 said ‘buy’, with the other listed as ‘outperform’. Targets ranged from 5,500 to 6,600. The stock traded at a little below 5,200 on September 22nd.

Policy Overviews

Trump key point –

Remove barriers to entry into free markets for drug providers that offer safe, reliable and cheaper products. Congress will need the courage to step away from the special interests and do what is right for America. Though the pharmaceutical industry is in the private sector, drug companies provide a public service. Allowing consumers access to imported, safe and dependable drugs from overseas will bring more options to consumers.

  • This could be positive for certain non-US pharma stocks

Clinton key points -

  • Reduce the cost of prescription drugs. Prescription drug spending accelerated from 2.5 percent in 2013 to 12.6 percent in 2014. It’s no wonder that almost three-quarters of Americans believe prescription drug costs are unreasonable. Hillary believes we need to demand lower drug costs for hardworking families and seniors.
  • Protect consumers from unjustified prescription drug price increases from companies that market long-standing, life-saving treatments and face little or no competition.Hillary’s plan includes new enforcement tools that make drug alternatives available and increase competition, broaden emergency access to high-quality treatments from developed countries with strong safety standards, and hold drug companies accountable for unjustified price increases with new penalties.

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