2 Pharma Stocks To Hide In While Drug Pricing Fears Play Out

Stock price performances within the pharmaceutical sector are being driven by "fear," and not fundamentals, according to Liav Abraham of Citi.

In a report published Monday, Abraham commented that while there is "little that can be done" on the regulatory front to impose limitations on pharmaceutical and drug pricing, recent headlines and a subpoena received by Valeant Pharmaceuticals Intl Inc VRX from the Democratic members of the House Committee on Oversight and Government Reform is "unhelpful" to investors sentiments.

Pricing

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"As drug pricing regulation is likely to require bipartisan support in Congress, we place a very low likelihood on implementation of any material reforms, however acknowledge that pricing is likely to come under increased scrutiny over the near to medium term, and egregious price increases on select specialty pharmaceutical drugs (such as Turing's Daraprim) are unlikely to be tolerated," Abraham wrote.

Where To Look

Finally, Abraham suggested that investors buy names with greater diversification and innovation that are not reliant on pricing as a sustainable driver of top-line growth. The analyst named Allergan and Teva Pharmaceutical as her top two "preferred names."

Shares of Allergan remain Buy rated with an unchanged $360 price target.

Shares of Teva Pharmaceutical remains Buy rated with an unchanged $86 price target.