Is Clinton Really Behind Biotech's Tumble?

This week biotech stocks took a nosedive shortly after Presidential Candidate Hillary Clinton tweeted that she plans to rewrite legislation at a federal level in order to keep drug prices from skyrocketing. She made good on her threats with a proposal to make prescription drug companies spend a portion of their revenue on new research. Clinton's remarks took the Nasdaq Biotechnology Index 4.4 percent lower on Monday and a further 1.7 percent on Tuesday, leaving investors to wonder why one woman's comments could be so costly. Valuation Stretched Sure, legislation plays a huge role in the biotech sector, especially when it comes to drug pricing; but with Mrs. Clinton still just one of the many Presidential hopefuls, Monday's tweet is a far cry from becoming a concrete law. However, markets took note of the comments and used them as an excuse to sell and take profits in a sector that has seen exponential growth over the past five years. While the remarks may not seem market-moving, many analysts believe that the biotech sector's high valuations made an eventual dip unavoidable. High Prices Really Are A Problem Clinton's remarks also drew attention to another problem plaguing the biotech sector, price increases. High prices can bring in big bucks for companies who offer specialized treatments, but they also open the door for competition. When one firm is able to corner the market with a ground breaking new treatment, investors can be sure that another biotech is working its way into that space with a cheaper offering. Not only that, but as healthcare prices rise to unmanageable levels, pressure from insurers and policy makers to reform the drug industry is likely to continue increasing.