Watch Out Biotech Investors: Outrage Culture + Election Season = Ugly Rhetoric Ahead

• While shares of Biogen Inc BIIB, Mallinckrodt PLC MNK and Pernix Therapeutics Holdings Inc PTX have lost YTD, shares of Teva Pharmaceutical Industries Ltd (ADR) TEVA have risen.
• Oppenheimer’s Akiva Felt has Outperform ratings on Mallinckrodt, Teva and Pernix, and a Perform rating on Biogen.
• There could be increased controls on drug pricing, driven by the upcoming election season, Felt said.

Analyst Akiva Felt mentioned that drug pricing has been “the lurking Achilles heel” during the bull run in the sector through 2013-2015. He added, “We think drug pricing is the one risk factor that generalist investors (where fund flows had been propping up the sector) can easily comprehend.”

Although investors were quick to dismiss concerns related to the congressional inquiries into Hepatitis C drug pricing last year, the upcoming election season could bring “renewed, consistent focus” on the escalating drug prices. Felt believes this could exert pressure on the sector’s near-term performance, irrespective of the eventual outcome.

In the report Oppenheimer noted, “Multiple front-page stories on Reddit.com last week focused on the pharma industry which provide very meaningful insight into the current societal mentality on the pharmaceutical industry. Spoiler alert: it's not pretty.”

Felt cautioned against “dismissing the "outrage culture" as extreme or uninformed,” especially when this could draw attention from “political hopefuls.” While arguments against high drug pricing are easy to understand, those supporting market-driven pricing are complex. “This is self-explanatory, in our view, but should not be overlooked in an election season,” the report added.

Efforts to increase controls on drug pricing may be seen, given “how easy it is to rally voter support for new, easy-to-comprehend policies,” Felt wrote, while adding, “Drug pricing is looking increasingly like low-hanging fruit.”

Companies under Oppenheimer’s coverage that have appreciated significantly and/or may be included in discussions on drug pricing include Biogen, Mallinckrodt, Teva and Pernix Therapeutics.